The Beginner's Guide to Mobile Payments

We demystify the most popular mobile payment options, and help you choose the right one for your business.
CEO, Merchant Warehouse
October 08, 2012

Over the past six months, the topic of mobile payments has skyrocketed from industry conversation to mainstream news, fueled by a myriad of new entrants to the market. Mobile payment technology is providing businesses of all shapes and sizes with new payment-acceptance solutions that capitalize on mobile commerce to attract new business, cultivate loyalty with existing customers and grow revenues.

For small businesses, the challenge is selecting a mobile payment solution that fits today’s needs, supports future growth, provides security and remains relevant in the future. Unfortunately, with so many players in the marketplace, mobile payment uncertainty is stalling the decision-making process.

Companies like Google, PayPal, ISIS (a joint venture of AT&T, T-Mobile and Verizon), Sprint, Apple, Visa, LevelUp and hundreds of others are vying for business acceptance and consumer adoption of their mobile wallet and mobile payment products. Meanwhile, others including Square, Intuit, VeriFone and PayPal continue to attract small businesses with their convenience-based mobile payment acceptance solutions. Add in a deluge of additional noise from loyalty, gift and other mobile commerce specialists, and you’re left with a sea of confusion, especially for small-business owners.

Here we demystify the most popular mobile payment options and help you form a plan to make the most of this emerging technology.

Option 1: NFC and Mobile Wallets

Leading providers such as Google, ISIS, Visa and Sprint are relying on promotion of NFC—which stands for Near Field Communication, and is a short-range wireless technology—from the mobile network operators (smartphones and tablets) and merchants (countertop payment devices), as well as consumer adoption of their individually branded wallets. Much debate remains about the availability and implementation timeline of such payment types, including NFC, and that will impact the adoption success for this group of mobile payment providers. As we wait and see what plays out with NFC, other companies are taking advantage of innovative technologies, such as QR codes, to expedite their entry into mobile payments and mobile commerce.

Option 2: QR Codes and Loyalty Programs

LevelUp is one company that uses QR codes to complete mobile transactions and loyalty campaigns. LevelUp enables small businesses to accept payments through a personalized QR code, provides integrated customer acquisition and retention opportunities, as well as peer-to-peer (P2P) mobile gifts. Consumers download a free app, connect it to their preferred credit or debit card and start buying. Businesses pay no interchange fees and drive new customer engagement through LevelUp’s traditional or co-marketing campaigns. Businesses are charged based on campaign success. And LevelUp is easily accessible for businesses, as the only requirements are an account and a dedicated mobile device, either a smartphone or tablet.

Options 3: Mobile Payment Acceptance

Another growing space is mobile payment acceptance, which provides small businesses with a convenient solution to accept payments either off-premises or without a formal credit card terminal. Businesses use a card reader that attaches to a smartphone or tablet and is connected to their merchant account. These providers rely on an Internet connection to accept and process traditional magnetic stripe (mag stripe) credit and debit cards.

As evidence of this growing trend is Square’s recent partnership announcement with Starbucks. Over the past three years, options from Square, VeriFone, PayPal and Intuit have given an immediate payment-acceptance solution to nearly 15 million U.S. businesses that don’t accept credit cards, and a solution for businesses that need a secondary, ‘mobile’ payment gateway. Some would argue that these solutions are not truly mobile in terms of accepting payments from a customer’s mobile device, but regardless of the perspective, it’s a key growth area within payments and allows more small businesses to accept debit and credit transactions.

How to Choose a Mobile Payment System

Now that you’re familiar with all of the existing options, the next step is deciding which system works best for you and your customers. To get started, begin by outlining your specific needs and goals. This will help pinpoint which mobile payment option supports your business plan. Once the list is compiled, investigate each offering thoroughly, whether it is an all-in-one payment solution or an individual solution, such as a mobile wallet or mobile payment acceptance device. Check rates, read reviews and visit your business's competitors to see what is gaining traction in your local area.

Payment technology is being developed to help disparate systems work together. Until unified systems are available, the best option small-business owners have is to research, compare offerings that complement their business' goals and then research again. The last thing a business needs is to implement a mobile payment option that is non-existent in a year. That said, waiting too long might leave your business behind. Get ahead of the competition and begin realizing the value of mobile to reduce costs, drive incremental revenues, attract new business and retain existing customers—just make sure you do your research first.

Read more about implementing mobile payment systems.