Mobile payments have been gaining popularity with businesses and consumers.
Investopedia defines a mobile payment system as any method that utilizes a mobile device such as a cell phone or a tablet, to transfer money as payment for goods or services. Because payments are encrypted when they are transmitted, they are considered to have a higher level of security than traditional debit/credit transactions. Additionally, certain vendors allow users to load money into accounts, ensuring that the user never goes past their pre-defined budget for spending.
Understanding How Mobile Payment Systems Work
Everyone knows that if someone swipes your card in a machine and you sign off on the receipt, that amount leaves from your credit or debit value. But how does a mobile payment system work? There are no cards, and no swiping. The underlying technology that enables most mobile payment systems is Near-Field Communication (NFC) technology. As CNET states, when two NFC devices are within close proximity to one another, they can transfer data between them, including (but not limited to) transaction information.
A lesser-used method of mobile payments uses QR codes. The upside of QR codes is that they can store vastly more information, but for transaction information, this is usually not necessary. Most mobile payment solutions that offer QR codes as a payment option also provide the use of NFC as an alternative method. Some users consider Bluetooth as a viable transaction transmission method. However, NFC is far more secure since it requires both devices to have an unobstructed line of sight that is relatively small. Bluetooth’s long-range and its potential for hackers to break into it makes it a lousy choice for mobile transactions.
Do We NEED Mobile Transactions?
Like with any system, mobile payment is an option that a user can ascribe to. However, many people are seeing the benefits inherent in using mobile payments as their chosen payment system. The Federal Reserve mentions that in 2015, 39% of mobile users made a purchase using mobile payments. Today, that number is likely to be significantly higher. Mobile payments offer a handful of inherent benefits to the consumer. Among these include:
- Less Chance of Identity Theft: Mobile payments allow a user to forego handing out debit or credit cards, or even carrying them around.
- Better Cash Flow Tracking: With mobile wallet systems every cent that a user spends, the app can track. In this way, a user can potentially enforce budgets far more effectively than if they were depending on physically recording each transaction.
- Convenience: Most people already have their mobile devices in their hands when it comes time to pay a bill. There’s less effort involved in holding the phone close to another one to verify payments than rooting through a wallet to find the right card.
Each of these benefits contributes to why mobile payments as a system is becoming more accepted as the chosen method of payment.
The Slow Road to Adoption
Consumers in the US have been notoriously slow to adopt mobile payment, but that may come from what they expect from a retail payment experience. The future does seem bright though, as Accenture reports that 64% of consumers intend to utilize a mobile wallet in 2020. American buyers are very traditionalist in their ways, and it may be a while before everyone is using mobile wallets.
The road map that mobile wallets offer for the future sees the phasing out of cards in its entirety. Combining applications from banks that allow users to view all of their accounts simultaneously with more secure digital authentication methods makes the consideration of a physical card seem like a throwback. Allied Wallet mentions that in the future, thanks to the widespread popularity of social media platforms, social shopping might become a regular activity, with mobile payment systems offering the back end for transaction processing.
Mobile Payments as Emerging Technology
Mobile payments are a disruptive technology, but not in the sense of other technologies that turn the status quo on its head. Instead, mobile payments replace an accepted medium of exchange, in this case, hard currency, with another exchange – that of digital money. It’s direct competition for other disruptive technologies like blockchain. Will the disruptor eventually become the disrupted?
Paying for goods and services with a phone utilizes a tool that we all carry around with us and are always using. It saves us time in processing and helps us perform transactions easier. From both a consumer and business perspective, these things are benefits. If anything, the reason why mobile payments are thriving is that it makes it far easier for us to do the things we enjoy doing while spending less time contemplating how we’re spending our money.