The Efficiency of Mobile Payments

What are Mobile Payments?

Mobile payments are defined as transfers of funds using mobile telecommunications networks or diverse mobile devices in both the initiation and confirmation of the payment.

The location of the payer and the supporting infrastructure are not the key factors characterizing mobile payments. The payer may be on the move or at a Point of Sale (PoS). The payment may be processed by credit cards or by a prepaid wallet. Funds can be transferred and deducted from the prepaid amount or billed by the mobile network operator. Mobile payment solutions often add more value to the payment and bundle loyalty offers, advertising platforms, and other value-added services to the payment transaction.

Consumer use of mobile banking applications for mobile payment solutions is accelerating at a rapid pace. In the U.S., nearly one-third of people (31 percent) use mobile banking more than any other app on their smartphone. Only logging onto social media (55 percent) and checking the weather (33 percent) are more common mobile activities.

This is according to the 2018 Mobile Banking Study from Citi, which revealed that 46 percent of U.S. consumers have increased their use of mobile banking in the past year. Eight out of 10 people (81 percent) now use their phone to manage their money on nine days in every month, on average. Nine out of 10 mobile banking users (91 percent) said they preferred using apps over going into a branch, while 68 percent of millennials said they could see their smartphone replacing their physical wallet.

Consumers’ use of banking apps continues to increase, with usage increasing from 46% in 2015, to 63% in 2017. Most people use mobile banking apps to verify balances and transactions and transfer funds. Our study found consumers increasingly use banking apps to verify investments and contact customer service.

Mobile Payment Solutions are changing the way businesses operate and continue to shape how payments continue to evolve. With smartphones, consumers can perform almost any task, anytime, from anywhere. With the advent of banking apps and loyalty programs, financial institutions engage consumers through mobile device experiences.

Remote consumer-to-consumer mobile fund transfers include services to transfer money remotely from one account to another. These services can transfer money stored directly in bank accounts or in other virtual wallets. Remote business-to-consumer payments include mobile online payments and mobile banking.

Mobile online payments are payments initiated through the mobile device for purchasing goods delivered at a later moment or for paying for digital goods which become available immediately.

Mobile payment solutions often add more value to the payment and bundle loyalty offers, advertising platforms, and other value-added services to the payment transaction.

Mobile Payment Methods, Categories, and Examples

The methods cannot be categorized by the technology on which they are based since that technology is always evolving. They can be categorized by the parties involved in the payments. This can be businesses to consumers and consumers to other consumers.

One difference between mobile payment solutions and other payment methods is the location of the involved parties. The location of the payer and the supporting infrastructure are not the key factors characterizing mobile payments. The payer may be on the move or at a Point of Sale (PoS). The payment may be processed by credit cards or by a prepaid wallet. Funds can be transferred and deducted from the prepaid amount or billed by the mobile network operator. So in the case of mobile payments, they can be either transacted in proximity to each other or remotely.

Remote consumer-to-consumer mobile fund transfers include services to transfer money remotely from one account to another. These services can transfer money stored directly in bank accounts or in other virtual wallets. Remote business-to-consumer payments include mobile online payments and mobile banking.

Mobile Banking is an extension of online banking which the consumer uses to initiate a mobile banking payment which results in transactions carried out via the same payment instruments of online banking payments. Proximity consumer-to-consumer payments are payment methods for contactless transfer of funds which is possible only when the payer and the payee are close to each other.

Another group is the proximity business-to-consumer group which is the most interesting one from a business perspective because there are a lot of payment solutions in this group and they often bundle other services which add value.

One mobile payment solution deals with mobile devices – usually mobile phones – used by merchants as POS terminals. This is possible with dongles attached to Internet-connected smartphones which the merchants use for credit card payments. The consumer doesn‘t need a mobile device. He can just swipe his card into the dongle. This solution lowers the costs of the merchant because the mobile devices are usually much cheaper than terminals.

The other subgroup of proximity business-to-consumer payments are the contactless payments. They are possible only when the consumer uses a mobile device at the POS and holds it in proximity to the reader. There are different technologies enabling this type of payments.

Mobile Payment Processes

Mobile Payment: A payment, defined as a transfer of funds in return for goods or services, where the mobile device is involved in both the initiation and confirmation of the payment.

Mobile Authentication: The use of a mobile device to authenticate the user either as part of a payment transaction or to give access to some information or functionality.

Mobile Ordering: Transactions where the mobile phone is used to initiate the order but not to make the payment.

Mobile Delivery: Transactions where the mobile phone is used to receive delivery of goods or services without making the payment.

Mobile Banking: Access to banking functionality via the mobile phone.

Mobile Loyalty: The use of a mobile device for storing and redeeming loyalty points.

Mobile Payment Technologies

Radio Frequency Identification (RFID) is an application of contactless technology for both proximity and vicinity communication. It refers to small electronic devices that consist of a small chip and an antenna. The RFID device serves the same purpose as a bar code or a magnetic strip on the back of a credit card or ATM card; it provides a unique identifier for that object.  

Near Field Communication (NFC) is an extension of the radio frequency identification technology. It’s a radio frequency technology that allows different devices to communicate with each other wirelessly within a short radius allowing faster data transfer speed and increased data security in the payments domain.

Another application is smartphones with NFC-technology. They can work as substitutes for payment cards. Mobile applications securely store the payment information in a certified environment. The smartphone can be used like an NFC-enabled payment card. Accordingly, users pay by holding their smartphone close to a reader at the point of sale.

Mobile Payment Efficiency

Mobile payments are an efficient and hassle-free way to pay, and they benefit both consumers and businesses. They allow businesses to establish easy-to-use accounts and rewards programs, creating a customer incentive for future visits. Also for businesses, mobile payments eliminate the need for renting or buying payment processing equipment.

Customers will enjoy the streamlined transaction process as well. All their info will be stored digitally, making checkout a quick and painless experience. Plus, it is safer to carry your phone than cash or a credit card. In today’s environment of identity theft and fraud, this consolidation of financial information is good news for those concerned about financial data and its security.

ID TECH is a leading payment peripheral provider with a magnetic stripe, EMV contact, and EMV contactless expertise. It was established in 1985 in California and opened its Asia headquarters in Taiwan in 2016. For more information about its mobile transaction payment product, visit https://idtechproducts.com/products/mobile-payment/