Mobile Payment Systems

The below article was published in @QatarToday Magazine - Feb 2012 issue.

The mobile network is evolving at a lightning speed and will thrive over coming years. Recently, introduction of mobile payment systems (MPS) has gained momentum and a greater attention from telecoms and financial institutions. Mobile phones are looked upon as an appropriate medium for supplementing existing payments and settlement procedures.

The cashless society is coming: American consumers now carry more than 750 million credit cards, while paper currency production continues to decline.

The phrase “mobile payment system” can apply to various mechanisms for initiating and accepting transactions using a mobile device.

According to Forrester Research MPS can be divided into two categories: -

• Payment systems that utilize a mobile network to initiate or authorize a transaction.

• Contactless systems that use a mobile phone in lieu of a traditional credit card.

In other words, mobile payment systems apply to: -

• How consumers pay for goods

• How merchants can process transactions.

Lets us look at some of the emerging mobile payment systems in the market that allow accepting credit card payments on mobile: -

Square

Started By – the San Francisco-based mobile technology firm is a startup from Jack Dorsey of Twitter fame.

How does this work - Square enables users to accept credit and debit purchases by swiping cards through a small dongle that plugs into their iPhone, iPad or Android audio jack. The startup has already released software for iPhone and Andriod devices.

Fees - Square charges a fee of 2.75 % on each swiped transaction, no contracts, monthly fees or hidden costs. Users who select to enter credit card numbers manually must pay 3.5 % and 15 cents per transaction. Service will only deposit up to $1,000 per week into the merchant’s account, the rest is deposited in 30 days.

GoPayment

Started By - It is a partnership between popular iPhone accessory maker Mophie and Intuit. Intuit is the company that provides business and financial management solutions and the creator of QuickBooks, Quicken and TurboTax.

How does this work - the pocket-size GoPayment reader plugs into the audio jack of any supported smart phone or tablet and supports the iOS Android and BlackBerry operating systems. Users can swipe cards or manually enter card data. GoPayment processes and authorizes payments in seconds, and funds are then immediately deposited into the merchant’s business bank account. Its 4 million QuickBooks users can sync GoPayment transactions with the most recent versions of QuickBooks for PC and Mac

Fees – Merchants who process less than $1000 a month need to pay 2.7% rate to swiped transactions and a 3.7% rate to manual transactions. A high-volume option, priced at $12.95 a month charges a 1.7 % fee on swiped transactions and 2.7% on manual entries

There are a few more payment systems like Pay Anywhere and Verifone’s PAYware Mobile, which work on a similar mechanism of attaching a card reader to your mobile.

Contactless Payment Technology called Near Field Communication (NFC) enables mobile payments by tapping your phone on the payment machine.

Google Wallet is an app that uses Near Field Communication (NFC) to make secure paments by tapping the phone on any PayPass-enabled terminal. Google Wallet being an app can store credit cards, offers, loyalty cards and gift card. Mobile phones will automatically redeem offers and earn loyalty points when a customer taps the phone on a terminal.

In the Middle East region, NFC mobile payments have already been introduced in UAE following a collaboration agreement between Etisalat, MasterCard and Research in Motion. People can pay for their purchase of cinema tickets, and in the future metro tickets, just by tapping their phone at a payment terminal. Nokia has also introduced the NFC enabled phones in UAE for the users.

As with introduction of a new technology, there are security concerns that need to be addressed prior to its commercialization. Merchants that use a personal mobile device as part of accepting payments from customers may not have direct control on the security of the environment in which the device is used. Some merchants feel this is the most convenient way of receiving payments, while some customers feel this is very insecure; any merchant can attach a customized scanning device on their mobile to collect the card info.

London 2012 Olympics will be the first global event where mobile payment systems using NFC will be on display. It could take years before many other merchants adopt this payment mechanism and customers start getting comfortable to use it. You never know next time paying at the local grocery store or buying a coffee with a smart phone may be a regular thing.