Why Phone Pay is Here to Stay
An introduction to phone pay and where we stand today
By Kim Rust
January 2015
Mobile payments originated long before the Google Wallet and Apple Pay of today and it’s interesting to acknowledge just how slow and fragmented adoption has been.
Early adoption of mobile payments can be traced back to 1997 when Coca-Cola introduced mobile-enabled vending machines that allowed customers to buy a Coke by sending an SMS. That same year Speedpass, a keychain RFID (Radio-frequency Identification) was introduced by Mobil Oil Corp. where customers could pay by waving the keychain over a specialized square at the gas station. The 90s were studded with such launches showing great promise for mobile payments.
Fast forward to the late 2000s when Square Inc. launched its card reader in 2009 allowing businesses to accept debit and credit card payments from a smartphone or tablet. In just 2 years, Square was processing an average of $4 million in mobile payments everyday.
Image source: Business Insider
2011 saw the launch of Starbucks’ mobile payment app and Google wallet (in collaboration with Citibank, MasterCard and Sprint) showing that brands were also hopping on the mobile payment bandwagon. Today, 20% of all in-store transactions at Starbucks are from the mobile app.
Image source: Digital Trends
Then came Apple Pay in 2014 followed by Android Pay and Samsung Pay in 2015 to add to the increasing excitement around mobile payments. From the 90s till today, mobile payments have slowly established their footing in the commerce space and don’t seem to be going away anytime soon.
What’s out there?
Early mobile payments include the likes of SMS based transactional payments. Customers send a payment request SMS to a premium shortcode and a charge is applied to their mobile bill. The merchant is then notified of the payment and the goods are released accordingly.
Mobile Web Payments on the other hand use Wireless application protocol (WAP) technology. Here the customer uses web pages or a downloaded application to make a purchase, which could use direct operator billing, credit/debit card systems or online billing through third party players like PayPal.
And talking about PayPal, finally brings us to Online Wallets. An online wallet is a service where customers can store their passwords and credit card details in one central place to easily access during a transaction (requiring only a PIN to process). These wallets can also be used for peer-to-peer transactions, something PayPal is known for. Other noteworthy companies in this field are Google wallet and Amazon payments.
Some of these early mobile payment methods have failed to gain momentum while others have become more mainstream. Today, there is a whole new wave crashing the mobile payments space with the following technologies.
Contactless Near Field Communication (NFC) is a short-range wireless technology where transactions are made by enabling communication between two devices (within a distance of 10 cm) allowing the mobile device to act like a contactless card. Apple Pay and Android Pay along with Chase Pay, Walmart Pay and Samsung Pay are examples of this technology.
Image source: Apple
Cloud based mobile payments: To understand cloud based payments let’s talk about two important elements.
Secure Element (SE) and HCE (Host card emulation)
A secure element is like a smart card in your phone that is protected from tampering while HCE assumes that any data stored on a handset is vulnerable and restricts the storage of sensitive data to cloud databases (managed to a high security standard).
In cloud based mobile payments (HCE) you essentially perform NFC card emulation without using the hardware SE in your mobile. Google, PayPal and GoPago are some of the companies employing this technology.
Audio signal-based payments
Audio signals from your cell phone (another wireless interface) are now being used to make mobile payments. NSDT (near sound data transfer), Data over voice and NFC 2.0 produce audio signatures that the cell phone can pick up to enable electronic transactions. Companies like Verifone, Edgetech, Alipay are currently using this technology.
Image source: iternews.com
Conclusion
So where do we stand today? A 2015 survey by Accenture highlighted that 52% of North Americans are aware of mobile payments but only about 18% actually use them regularly. Of these, Millenials (23%) and higher-income households (38%) use contactless payments at least once a week. While these numbers may not seem like much today, eMarketer is forecasting a jump in mobile payment transactions to $27.05 billion from $8.71 billion in 2016 — a whopping 210% growth. This would represent both growth in percentage of users as well as frequency of use among adopters. For this to happen it is important that businesses successfully close the gap between awareness and actual adoption. Efforts to educate consumers are a huge help.
We’ll talk about the future and latest trends in mobile payments in our next article. Stay tuned!
Originally published at thewhyforum.com.
