The rise of mobile payments and mobile wallets

Cashless payments for any goods and services are broadly considered as digital payments. Debit or credit cards are examples of digital payments. The increase in the use of mobile phones gave way to a new form of cashless transactions — Mobile wallets. The improvements in technology help the slowly adopted mobile payment methods gain steam.

The slow rise of mobile app payments –

1. Person to person payments –

• An individual transferring money to another individual
• Hassle free transactions with almost ‘0’ transaction fees

2. In-app payments/purchases –

• Payments made for the purchase of goods and services within the app
• This form of payment is the bigger boost for e-commerce

3. In-person payments/purchases –

• Payments made at brick and mortar store using mobile apps
• More secure by providing a virtual card for every transaction

Two major technologies in mobile app payments –

When it comes to using mobile wallets at brick and mortar store there are 2 technologies which are mainly in use now –

1. NFC (Near-field communication) — Popularly used by ‘Apple Pay’ and ‘Google Pay’. Requires merchants to upgrade their registry to receive payments using NFC.
2. MST (Magnetic Secure transmission) — Introduced and used by ‘Samsung Pay’. This does not require an upgrade of the registry. Works with the same magnetic card reader. The advantage of ‘Samsung Pay’ is that it works with both MST and NFC.

Both the technologies use ‘Tokenization’ for security, which means they send only the virtual card generated by Visa or Mastercard for a transaction. Also, these virtual cards are stored in a ‘Trusted execution environment’ which is an isolated memory and is kept away from other apps in the mobile for enhanced security.

Let’s step back and understand popular methods of payments that are in use today –

In general, the popular methods of payments are still a debit card, credit card, and cash. However, there is no distinct winner among these three. Depending on the type of the store, the type of payment used varies.

Cashless digital payments using the mobile wallet

Why there is slow adoption of mobile payments and wallets?

A study from JPMorgan chase has the answer for some of our questions(Analysis is based on US geography) –

1. Adoption by merchants will drive consumer adoption — 36% of merchants accept digital wallets. More customer focussed loyalty programs would drive more usage.
2. Slow adoption by consumers — 16% of consumers use digital wallets. The more and more digital wallets are adopted by merchants, the more digital wallets will be used by consumers.
3. Beliefs and misconceptions –

• 46% of consumers think that digital wallets are still not secured
• The latest data breaches also add to the customer worries
• Consumer awareness of digital wallet is low and just gaining momentum

How do mobile apps help in moving towards digital payments?

Wide adaptability of smartphones means more usage of a digital mobile wallet. Also, it eliminates the need to carry a variety of cards for every shopping. Customer need not worry about remembering PIN for different credit or debit cards. There are 2 major ways that digital payments can be enabled.

1. Maintaining the wallet — Many merchants would like to have the card or bank account of the customer stored just with them. Merchant uses a payment gateway just to pass the information to the processor and association. Ex — Many e-commerce sites use Bill desk as a payment gateway for the transaction.
2. Using wallet service — Here the merchants use services like PayPal for their transaction. The merchant does not have any details related to the customer's card. All of them are handled within the PayPal sandbox. Customers enjoy the benefit of storing their card in one location rather than storing with multiple merchants.

However, in both cases, merchants can determine one of the below transaction models –

1. An in-app purchase like Nike, Target (Used only within Mobile apps — eCommerce)
2. In-store payments like apple pay, google pay (Used at brick and mortar check out registry)
3. Or both like Amazon (Used both at eCommerce site and also stores like Amazon 4-star, Amazon Go)

Choosing the right payment vendor for mobile apps –

There are plenty of vendors who provide easy integration of payment gateways and processors with the mobile app. Depending on the use case and the popularity of the provider, the developers can choose the right payment gateways.

The first thing that a developer may want to consider is the pricing for using payment gateway — Any PG comes with a standard (i) processing fee(2.9% in most cases) and (ii) an authorization fee(30 cents, In general).

Payment gateway vendors and pricing

Other factors that the developers may consider are –

• Settlement time — The time taken by the processor to get the money from the issuing bank(Customer account) to the accepting bank(Merchant account).
• Security compliance — Different geographies have different security guidelines. Choosing the right vendor who can serve all of the geographies may be critical.
• Accepted payment types — Accepting a wide range of payment types will help more customers utilize and engage with the app.
• Supported currencies — Depending on the geography the app is being launched the right vendor has to be selected. At times, developers may have to choose different vendors for different geographies based on factors like acceptance by the customer, compliance, etc.
• Returns processing and chargeback — Both, charging the customer during the purchase of goods and settling back when the customer returns the items are equally important.

Cashless transactions in every industry and use case are going to be the future of tomorrow and the slow and steady rise of digital wallets prove it. Apart from the ease of transaction, it also saves a lot of time and effort. It also helps and empowers more retailers to take their business online with near zero investment in payment processing.

Happy reading and share your thoughts in the comments!