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Mobile Payments: Pros and cons

13 May

Many experts claim that mobile payments are finally going “to happen” over the next year or two. In a series of blog posts, our expert Kay Nag tells you everything you need to know about mobile payments ‒ and how they will affect your business. Here in part two, he talks about the pros and cons of mobile payments.

Did you miss the first post in this blog series? Check it out here: Mobile Payments: The Basics

Now that you know the basics, let’s dig in to the core values of Mobile Payments. In this post, I’ll describe the pros and cons of mobile payments. In order not to ruin your day, let’s begin on a happy note: the benefits.

The pros of Mobile Payment

1. Security

One of the biggest advantages to mobile payments is increased security. Mobile payment keeps your details private so you don’t have to reveal your card details and CVC code to the shop cashier. Your number isn’t stored anywhere; instead, the groundbreaking system uses a substitute number that hackers won’t be able to do anything with unless they also have your phone and your fingerprint (or pin code for Google Wallet).

“One of the biggest advantages to mobile payments is increased security” tweeta

Card skimming has been around since forever, and every year banks pay huge sums to their customers who have been deceived. They must, as confidence in the system must be intact for it to remain. These costs trickle down to the consumers in one way or another. But if the costs of fraud are reduced, it will be reflected on our card fees, at least in the long run.

However, cost is not the main issue, but rather the feeling that someone has accessed your personal belongings and information ‒ and the hassle of having to deal with fraud when it occurs. Calling the bank to block the cards, ordering new ones, borrowing money from grandma until the card pops up in the mailbox, and so on.

2. Privacy

Apple has been very careful to point out that it does not store or monitor the transactions made with Apple Pay. “We are not in the business of collecting your data,” said Eddy Cue when introducing Apple Pay. “Apple doesn’t know what you bought, where you bought it or how much you paid. The transaction is between you, the merchant, and the bank.”

The statement was a major strategic positioning against Google Wallet (Google’s business model is to collect data and re-sell it,) but also an important statement in light of Apple’s recent issues with iCloud.

3. User experience

The ability to create better user experiences increases as we move away from plastic cards. The service automatically selects the default card for payments, which can easily be overridden with a swipe.

“The ability to create better user experiences increases as we move away from plastic cards” tweeta

It can also be used to make in-app purchases and so on. There are endless possibilities for creating great user experiences when it comes to mobile payments.

4. Less stuff in your pockets

You can put all your credit cards (in theory anyway, more on that below in cons) in your mobile wallet. That means less stuff in your pockets.

5. Speed

Yes, mobile payments are fast. Apple pay is the fastest option because it does not require a pin code but only your fingerprint. Google Wallet and other services require a pin code.

The cons of Mobile Payment

1. Compatibility

As I mentioned in the last post, many older and low-end smartphones lack NFC capabilities. Even iPhone 5 or 5S lacks NFC compatibility, and many Android phones do as well (complete list here.) In a few years’ time, this won’t be an issue anymore, but the problem should not be underestimated at this stage.

“Mobile Payments: Many older and low-end smartphones lack NFC capabilities”tweeta

Also, some cards don’t work with Apple Pay just yet. If you use Google Wallet instead, with few exceptions, it doesn’t matter which card you have.

2. Loyalty programs

As Steve Norton of The Wall Street Journal wrote in January, a major step towards realizing the dream of mobile payments is including loyalty programs in the mobile wallets: “Now that more people are convinced to pay with their phones, the next challenge for mobile wallet providers may be tapping into merchants’ loyalty programs, integrating the two systems so that customers manage their rewards from the payments platform.”

Both for merchants and consumers, this is a potential stumbling block. For certain segments of customers, this is a matter of survival – they have to rely on discounts and coupons to make ends meet. In fact, it has long been rumored that Apple will create its own loyalty program for Apple Pay to boost usage. However, including other loyalty programs is also necessary to convince certain groups of consumers.

3. Device failure

You will definitely become more dependent on your phone. Battery drain, for example, makes the mobile payment unavailable until it’s recharged. This makes it kind of unusable during travel, right?

“Mobile payments make you dependent on your phone, battery drain makes it unavailable” tweeta

Next blog post: Growth and predictions

A major drawback of mobile payments that I left out is the obvious fact that the technology has not yet been widely adopted. You simply cannot use mobile payments in many parts of the world, and that is the topic for the next blog post – mobile payments around the world and predictions for the future.

By Kay Nag