Mobile Payment Processing – What is It and How Does It Work?
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M-Commerce has arrived! It has taken roughly a decade to get familiar with the letter “e” appearing in front of the word “commerce”, but almost overnight, innovation has continued its momentum through the alphabet, reflecting the “mobile” nature of all that surrounds us, a society truly on the go. Advances in technology have typically taken twenty years, or about one generation, to become part of the mainstream. Textbooks will soon need to be rewritten on that score.
This era of globalization has made the world a smaller, more connected place as trade goods and people traverse borders like never before, and cell phones, once a genuine novelty, now total nearly five billion in number. Their “smart” cousins are now enabling global interconnectedness down to the individual level for both communications and commercial transactions. Mobile payment technology is now set to move into the hyper-growth phase of its development. If you tally, you may be left far, far behind!
Mobile Payments Are Now Reshaping Today’s Retail Payment Space
Mobile commerce (“m-commerce”) involves the use of mobile devices to pay for goods and services. It is be definition a subset of e-commerce, but technology in all things “electronic” is rapidly changing the payments landscape, and mobile applications, enabled by smart phones and “Near Field Technology” (“NFC”), are leading the rapid evolution that is all around us. Mobile credit card processing is now in demand.
In the United States alone, some 30% of all mobile phones, about 90 million, are Internet-enabled. This figure will approach 150 million by 2015, according to most studies, that could lead to retail sales well in excess of the conservative “119 billion” figure presented in the above diagram. Forecasts today are almost out of date the day they are published. The rush is on, but as with other technological advances, there is a variety of competing applications in the marketplace. Consolidations will come and go, weeding out the losers and favoring the winners.
Smart phones are programmed with an advanced operating system, which enables these devices to run complex Internet-based applications. The most common smart phone operating systems are: iOS (Apple); Android (Google); Blackberry OS; and Windows Mobile (Microsoft). Applications abound that literally convert your phone to your personal payment agent, capable of delivering encrypted electronic messages to willing merchant checkout stations. Merchants are now in the process of retrofitting out-of-date terminals with newer models that will accept “contactless payments”, the new term that encompasses mobile commerce using your smart phone.
A Host of New Technology Players are Reshaping the Future
The “Great Recession” may have slowed the effort down a bit, but technology-savvy companies are generating all sorts of devices to move mobile payments and mobile payment processing to the next level. Some have used “NFC” enabled phones or “fobs” to send radio signals when placed in front of a specially designed point-of-sale device to initiate a payment at a gas pump, for example. Others use SMS messages to achieve the same purpose, while other innovative web applications permit consumers and websites to complete payments directly from a mobile device.
“Square” is a hardware and software solution that allows users to convert their iPhones or Google Android enabled phones into a point-of-sale device. The credit card reader is a small cube that plugs into the audio jack of the phone, as depicted in the diagram above with an Amex card. Customers can sign for transactions on the phone’s touch screen, and the retailer can email the customer his or her receipt. This is but one example of how mobile payments will change our way of paying for things in years to come. The major card associations and PayPal are at the forefront of these changes.
Mobile Payments are More than Just Smart Phones
Before we get ahead of ourselves, we must remember that the field of mobile payments is broader than just what can be achieved with a smart phone. Consumers are only one half of the “mobile” equation. Merchants can also be mobile. In many cases, the term “wireless” has been used to add clarification. In this situation, the merchant has traveled to a remote location, but still needs to conduct business. Specially designed terminals will operate on batteries or from a car that will request a wireless authorization and print a receipt. Smart phones will soon enable this service using a “square” type device to read a card’s stripe, while a simple email receipt will complete the transaction.
The Mobile Revolution Will Create a New Marketing Platform for Merchants
Mobile technology will not stop with payments. Merchants will now have a new platform upon which to entice consumers to their respective storefronts. A typical scenario is depicted below, where a text message is used to alert the consumer of a sales opportunity. After the shoes were purchased in this example, a “25% off” coupon is texted to the customer, thereby encouraging further loyalty in the future.
Mobile Payment Processing is a Frontier Changing by the Nanosecond
As technology advances, mobile credit card processing will definitely follow. "What we're seeing is a generational change," said Jorge Fernandes, CEO of Mobibucks, a company that developed a product called the t-Wallet. The product is a secure virtual wallet that allows consumers to pay for purchases by accessing a prepaid cash account using their mobile phone numbers and a 4-digit PIN. "Finally we have a critical mass of consumers who don't care about wallets but would be lost without their mobile phones," Fernandes added.
MobilePaymentsGeek.com is here to keep you up to date with changes as they happen. Stay tuned for future developments!