The Technology Behind Mobile Payments

Payments On-the-Go

In 1999, Ericson and Telnor Mobile teamed up to provide consumers with the first form of mobile payment.

From there, smartphone and computing technology has grown at an exponential rate and the financial industry has been upended by disruptive innovations like cryptocurrencies. As a result, more people are foregoing cash and credit cards and turning to a wide variety of mobile payments to securely complete transactions.

In this article, we will take a closer look at some of the technology solutions behind mobile payments and highlight notable partnerships that are increasing the popularity and reach of mobile payment services.

Blockchain Technology

Nearly every industry from finance to data storage to the arts is grappling with how to modernize their processes and end user experience with blockchain technology.

Blockchain

Finance was one of the first industries to concretely implement blockchain technology, as the technology itself was developed as a way to support the cryptocurrency Bitcoin. Since then, many more cryptocurrencies have been created to compete with Bitcoin, and many other uses for blockchain technology have emerged.

Mobile payments is one of the most popular uses of blockchain technology so far because the decentralized nature of blockchains — the technology’s most differentiating feature — provides a nearly unbreakable layer of protection around every transaction.

Blockchain uses encryption technology and distributed ledgers to eliminate security risks and create a safe and secure system for financial exchanges.

Digital Wallets and POS Technologies

Apple Pay, Android Pay, Samsung Pay and other digital wallets are looking to create a cashless society where you can use your smartphone or smartwatch to make payments in stores.

These systems work by storing all of your financial information on your phone. When you want to make a purchase, you simply use your phone’s access controls — whether it be a password, fingerprint or facial recognition — to authorize a payment.

Digital wallets haven’t quite picked up steam and have a way to go before they can be called mainstream.

In 2016, 21.3% of Apple Pay customers use the app every chance they got, which was down from from 33% in 2015. Conversely, the number of people who rarely consider using Apple Pay despite the fact that it is on their phone rose from 23% to 34%.

Part of the problem has been that not all merchants accept these types of digital wallet payments, but that is changing.

In 2015, retailers became liable for fraudulent card purchases, which prompted retailers across the country to install new card readers that use EMV chips to process payments.

By installing the new readers and meeting compliance standards, retailers have increased protections for themselves and their customers. These new readers are also already equipped to process digital wallet payments, making this option more available than ever.

The advent of ecommerce revolutionized both the retail and payment industries. Click To Tweet

Now that chip readers are a part of our daily landscape, digital mobile payments via point-of-sale technologies may become increasingly convenient, and so, increasingly popular in brick-and-mortar retail locations.

Ingenico and Panasonic Partner to Push Mobile Payments Forward

Another indication that the digital wallet and POS transactions have not died out is the recent partnership between France’s Ingenico and Panasonic.

Ingenico is looking to be a leader when it comes to providing new ways to make digital payments in stores. In February, Panasonic’s first mobile point-of-sale solution, the Panasonic Toughpad FZ-G1, was released.

The solution is a device that wraps around the Panasonic Toughpad FZ-G1 tablet and can be equipped with a payment solution to enable service people to conduct mobile transactions in a variety of situations such as: breaking up cashier lines, taking restaurant orders and payments at a table, assisted selling in stores, in-flight purchases and field sales.

Online Payments

The advent of ecommerce revolutionized both the retail and payment industries.

Today, nearly every consumer in the US shops online with around 75% of them regularly making online purchases. In 2017, US online purchases totaled more than $5 Trillion, which is a 4.4% increase from 2016.

Such an increase represents a huge opportunity for online payment processors to earn a significant share of the market. The challenge is to win over users with secure, reliable and easy-to-use technology.

However, many customers shy away from entering their credit card information directly on a business’s website and feel safer going with a third-party payment processor like PayPal, Stipe and Amazon Pay.

PayPal Enters New Markets with Global Partnerships

In April of 2018, PayPal announced a new partnership with M-PESA, a mobile payment company that is widely used in Kenya.

This latest move will allow M-PESA customers to easily transfer money between accounts and buy and sell items all over the world. Users will have more power and flexibility when it comes to managing their money than ever before.

“PayPal’s collaboration with M-PESA is part of the company’s long-term strategy to enable e-commerce and democratize financial services on the African continent.”

– Efi Dahan, PayPal general manager for the Middle East, Africa and Russia.

Peer-to-Peer Payment Technology

Peer-to-peer (P2P) payments represent one of the fastest growing segments of mobile payment technology.

Cash and checks have become cumbersome in today’s mobile world. Instead, P2P users can easily transfer funds between individuals, usually in less than a day.

The quick and seamless exchange of money allows people to split dinner bills, pool money to purchase a gift or even make ongoing payments, all from their smartphone.

P2P providers like Venmo and Zelle are expected to acquire significantly more users while also increasing the overall volume of transactions in the coming years.

In 2018, this type of mobile payment is expected to increase by 55% to reach a total of $120.38 Billion in transactions.

The increasing popularity of P2P payment methods could spell more trouble for mobile digital wallets as they try to gain ground in the payment industry. Consumers view P2P programs as solving an existing problem, whereas most do not feel inconvenienced when using their credit or debit card at a point-of-sale.

Venmo and GrubHub Form a Partnership

Venmo has made it easy for friends to split a dinner bill in person, and now by partnering with GrubHub, it is also simple to split delivery costs when ordering in.

Users now can order take-out; have it delivered to their home and instantly divvy up the cost. It is a straightforward and secure way to exchange funds between individuals without having to worry about transfer fees and other barriers.

Looking to the Future

Currently, cryptocurrencies, blockchain technology and P2P payment technology offer the most room for growth in the mobile payments sector.

These solutions effectively use technology to solve longstanding problems and empower consumers.

While many have viewed the financial industry as a solid institution that was immune to innovation, technology has proven this assumption wrong and revealed that mobile payment technology has the ability to transform an entire industry.

The shift toward mobile payment technology signals a shining opportunity for consumers, as companies look for innovative ways to win customers over.

About the author

Toby is the founder and CEO of prooV, an entrepreneur and out-of-the-box thinker who is eager to lead the PoC revolution.