With advances in technology shaping the way society conducts business, it comes as no surprise that the traditional way of making standard purchases has evolved throughout the years. Innovative technology in payment platforms has given way to the emerging trend of mobile payments. Mobile payment technology allows consumers to use their smartphones to complete payment transactions. This is made possible by the use of near-field communications (NFC) and/or quick response (QR) codes.
To make payments using NFC hardware, at the point of sale (POS), users touch their phone to a NFC device, and the phone sends secured payment information to the vendor to complete the sale. This hardware based technology requires both the consumer and the merchant to have NFC enabled devices. For those that do not have devices embedded with NFC hardware, quick response codes can be used to make payments. QR code applications can be downloaded natively to a user's smart device. At the POS, a barcode matrix made up of black and white squares is generated by the merchant. The user then opens the QR application and uses the camera to capture the code. Once captured, the user confirms the amount and the payment is completed. Vice versa, the user can generate a QR code using an e-wallet application, and it can be scanned by the merchant to execute a payment.
The primary security platform that mobile payments are based on is the tokenization of payment data. Tokenization is the process of replacing sensitive payment information, such as names, primary account numbers (PAN), and expiration dates, with a unique identifying code generated at random. This technology is the best practice for risk reduction, when sending and receiving payment data. Tokenization is used by credit and debit card payment processors to intercept card data at the POS, and replace it with a randomly generated code, before it goes through the appropriate gateways. The downfall with the current method is that the sensitive account information is collected and stored by merchants at the POS.
Mobile payments differ from the traditional plastic cards by having these tokens stored on the mobile device. There will be no trace of the essential information that is used to complete the payment process. When paying at a merchant POS, the token is transferred from the mobile device to the merchant, then through the appropriate channels, without any actual account data attached. This leaves hackers and thieves with no valuable information to steal from a phone or merchants' databases. This is a breath of fresh air in the wake of big companies, like Target and Home Depot, who have had data breaches and customers' account information stolen.
Payments made through mobile devices are a definitive improvement on the security of account information, and the way we use them to make payments. Most fees attached to processing debit and credit card payments are to protect processing companies from damages resulting from fraud. Without the payouts for reimbursing fraudulent charges or the monetary resources used to rectify such situations, payment processors can reduce fees and increase profits. Forms of tokenization are already used, therefore, payment processors do not have to dramatically augment their legacy systems to accommodate a mobile payments platform. Integration of NFC devices and QR codes at the POS is a simple and painless process. Facilitating mobile payment platforms will be a manageable and profitable venture for payment processors.
Mainstream traction for mobile payment platforms is increasing due to the improvement of security and added convenience advantages. Apple, Inc. is encouraging the trend by including NFC and mobile payment technology in the latest installment of the iPhone, and their new product the Apple Watch. With sales exceeding their expectations it seems the new Apple Pay platform will give advocacy to the mobile payments industry. Also, PayPal, a major player in the payments industry, sees QR codes as a feasible avenue to pursue by allowing their users to make payments using this method. With the backing of popular companies, mobile payments become a logical platform for processors to adopt with viable benefits extending to consumers and merchants.
Applications that facilitate mobile payments are a convenient way to store and use all of the financial accounts at your disposal. They allow the user to securely cache all debit, credit, and merchant specific cards on one device. Having a mobile payments application eliminates the need to carry cash or multiple plastic cards. Using this technology not only cuts down on clutter, but it also truncates the length of POS transactions. Although many feel that the new technology platform may be difficult to learn and use, most applications have a user friendly interface that makes it effortless for even the least technologically adept individuals.
Mobile payment platforms are a more secure way to pay for any product. Unlike traditional plastic cards that use the same account information for every transaction, the mobile payments platforms have dynamic authentication protocols. Every purchase communication between the buyer and seller is tokenized, and uses multiple levels of identity authentication to protect against fraud and theft. Smart phones also have the extra protection of requiring a passcode to access the phone directly and another for the payment PIN. In regards to cash, mobile payment users do not have to worry about losing physical money in the event the mobile device is stolen, lost, or destroyed.
Processing mobile payments have lower transaction fees compared to their cash and card counterparts. Although cash is a ubiquitous form of payment, it is important to realize that there are transaction fees attached to the exchange. A percentage for calculation, counting, verifying, securing, and storing physical monies equates to a certain proportion of transactional costs. At the same time the cost of accepting debit and credit cards decreases profits, and businesses accept the fee as an inevitable expense of conducting business. With mobile payments, transactional costs can be reduced to a fraction, saving businesses copious amounts of money in the long run.
Adopting a mobile payment platform can be extremely convenient for businesses. Businesses will be able to increase the speed of unique transactions helping reduce wait time for customers. This improves customer experience, and allows for more transactions per hour. Furthermore, it can maximize employee's use of time. Another convenience of mobile payments is that businesses can accept payments away from the brick and mortar location much easier. It would not be burdensome to collect a payment while making a delivery or attending outside events. Not only can it bring the POS to the consumer, it also has the ability to email the receipts and invoices to both parties.
Worldwide adoption of mobile payment technology is a win-win for everyone involved. It makes the current use of debit and credit cards seem crude and hazardous. In this technological age, where all electronic information transmission comes with a risk, mobile payments are making it more convenient and secure to make transactions. It will be interesting to see the full potential of this technology as major players invest and consumers start to embrace the trend.
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