As the recent frenzy over the iPhone 4S attests, the appetite for mobile phones and applications is at an all-time high. Directly related to the surge of mobile devices is the growth of mobile payments as a viable form of payment. What are mobile payments? How do they work and how do they compare to traditional payment methods such as credit cards or newer options like PayPal?
Types of online payments
The current mobile payments field can be separated into two groups: proximity payments and remote payments.
With proximity payments, goods can be paid for by swiping a mobile device in front of a reader. These types of transactions center on near field communications (NFC) technology, a check-out method that’s predicted to revolutionize point of sale payments. Proximity payments require both the consumer and the merchant to have hardware — the consumer typically uses a mobile device with an integrated NFC chip, and the merchant sets-up a reading device to identify the chip.
When paying for something remotely (outside the point-of-sale) the authentication process needs to be different. These remote payments use existing consumer accounts as an interface to a working billing channel. A unique number authenticates and accesses the user’s account.
Carrier-based billing is the most prominent type of remote payment, due to its minimal requirements. It works with every mobile phone, making it the payment method with the highest penetration worldwide after cash. To make a purchase, consumers provide their mobile phone number. The method is both comfortable — everybody knows his or her mobile phone number by heart — and secure. A personal identification number is sent to the device via SMS to provide transaction security.
Five industries ready for mobile payments
Since proximity payments are limited to point-of-sale scenarios, they mostly address a single industry: retail.
Remote payments however, especially carrier-based, provide several solutions with a track record of monetizing offers. Today, every company offering digital entertainment or information can profit significantly from implementing a mobile payments solution. The hottest industries include the following:
- Online, social and mobile games
- Online publishing (online magazines and newspapers, as well as e-books)
These industries have a lot in common. Most business models in these industries are based on micropayments. Their consumers will be looking for a frictionless, secure and fast payment method — typing in a 16 digit credit card number online or signing a receipt is not.
Translating European success to the U.S.
The U.S. is already starting to embrace mobile payments, thanks to its leading role in social networking. Social networks use remote payments to make money of of virtual credits and game items.
But mobile payments can be used for other types of companies as well. Even vintage offline industries such as ticketing can be digitized and “mobilized,” as a current example from Europe shows. In what is called mobile ticketing — for example physical tickets for events, public parking or public transportation — are completely replaced by digital tickets on mobile phones. What is more, these tickets are purchased via carrier-based billing, enabling consumers to handle the entire process from searching to purchasing to redeeming tickets on their mobile devices. Already merchants all over the world are adopting this new concept.
Mobile payments have set out to change the way consumers pay for their purchases. Mobile devices are here to stay and so are mobile payments, which are quickly changing the way consumers pay for their purchases online or in person. For now, mobile payments represent a toolbox of payment methods and monetization options, but technologies will develop and eventually grow together to provide the mobile consumer with the best shopping experience.
As Managing Director for mopay Inc., Kolja Reiss oversees all aspects of corporate relations and operations for mopay in North America. He has over 14 years of experience in the telecommunications industry and holds a Master’s Degree in Business Information Systems from the University of Paderborn in Germany.