As big players like Google and Apple are joined by dozens of other brands pitching their own mobile solutions, the credit card processing landscape is expected to change dramatically in the next five years.
But what does the coming mobile revolution mean for your business, and how can it help you serve your customers better? Here’s everything you need to know.
How Mobile Payments Work
The actual technology enabling mobile payments is straightforward. Instead of swiping a credit or debit card at the checkout stand, customers simply hold a compatible phone up to the credit card terminal, where Near Field Communication (NFC) technology reads their encrypted account information to complete the transaction. The NFC technology itself is identical to that used in the newest generation of “smart chip” credit cards.
The ultimate goal is to provide a seamless, consistent experience for consumers. Instead of carrying around wallets stuffed with credit cards, customers simply configure the mobile payment app once with the information from all their payment accounts. Once that’s done, they won’t need anything but their phone to pay at any store.
At least that’s the idea. But how closely does it match with reality?
The Current State of the Market<
Today’s mobile payment market is very similar to the DVD market in the last decade. You’re probably familiar with the “high definition wars” in which manufacturers offered both Blu-ray and HD DVD formats, splitting the market until Blu-ray eventually came out on top. A similar situation exists for mobile payments, with Apple Pay merchant services competing with Android Pay (once Google Wallet) and a variety of other players.
While the payment processes are similar from the merchant’s perspective, the lack of a dominant provider makes things confusing for customers, especially when many stores didn’t have compatible terminals to begin with, until recently.
Analysts say that confusion is the biggest factor keeping adoption rates low for consumers. The second biggest factor is that there’s no clear incentive for customers to switch, especially if they’re likely to view their phones as a security risk rather than a convenience when it comes to storing payment information. But that’s about to change.
The Future of Mobile Payment Technology
In the last year, Apple, Google and Samsung all unveiled huge initiatives to expand their mobile payment solutions. Retailers like Target and Starbucks have jumped on board with their own mobile payments programs, while a variety of major retailers and restaurant brands are collaborating on CurrentC, their own soon-to-be-launched solution. Providers are also developing incentives like loyalty programs, discounts and other answers to the “why switch?” roadblock.
You can bet that those big names will be putting a lot of weight behind their marketing efforts, especially when it comes to educating consumers about how mobile payments actually work. Along with Apple and Samsung, Android Pay merchant services will push the message that consumer payment information is encrypted “end-to-end.” That means neither the store nor the payment provider will have access to the customer’s actual account information during the transaction, which should help assuage security concerns.
However, the single biggest development for mobile payments was the October 2015 “liability shift” deadline that made retailers — instead of banks — the responsible party for unauthorized transactions unless they switched to the latest generation of EMV terminals. While you may not see an Apple Pay terminal anytime soon, many of the newest terminals include NFC technology, making an upgrade for mobile payments from any provider easy.
Analysts say that mobile commerce revenue will grow to 50 percent of all digital commerce in 2017, and nearly 30 percent of all mobile users are expected to engage in mobile payments by 2019. That’s a big market waiting to be captured. Is your business ready?