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Mobile Payments: The basics

23 Apr

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 will tell you everything you need to know about mobile payments ‒ and how they will affect your business.

Many consider mobile payments to be the Holy Grail in the technology and retail sectors. Anyone who can find a functioning, digital substitute for credit cards and cash has literally created a money making machine.

“Many consider mobile payments to be the Holy Grail in the technology and retail sectors”

In the meantime, while the market for mobile payments is still at an immature stage, digital decision makers will need to evaluate the various options that appear on the market and attempt to make informed, strategic decisions for the future. I hope this blog series will be helpful in making those decisions.

But let’s start with the basics: what is a “mobile” payment?

In basic terms, a mobile payment is a payment made through your personal, mobile phone or watch to complete a purchase in shop or online instead of using cash, cheques, credit or debit cards. But the concept of mobile payment is multifaceted and difficult to define. It could refer to SMS payments, Direct Operator Billing (in-app purchases directly to a phone bill), or just entering a credit card number in the web shop on a mobile device; there are many types of payments that can accurately be described as “mobile payments”.

“The concept of mobile payment is multifaceted and difficult to define”

The type of mobile payment that most people associate with this term (at least vaguely somewhere in the back of their minds), and the one that has generated the most hype over the previous year with the release of Apple Pay and Google Wallet, is NFC-based mobile payment. NFC is an abbreviation for Near Field Communication. This refers to paying wirelessly, directly and seamlessly with the phone in the physical store and thus getting rid of the physical wallet once and for all.

The basics of NFC-based mobile payments

Before getting into the details of how to use NFC-based mobile payments, there’s some prerequisite knowledge. The technology is already being used for making payments in some countries and industries (more on that later,) and the only requirements from a technical standpoint are that the customer has:

-An NFC enabled smartphone (Most Androids and iPhone 6 or 6 plus have it; here’s a complete list of NFC enabled phones), and

-A personal credit or debit card.

At first glance, the technical requirements don’t seem so far-off, at least not in the West. But it’s far from everyone who has both an NFC enabled mobile device and a credit card even in the Western world, let alone in developing countries. This is undoubtedly a bottleneck today, but the technology is developing rapidly even in developing countries, both in terms of hardware with cheaper smartphones, and in better and more available banking services. And the huge, economic incentives create a driving force that is strong enough to overcome almost any obstacle on the way.

Anyway, today there are two, major service providers when it comes to NFC based mobile payments:

-Apple (Apple Pay)

-Google (Google Wallet)

Mobile Payments can be seen as a battle within the war between the mobile operating systems Android (owned by Google) and Apple’s iOS. The winner gets an edge up against the opponent in the overall battle for mobile users. The fact that both Google and Apple are entering the mobile payment market can also be interpreted as a sign of its enormous potential.

“Mobile Payments is a battle within the war between the mobile operating systems Android and iOS”

How NFC payments work

But how do I make an NFC-based mobile payment? To be totally honest, I’ve never tried to pay with NFC. The technology is used only in very few places in Sweden and Dubai (where I lived for the past years) for mobile payments, and I have not had any reason to try it. Either way, the payment process itself is, of course, very simple. The following video explains how to configure and use mobile payment:

You simply enter your credit card details with CVC and everything in your digital wallet, whether it is Apple Pay or Google Wallet. Then you identify yourself with either your fingerprint (Apple Pay) or with a pin code (Google Wallet) each time you pay. It’s that simple.

Next blog post: Pros and cons

In this post, I‘ve explained the fundamentals of mobile payments. In the next blog post, I’ll go through the pros and cons of mobile payments through NFC. Among other things, I’ll explain how the risk of fraud is affected by this new, advanced technology.

By Kay Nag

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