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Cache, Text or Direct Bill: The Truth About Mobile Payment Systems

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When it comes to paying for goods and services, the future is mobile.

Have you ever paid for goods or services using your smartphone? If you haven’t, chances are you may get your chance soon. One in 10 Americans have used SMS text message to make charitable donations, while one-third of American smartphone owners have used mobile Web payments to pay bills or check an account balance, according to The Pew Internet & American Life Project.

As an alternative payment option to old stand-bys like cash, check or credit, it is estimated that mobile payments will make up $670 billion in global transactions by 2015, according to a 2011 report released by Juniper Research.

As popular mobile payment options continue to emerge, people are becoming increasingly familiar with paying by smartphone. However, not all types of mobile payment are the same. Here we’ll take a look at this alternative payment type, the options available in the market and the differences between them.

Mobile Payment Systems

Mobile payment systems come in many forms including software applications, text message functions or handset capabilities. Overall, there are five key types of mobile payment systems:

  • Mobile at the Point of Sale
    Mobile at the point of sale is also known as “the mobile wallet.” This category includes payment systems that enable consumers to pay for purchases with a mobile device using “Tap n Go” or near field communications (NFC). With NFC smartphones and “Tap n Go,” devices establish radio communication with each other when brought into close proximity. Therefore, consumers use their mobile devices at the point of sale to pay or make use of a loyalty rewards program.

    The mobile payment system that has popularized using mobile devices at the point of sale is Google Wallet. With Google Wallet, consumers can store credit card and loyalty card information in a virtual wallet. When consumers are ready to complete the transaction, they do so with an NFC-enabled device at terminals that accept MasterCard PayPass transactions.

    Although the convenient option of making purchases both online and offline with Google Wallet sounds simple enough, there are some drawbacks, including limited availability on select Android smartphones and the fact that only a limited number of merchants offer MasterCard PayPass. Isis and Visa also offer mobile wallet payment options.

  • Mobile as the Point of Sale
    “Turn every smartphone into a cash register” is how mobile payment as the point of sale works. In this type of mobile payment, merchants make use of a mobile device to process credit or debit card payments.

    Popular mobile devices that have merchants processing transactions from anywhere and everywhere include Square, a mobile card reader that can be plugged into an accompanying iPhone, iPad or Android app. With a billing structure that features no monthly fees and low per-swipe fees instead, Square has gained a popular following among a wide array of industry merchants. Another company with popular device plug-ins for turning your smartphone into a cash register is Verifone.

  • Direct Carrier Billing
    The mobile payment system known as direct carrier billing gives a consumer the option of telling digital merchants to “put it on my bill.” So, when consumers purchase ringtones, games, or digital content with in app billing and the changes appear on the consumer’s bill, they are using direct carrier billing.

    This type of mobile payment system is by far the most widely used by consumers and digital merchants alike. Payment One, Zong, Boku and Mopay are among the major players providing direct carrier billing service.

  • Mobile Payment Platforms
    Although not as sexy as the other types of mobile payment systems, this catch-all category would not exist if not for the success of a little payment service known as PayPal. Mobile payment systems that fall in this category enable consumers to send payments to merchants or each other using a mobile device. The mobile device might be used at the point of sale, online or even facilitate a transfer via text message.

  • Closed Loop Payments
    Closed loop mobile payments are the latest version of the store credit card. One of the most well known and successful examples of a merchant building and releasing its own closed loop mobile payment system is Starbucks. The app previously known as Starbucks Card Mobile, now known as Starbucks for iPhone and Android, offers coffee lovers several features of convenience such as reloading a Starbucks Card and tracking a loyalty program account. For users, it means just scanning the bar code that comes up on their phone and taking their coffee to go.

    The system is called closed loop because it can only be used for transactions with the company for which it was designed.

Financial institutions, credit card companies, retailers, Internet and mobile communications companies, alongside telecommunication infrastructure and handset producers, are all working to make inroads in this lucrative industry.

Mobile Payment Data and Security Concerns

Although the number of consumers, retailers and third-party mobile payment providers continues to grow to meet the 141.1 million users already using alternative payment, users remain apprehensive about buying into the system.

For many, data security concerns are to blame for this pessimistic disposition. In a joint study conducted by Pew Research Center’s Internet & American Life Project and the Imagining the Internet Center at Elon University, 33 percent of the 1,012 opt-in online sample respondents agreed with the following statement:

“People will not trust the use of near-field communications devices and there will not be major conversion of money to an all-digital, all-the-time format…The security implications raise too many concerns among consumers about the safety of their money. Cash and credit cards will still be the dominant method of carrying out transactions in advanced countries.”

This suggests that it’s very likely that cash and credit will remain the dominant payment methods for quite some time. However, the number of mobile-only Internet users is projected to grow to 788 million by 2015, according to Cisco. That means that providing these users with mobile payment options that easily fit within their current Web browsing habits is likely to continue to expand the prevalence of mobile payment.

The Future Is Mobile

During the tsunami in Japan did you use your smartphone to make a charitable donation to the relief efforts via text message? Perhaps, you’ve downloaded your bank’s mobile app to review your account and pay bills, or have used the Starbucks app to purchase your morning coffee. If so, you’re not alone. And soon, you’ll have more company than ever.


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