Mobile Payment: Definition, Types, Advantages (2022)

As a small business owner, you naturally strive to meet customers where they are, whether that’s stocking the right merchandise or offering convenient payment options. Mobile payment processing is relatively easy for merchants, but it does require some initial effort. That includes investing in point-of-sale systems that can handle contactless payments and digital wallet transactions.

What is mobile payment?

Mobile payment is a contactless payment method that involves a mobile device such as a mobile phone, smart watch or tablet.

These devices may run mobile wallet apps or peer-to-peer mobile payment apps. Or, they may enable transactions via SMS.

Popular mobile wallet apps include Apple Pay and Google Pay. Popular peer-to-peer mobile payment apps include Venmo, PayPal, CashApp and Zelle.

How does mobile payment work in brick and mortar stores?

In brick and mortar retail stores, customers often use mobile wallets to make mobile payments. This involves tapping a smartphone, smartwatch or tablet on a payment terminal. The payment terminal may be a merchant’s mobile device, or it may be dedicated and separate hardware. In both cases, the terminal must contain near field communication (NFC) radio technology, which allows it to receive payment information from the device.

From there, the terminals work the same way they did when they handled an inserted chip card. They send and receive a series of encrypted messages to the financial institution, clearing the funds for the payment to proceed.

Only payment terminals with NFC radios can accept tap-to-pay transactions. (The terminal has a wireless payment icon that looks like a series of semicircles.) The terminal is an all-in-one device that also doubles as a card reader for credit cards, debit cards, and gift cards.

Some merchants may accept other types of mobile payments for face-to-face transactions. For example, sellers may accept payments from peer-to-peer payment applications such as PayPal or Venmo.

5 types of mobile payments

Mobile payments use five main forms. While each has its own unique features, they all achieve near-instant money transfers from one account to another.

1. Mobile wallet

Mobile wallet services include apps like Google Pay, Apple Pay and Samsung Pay. The service runs on computers, smartphones, tablets and smartwatches and is linked to the customer’s credit card, debit card or bank account. Once a person sets up their mobile wallet account, they can use the device just like they would a credit card. In brick-and-mortar stores, they can tap their devices on payment terminals equipped with NFC radios. Online, they can use their mobile wallet account on many merchant checkout pages by selecting a mobile wallet icon (such as Apple Pay) from among the payment options.

2. Peer-to-peer mobile

This type of transaction, which runs on platforms such as Zelle, PayPal, Venmo and CashApp, allows individuals to transfer money to other individuals through mobile apps or web pages. Some of these services—notably PayPal—enjoy widespread adoption by small business retailers. This means you can pay business owners using PayPal instead of using a credit card.

3. SMS payment

SMS payments allow people to make payments by sending an SMS to a specific phone number. Americans, most of whom own smartphones, rarely make SMS payments. However, in parts of the developing world, SMS payments are widespread and widely trusted.

4. mobile e-commerce

This category, also known as m-commerce, describes any type of transaction made on a mobile device. If a shopper makes a purchase on their mobile device’s browser or on a merchant’s proprietary app, that qualifies as a mobile ecommerce payment.

5. Mobile point of sale

In a mobile point of sale (mPOS) setup, retailers use their mobile devices as payment terminals. Square offers a popular mPOS service. The company sells wireless Square readers that vendors use for contactless and chip card transactions. Customers can insert a credit card into the chip reader, or they can tap their card or mobile device to the reader for an NFC transaction. At this point, your point-of-sale software takes over, sending the payment data to the financial institution and transferring the money to your account.

Advantages of mobile payments

As a small business owner, you stand to gain many benefits when you accept mobile payments. They include:

• Comfort. Mobile payments Remove barriers to finalizing customer purchases. Can pay easily by tapping their phone or credit card at the point of sale, or they can make transactions online using their payment app.
• Speed. Financial institutions process mobile payments overnight. This makes mobile payments as fast as credit card transactions—if not faster.
• Popularity. More customers are spending more money using mobile payments. In 2021, global consumers will spend $1.786 billion through mobile payments. Financial analysts expect this figure to more than triple in the next five years.
• Safety. Mobile payments are among the most secure forms of commerce. That’s because it’s done on mobile devices that tend to require some form of authentication, usually in the form of a fingerprint, facial recognition or passcode. The devices also encrypt their transmissions, giving thieves very minimal opportunities to intercept customer data.

Disadvantages of mobile payments

While mobile payments offer many benefits to merchants and consumers, they come with some drawbacks.

• Transaction limits on peer-to-peer transactions. Many mobile wallet providers place limits on their users’ person-to-person transactions, meaning merchants who want to accept payments from apps like Venmo may not be able to make sales above a certain dollar amount. These boundaries help protect all parties from theft and fraud. However, mobile wallets do not add purchase limits to retail purchases made at tap-to-pay terminals. Retail shoppers who link a credit card to their mobile wallet app won’t experience any app-imposed purchase limits when shopping in-store.

• A dedicated payment terminal is required for mobile wallet transactions. Merchants need modern payment terminals to accept tap transactions to pay in brick-and-mortar stores—an expense that not all small businesses can afford.

Final thoughts

As more and more shopping moves to mobile platforms, payment systems will make the same shift. Customers, always looking for convenience and flexibility, are increasingly accepting mobile payments—especially given the level of security they provide.

Traders will also benefit. Some mobile payment apps like Venmo and Square charge merchants fees that are roughly the same as credit card fees. Other apps, like Apple Pay, don’t charge merchants at all. This allows business owners to benefit from the convenience and security of mobile payments without taking a bigger financial hit than usual. Small business owners who enable their company to accept mobile payments will likely reap the benefits that come with them.

source: https://www.shopify.co.id/blog/mobile-payment