In recent history, payments have been making a change from the traditional use of cash, to payments with cards, to now using our mobile hand-held devices. The transition into mobile devices has been one that started off slow in 2011 with Google creating the platform Google Wallet, but now is increasing rapidly with the likes of Apple, Samsung and major retail stores getting involved, so much so that Forrester forecasts a 48% compound annual growth rate leading to this industry producing $90 billion in annual revenue by 2017. With so many options, you might wonder which product to use, how these products work and/or which would benefit you as a business owner/user. As with any growing industry, there are dozens of options to be aware of, with different ways of addressing the task at hand. We want to discuss some of the main players in the mobile payments market, based on their size and dominance, and their forecasted success based on their technology and accessibility.
The most popular option in the media has been Apple Pay. This is solely due to Apple’s marketing, not to their success in mobile payments thus far. In terms of their mobile payment strategy, Apple uses NFC (near-field communication) in their most up-to-date mobile devices (iPhone 6, iPhone 6 Plus, etc.) which can be read by certain point of sale machines. To use this, you wave your mobile device over the pad as you check out, and the system reads the payment information stored on the mobile device. Because this is a recent tool, it is exclusively offered on Apple devices and only 220,000 merchants (2% of all retail stores) have this sort of technology in their shops. In addition, it only has access to 90% of United States credit cards, excluding the smaller, local credit cards. This makes the tool less desirable in a retail market that prefers an all-or-nothing solution. Many different sources in the news have been claiming that this type of system will be more secure than simply using a card to pay, as there is a necessary fingerprint and pin access to use the NFC technology on a mobile device. But with all these benefits, you would think this system would rapidly expand: just ask Google Wallet, which has been attempting this use of NFC for three years with little response from the market.
Google was the first to introduce NFC, with their newest application for their Android platform. The major differences between Google Wallet and Apple Pay are that Google Wallet has a larger current user base (16.4 million, compared to Apple Pay’s 1.2 million as of October 2014) and their ability to integrate with more mobile platforms. Google Wallet does have an issue with the number of point of sale systems that can use the NFC technology, and some of the biggest chains disabling this system for their own sort of mobile payment. For example, chains such as CVS, Walmart, Target, Rite Aid and many others are opting for a different type of mobile payment known as Current C.
Current C has been described for almost three years as having the potential to become the next big mobile payment system. The biggest issue is that it is still a prototype, looking to come out as soon as early 2015. What makes it different is it uses QR codes, which are recognized by most checkout scanners and digital offers. It even has added benefits to the client, such as no swipe fees, which are the processing fee that retailers pay when an individual uses their credit card. The potential target demographic for Current C would be much larger than that of both the Apple Pay and Google Wallet NFC tools combined.
Another application that has some businesses intrigued is LevelUp, a program that offers discounts to customers but also no merchant service fees to businesses. Combining the best of both worlds, LevelUp uses QR codes to scan customer’s mobile device for their payment information and transfers it to the business’ point of sale system via the LevelUp scanner. LevelUp bases its revenue on a percentage of every discount it offers to customers: every time they have a special offer for a customer, LevelUp could see a large percentage of the revenue on that sale, making up for the fact they do not charge a merchant service fee to the client. Because every business needs to purchase the scanner that attaches to their point of sale system, only 14,000 locations have adopted this program, but they contain over 2 million customers. Other similar systems have been adopted by multinational chains such as Starbucks. Starbucks partnered with a major mobile point of sale service called Square in order to make it mobile payment services available in 7,000 of the coffee chain’s outlets. This type of service is slowly being implemented in other chains such as McDonald’s, but due to the cost of updated equipment, it has taken time to adjust.
The jump to mobile payment systems has been addressed by some major companies, and there are more in the prototype stage that could be something to keep an eye on, most notably PayPal and Samsung. PayPal has created an API (application program interface) called PayPal Here, which will allow businesses to connect credit card readers to their point of sale terminals in stores. This option will be more prevalent in smaller merchant shops, competing with the likes of Square. Samsung, the largest cell phone producer in the world, is in talks to acquire LoopPay, a startup which describes itself as the most accepted mobile wallet on the planet. This plan would give Samsung an edge over competitors such as Apple Pay, as they will have access to all credit cards and payment terminals from the get-go. This technology will not use NFC but a magnetic signal which simulates the swiping of the magnetic strip on a card. Its only downside is it lacks the security measures that are offered by NFC-based systems.
More competition, including smaller companies and start-ups, will continue to pave their way into the mobile payments market, making it tough to keep up with the latest technology. Business owners and customers alike should look into the two biggest successes thus far, being Apple Pay (after its major success with iPhone 6) and Samsung (with its acquisition of LoopPay) for their mobile payment needs. But don’t get attached to any of these systems just yet; the mobile payments industry is still developing and could take a new direction at any moment.