When making any kind of payment, consumers look for security and convenience in that order of priority. Cash and checks are the most secure forms of payment, but they are slowly on the way out due to the convenience of card transactions and the convenience of not carrying jingling change in your pockets or worrying about losing your cash to pickpockets. Credit and debit card transactions are on the rise, with close to 66%of all in-person transactions last year being completed with plastic cards, according to Javelin Strategy & Research market report on retail point of sale.
Add to this the smartphone proliferation into our day-to-day lives as we manage our communications, socialize with friends and watch or listen to entertainment on the go. The logical result of these trends would be the convenience of using a mobile or smartphone as a form of payment instead of cards or cash. There are many experiments, field trails and actual transactions already happening this way.
Let’s look at Google Wallet as an example. Google Wallet enables any credit or debit card registered with Google Wallet service to be used for payment at merchants that have payment terminals equipped with near field communications (NFC) or contactless card readers. A consumer simply needs to tap their phone on the payment terminal, and the transfer of card information to the payment terminal will replace the swiping of a card on the terminal and eliminate the need for a physical card.
Another example is Cumberland Farms, an operator of convenience stores and self-service gas pumps at 600 locations in 11 U.S. states. Cumberland Farms lets its customers register and make payments using a mobile phone equipped with GPS. The GPS feature identifies the store location, and the customer then enters the pump number or cash register number and authorizes payment through their smartphones. Once the transaction is approved over the air, the pump or cash register attendant would complete the sale or transaction.
The purpose of the mobile payment is to eliminate the need for cards, which is a direct savings for the banks that issue the cards as well as for consumers who need not carry one given that almost all of us carry a mobile phone nowadays. Interestingly, there are more mobile phone users than credit or debit card owners in this world today.
The Steps To Mobile Payment Implementation
The first step to making mobile payments the way of the future of all financial transactions is to secure the credit/debit information stored in the phone. This can be done in many ways, but the primary way is to encrypt this information before being stored.
The next step is to ensure the transaction is always authorized by the owner. This can be done with a pin, password or biometric authentication, or a combination of two or more forms of authentication. This authentication, once done, is what will allow the secure transfer of the financial information from the phone to the merchant to begin.
The transfer of the financial information from the phone to the payment terminal in the case of in-person transaction, or to the Internet or cloud payment processing server directly in the case of online transactions, is the last step in this part of the process. In the case of online transactions, sending the encrypted financial data over a SSL connection, as is done today, is safe and convenient. In the case of in-person transactions at a store or bank, the transfer of the information from the phone to the terminal is the tricky part, and there are multiple technology options out there to aid this process, including NFC as in the case of Google Wallet, GPS with over-the-network transfer as in the case of Cumberland Farms, or a completely new method like using Bluetooth low energy or some other form of wireless technology.
Once the information is transferred to the payment terminal or the online merchant, the rest of the transaction processing will follow the existing methods in place with the payment processor taking care of authorizing and completing the transaction.
With the ease of use and convenience provided by mobile payment, I’m excited to see where (and how fast!) the industry continues to grow in the coming years. Mobile transactions could eventually overtake transactions using plastic cards and even pocket change transactions as the predominant method of financial transactions.