I vividly remember a conversation I had about 15 years ago with a technology guru and electrical engineer. We were discussing—actually he was talking and I was listening—the future of mobile technology. He spoke of the future mobile phone as a platform that would allow consumers to accomplish multiple tasks from making calls to sending information, to even using it as a personal barcode scanner at the supermarket.
At the time, there were less than 34 million wireless phones in operation making a collective 37.8 billion minutes of voice calls. My how times have changed. Today there are over 300 million active wireless subscriptions in the U.S. making 2.2 trillion minutes worth of calls and sending nearly 188 billion text messages each month. Twenty-six percent of all households are now “wireless only.”
While my conversation was prescient in most respects, there was one area where mobile technology still lags: mobile payments. The ability to pay for things with nothing more than your mobile device sounds very attractive. Initial attempts over the past several years to bring this technology to market have seen mixed results. But now, a slew of companies focusing on payments innovation have finally brought user-friendly, cost effective mobile payment technology to the market.
What exactly does “mobile payments” mean?
When we talk about mobile payment technology, we are referring to several key pieces of technology working together:
- First is near field communication (“NFC”) which permits two devices in very close proximity to exchange data.
- Next is Secure Socket Layering (“SSL”) or other security protocols that encrypt the information being transferred.
- Next we have the “wallet” software or app which manages the payment itself.
- Finally we have the payment networks which execute the transaction.
What’s missing? The credit card! With mobile payment technology, your phone replaces the physical card.
Mass adoption of mobile payment technology could have significant implications for small business owners.
Payment lines will be reduced
Mobile payment technology allows you to accept payments from consumers with a single tap of their mobile device to a reader. It eliminates the need to swipe a credit card on a terminal, waiting for the terminal to connect to the payment network, printing out the thermal paper receipt, having the customer sign and then storing the signed receipt. All of that is eliminated.
A new channel for marketing is created
Some mobile payment software, like Google’s mobile wallet, allows for loyalty cards to be stored directly within the wallet. This allows the store to instantly track customer spending, deliver special offers based on previous purchases and automatically apply discounts to your best customers.
Your relationship with your merchant services provider will change
As the payment networks begin to roll out mobile payment software, merchant services providers need to adapt their hardware and their pricing plans. Your terminals will need to be upgraded and you may have to evaluate the cost of doing so with different providers.
There are numerous competing mobile payment applications currently available. Beyond Google’s mobile wallet, the payment networks are developing their own independent mobile payment solutions. Numerous startups are working on this technology as well. Despite these competing technologies, the industry will most likely converge towards one or two leaders which will offer the ability to make payments on multiple networks with just a single mobile payment app. It’s like having one physical credit card that is really all of your cards in one.