SMS payments explained

Everyone knows what an SMS is, and people use them every day. However, few people realize that they can make a payment via SMS on their mobile phone.

How does SMS payment work?

SMS, which stands for Short Messaging Service, is a system used on mobile phones for sending messages in text form to other mobile phone users, and some landlines. With SMS payments, a text message is sent to the mobile payments provider to pay for the item or service you are buying. The payment provider then clears the transaction between the buyer and the merchant and the cost of the item, plus any additional charges for delivery, etc., is added to the buyer’s postpaid mobile phone bill, or is deducted from their load balance for pre-paid mobile phones. By using SMS payments, customers can make payments for their goods quickly and securely, and can also make deposits and send remittances to other mobile phone users.

Businesses can benefit from SMS payment options

The power of the SMS payment is now being used by businesses to make things easier for their customers to pay for items without the need for cash, credit cards, or even mobile wallets. SMS payments are already well used throughout Europe, and the option is available for riders on the Metro in Tokyo, Japan. They are also being widely used by charities for making donations over the phone, and are promoted as a quick and easy method of helping charities provide for those less fortunate.

What are the advantages of SMS payments?

For the consumer, it is a quick and easy to use payment method and is handy when consumers are without their credit cards. There are no confidential data to be transferred as there is with credit cards, and no password or PIN to use as with PayPal or mobile wallets. The customer does not even need to have a bank account. Moreover, it is more secure than any other payment option, as there are no personal details transmitted between customer and merchant.

For businesses, charities and the service provider, there are billions of mobile phones that are already set up to use SMS functions, and it gives the merchants access to customers who are unable to get bank accounts or credit cards. For many online merchants, this has expanded their customer base to include millions of new customers. All of the billing is handled by the mobile phone service provider, and there is no customer verification required. Verification is all done through SMS to the buyer’s mobile phone automatically.

SMS payments are becoming more popular

One of the main advantages of the SMS payments system is the speed of the transactions and the ease of use. Quick, easy and safe, text message payments are fast becoming one of the world’s biggest payment options. Moreover, they are not something new on the market. SMS payments have been used for decades, since the early days of paying for mobile polyphonic ringtones by SMS messages. And while the world has moved its focus to contactless payments and mobile wallets to combat fraud, SMS payments could make the future of mobile payments more secure than ever. And the security of making the payment is inherent in the phone itself. Since the billing is attributed to the mobile phone number, it is as secure as it is possible to get.

How does the payment happen?

Firstly, the user gives their mobile number and requests the payment be taken. Then they will get a text message to confirm they want the payment taken from their mobile account. If they are not the person who owns the phone, the owner simply replies with “NO”, or does not reply. No payment will be taken and the transaction is canceled. If the user of the mobile phone is the buyer, then they simply reply with “YES” to the text message, and the transaction is processed, and the cost deducted from their balance or added to their bill.

Third world countries are leading in SMS payments

In a report produced by I.E. Market Research it was shown that mobile payments in 2014 were worth almost 1,200 billion dollars worldwide and that in Africa, India, and Latin America, the majority of those payments were done via SMS payment options.

Therefore, while mobile wallets and wearable technology are getting more popular with the world’s smartphone users, the simple fact remains that even the simplest of mobile phones can send or receive text messages. This means that SMS payments are being seen by many in the industry as the real future of mobile payments.

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