Mobile payments are all the rage these days. With millions of people now using smartphones, the ease of use of a mobile wallet for making payments is the preferred method of the millennial. Instead of paying with cash or credit cards, users can pay with their smartphones or other enabled devices, making payments more secure and leaving the consumer not needing cash or a card.
Mobile payment history
While the concept of cashless payments may have been around for a long time, it is only recently that it has been widely adopted in any society. With several different methods of making mobile payments, it is forecast that mobile payments will make up for around 50 percent of the world’s cashless payments by the year 2020.
In many developing countries, mobile payments have taken off due to the ease of use, simplicity to load with funds, and the lack of availability of other payment methods such as credit cards and bank accounts. As many as 50 percent of the world’s adult population are part of the “unbanked” community, with no access to bank accounts and credit cards. The popularity of these mobile payment options and mobile wallets in the world’s developing countries has sparked the interest of large private organizations such as the Bill and Melinda Gates Foundation, the United States Agency for International Development and Mercy Corps.
Different mobile payment methods
Cloud based mobile payments
Cloud-based mobile payments involve two steps in making a payment. The cloud-based method puts the mobile payment provider firmly in the middle of the transaction when cloud payment types are used. The customer selects the payment method, and the payment is authorized via near field communications (NFC). At this point, the payment service provider covers the purchase of the item with “issuer linked funds”. In the second step, the provider charges the consumer’s cloud-based account in a card-not-present transaction to recover what was paid out. While this appears to all as two separate transactions, both steps take place in just a few seconds, meaning the customer will immediately see the funds taken from their cloud-linked account.
Audio signal based payments
A much less popular payment method, audio payments use the audio channel of the customer’s mobile phone to make the payment authorization. There are several companies who have designed new technology that can use the acoustic features of a mobile phone to make mobile payments. The different kinds of technology used are near sound data transfer (NSDT), Data Over Voice (DOV), and NFC 2.0. These options use an audio signal that can be picked up by the phone’s microphone and can allow the authorization of transactions.
Direct carrier and bank cooperation
Many third-world countries such as Indonesia (T-cash) and the Philippines (G-cash) have a form of mobile wallet that is provided by their mobile phone service provider. The carrier allows the user to open a mobile wallet linked to their name and registered to their mobile phone number. Consumers can use these “mini-wallets” to make payments for clothes, goods, food, paying bills, and peer-to-peer money transfers internationally. These are pre-paid mobile wallets, and there is no credit extended to the consumer. Customers can load their T-cash or G-cash wallets at any participating outlet or by linking their bank account to their mobile wallet. Direct carrier payment methods are designed to target consumers in countries where bank accounts and credit cards are not widely used.
Bank transfer systems
A less well-known payment method is by bank transfer of funds direct to the retailer. In Sweden, they have established the “Swish” payment method, which has been in use since 2012, with almost half of the population becoming users by the close of 2016. Established by the major Swedish banks, it is a payment system between two private individuals, though it can also be used for making payments for goods at some sports establishments and other outlets. The use has been limited to peer-to-peer payments mainly, however, this is set to change with internet shopping being introduced throughout 2017.
The transactions are based on a mobile phone and mobile number, which is used as the user’s transaction number. The phone is directly connected to the user’s bank account through the Smartphone app, although users of normal, basic phones can also get basic services such as money transfer receipt. As with many other country-based mobile payment systems, it has the problem of users having to complete many requirements in order to be registered. However, it has reached critical mass now, and more people are taking up the service.
QR code payments
QR codes are square, two-dimensional barcodes that were first introduced in 1994. Their main use over the last 20 years has been as a connection option for Blackberry Messenger users, although they were originally designed to replace the traditional one-dimensional barcodes. The traditional barcode contains a series of numbers that, when scanned, prompt the computer terminal to reference the database for the price or relevant information. The QR, or Quick Response bar code has all the relevant information, including prices, embedded in the code, removing the need to have the terminal linked to a central database. QR code scanners in mobile wallet apps mean that customers can now scan the QR code of an item inside a store, and make an immediate purchase, without the need to present the item at the checkout for payment.
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