Mobile Payment Systems Are Taking Over (Slowly)

mobile payments

First came the decline in online credit card payments. Then came the rise of mobile payments and ultimately, the existence of the mobile wallet.  Now, it’s only fitting to take a look at how those mobile payment systems are actually affecting commerce.

In any discussion of mobile wallets, you have to keep in mind that the infrastructure for implementing mobile payments has two sides:

  • First, there are systems for paying by mobile phone.  These use near field communication, or NFC, to let customers wave their mobile phones at designated payment terminals instead of swiping credit/debit cards.  At present, their implementation is specific to a particular company or retailer — meaning you can only use them for certain stores.
  • Second, there are payment-processing systems.  This is the back end of things.  Various start-ups have produced technologies that allow merchants to accept credit and debit card mobile payments without having to use traditional point-of-sale systems (which include the cash register, scanner, receipt printer, computer monitor, etc.)

Mashable reports that the first major use of mobile payments employing NFC technology may be at the 2012 London Olympics.  Right now, though, the system has been adopted by individual companies like Starbucks (to great success, in Starbucks’ case – more than 3 million people have used their mobile payment app since its debut in January).  Starbucks debuted the payment app and installed the complementary payment terminals at its stores, letting customers wave their phones instead of their credit cards for coffee.

Meanwhile, credit card companies themselves are also beginning to embrace NFC technology.  In a pilot program last year, Visa installed “payWave terminals” in select New York City subway stations.  Commuters could swipe their phones to pay their train fare directly, rather than having to whip out the actual credit/debit card — or that old standby, cash — to buy a subway card that would in turn need to be swiped.

When it comes to processing systems, the technologies being developed generally replace the register, not the credit card.  Businesses or individuals who sign up with Square, for instance, receive a free credit card reader that plugs into their iPhone, iPad, or Android, and with the complementary (and complimentary!) app, they’re able to start processing credit card payments through their phones/tablets.  They have to pay a 2.75% fee per transaction, but that’s the lone associated cost of the system.

Square also cuts out paper receipts, which has been credited with making these transactions just a little bit greener.  We’d venture to say that it’s the eliminating of registers, normal credit card machines, and printers that’s really making mobile payment a greener system — that’s a lot of future electronics garbage.

Of course, the emergence of new payment technology also brings up questions about security.  NFC payments take place in such a close range that traditional security obstructions — getting a hold of your credit card number from hacking a database, for example — pose less of a threat.  But no matter the system, there are a few main points for keeping credit card information secure during mobile transactions: the information should be sent directly to the seller without passing through a third-party service, and when being sent, the information should be encrypted.  Finally, for those using their phones as payment devices, they should store their credit card information on the phone itself, and never in the cloud.

For what it’s worth, many of the credit card point-of-sale systems we use today aren’t secure — and those are used millions of times a day.  While the rise of mobile payments will take place slowly, as the major credit card companies and behemoths like Google invest in the relevant technologies, it seems inevitable that we’ll one day be paying farmers at the local greenmarket with our mobile phones.