The number of global smartphone users is estimated to increase by 496.7 million users between 2024 and 2028, representing a 10.71% jump from 2023. With more consumers embracing smartphone technology, people are increasingly opting for mobile payments as a convenient and secure way of paying for goods and services.
Furthermore, it’s become imperative for both eCommerce and brick-and-mortar businesses to integrate localised and personalised mobile payments into their payments infrastructure, in order to gain a competitive advantage.
This guide explains everything you need to know about mobile payments and how this payment method can support your business in boosting conversions.
What is a mobile payment?
In a nutshell, a mobile payment is when a consumer uses a portable electronic device, such as a smartphone, tablet, smartwatch or any other mobile device to purchase goods or services online, in-store or via an app. It doesn’t require a physical card to be swiped or inserted into a card terminal, making it a more convenient and faster way for consumers to make payments.
Mobile wallets and mobile commerce are two such examples of mobile payment methods. Beyond this, there are other types of mobile payments such as Near Field Communication (NFC) mobile payments, QR code payments and mobile point of sale. We’ll cover this in further detail later on.
The history of mobile payments
The story of mobile payments can be pinpointed as far back as the early 1980s and late 1990s. In 1983, electrical engineer Charles Walton received the first patent for a Radio Frequency Identification (RFID) device, the technology on which most mobile payments are largely based. During 1995, the first contactless payment was made in South Korea using a prepaid travel card called a UPass card, which was used by commuters for bus trips.
In 1997, Coca Cola introduced mobile payments via a limited number of vending machines. Customers had to send a text message to purchase their drinks. The same year, Mobil, an American oil company, introduced Speedpass, which enabled customers to pay for fuel at gas stations using a key fob pre-loaded with cash. A few years later, Mobil and Exxon merged and more than six million US customers enrolled to use Speedpass at participating gas stations.
In 2001, McDonald’s experimented with a variety of contactless payments, including Speedpass and a small plastic wand that customers could wave at a checkout to pay for their meal.
In 2011, Barclay’s teamed up with Orange and launched Europe’s first contactless mobile payment. The system enabled customers to pre-load their phones with up to £100 and make purchases that were up to £15 by using their phones. The same year, Google launched Google Wallet (now known as Google Pay™), allowing Android users to pay with their mobile phones at selected retailers in the US. Apple Pay was launched three years later in 2014 and then Samsung Pay came out in 2015.
How do mobile payments work?
The way in which a mobile payment works will come down to the channel being used to make a purchase (e.g. in-store or online).
In-store mobile payments
Taking card payments via a mobile phone is straightforward. The customer holds their device close to the NFC-enabled POS terminal, approximately within two inches and this initiates the transaction. Both devices use RFID technology (NFC is a subset of this technology) to pass encrypted information back and forth to process the payment, which happens within a matter of seconds. At this point, the consumer is prompted to scan their finger or enter a passcode to authenticate the transaction. The transaction is then authorised with a separate chip called the Secure Element (SE), which passes the authorisation on to the NFC modem.
In-app and online mobile payments
Conversely, when customers make a mobile payment online or via an app, they will select their preferred mobile payment method (e.g. a mobile wallet like Apple Pay or a third-party payment app like PayPal or SMS payments), authorise the transaction and complete the transaction without needing to enter in any card details. Customers may also be required to enter a PIN or biometric information to authenticate the online transaction.
After an online or in-store mobile payment has been initiated by a customer, it will follow the usual payment process, which includes authorisation, clearing and settlement.
Different types of mobile payments explained
Mobile payments can be separated into a variety of sub-payment types, which includes the following:
Mobile wallets
A mobile wallet is a type of digital wallet that stores a user’s credit or debit card details on a smart device app, so that consumers can pay for their transactions using the said device. A mobile wallet enables a mobile payment. Popular mobile wallets include Apple Pay, Google Pay™ and Samsung Pay.
To use a mobile wallet, the user needs to install a mobile wallet app on their device like Apple’s Wallet app and then add their card details. Alternatively, depending on your smart device, this may already be a built-in feature (e.g. iPhones and Androids), so all you need to do is add your card details under your phone settings. Your card issuer will then authorise the connection and may require additional information to verify the mobile wallet.
Mobile wallets safely store the sensitive card data as they use tokenisation, ensuring increased payment security for both the consumer and the merchant. The 16-digit credit card number is replaced by a randomly generated alphanumeric ID, which constitutes the token.
To perform a mobile payment with a mobile wallet, the user brings their phone close to the point of sale device (POS). The POS must be enabled with the NFC technology (which we cover in more detail below) in order to complete the payment using proximity.
In the UK, 30% of the adult population registered for at least one mobile payment service in 2022, with the younger population more likely to be using mobile wallets.
Mobile point of sale (mPOS)
An mPOS system transforms any tablet or smartphone into a payment processing solution using a SoftPOS application, providing a more flexible and versatile way of accepting payments on the go. emerchantpay offers a PhonePOS solution, which allows merchants to quickly and easily accept contactless payments via an Android device.
Mobile commerce (mCommerce)
mCommerce is a subset of eCommerce, where online transactions are made completely via a wireless handheld device such as a smartphone and smartwatch. In order for this to take place, merchants must provide a user-friendly mobile application or optimised mobile website that supports mCommerce. Further to this, it’s important for businesses to ensure they have fast-loading webpages and frictionless payment options like mobile wallets, to support a smooth checkout experience.
NFC for mobile payments
Near Field Communication (NFC) is a short-range wireless technology that enables consumers to use tap to pay payments like mobile wallets and contactless card payments to make purchases. NFC enables two devices, an NFC-enabled card reader and mobile phone, to communicate wirelessly when they’re near each other, with an approximate distance of two inches or less. In order for this to work, both devices need to be equipped with an NFC chip.
Sound wave-based payments
Sound wave-based (or sound signal-based) mobile payments enable contactless mobile payments through sound waves. Transactions are processed through unique sound waves containing encrypted payment data. The terminal sends sound waves to the mobile device to securely transmit the payment details. Then the user’s phone converts that data into analogue signals that complete the transaction.
The sound wave-based payment technology is considered secure as it uses tokenisation among other encryption methods, as well as authentication through PIN, password or biometrics.
Quick response (QR) code payments
The name QR code is the trademark of a type of matrix barcode created in 1994 for the Japanese automotive industry. It’s since been used in many contexts, including as a mobile payment method that’s particularly popular in China.
When a QR code is scanned, the horizontal and vertical patterns of the matrix are decoded by the software on the user’s smartphone. Then they’re converted into a string of characters when captured with the phone’s camera. After the information is processed, the phone may open a browser link, confirm payment information and verify geolocation, among other operations.
QR payments can be processed in the following ways:
- The user scans the QR code: The user scans the QR code on their smartphone with an app allowing QR code payments. They confirm the price, if required, before tapping to finalise the payment.
- The merchant scans the customer’s QR code: When the total transaction amount is set by the merchant, the user opens the app allowing QR code payments. The app displays a unique QR code identifying the user’s card details. The merchant scans this code with a QR code scanner, finalising the transaction.
- App-to-app payments: Both the customer and the merchant open the relevant apps. The customer scans the merchant’s unique QR code displayed on the merchant’s app, through their own app. The customer then confirms the amount to pay and tap to process the payment.
SMS payments
SMS payments are one of the easiest ways to pay for transactions and can work in various ways, which includes:
- Direct carrier billing: This allows consumers to pay for goods or services by adding the cost of the purchase to their mobile phone bill. When the bill is paid, the mobile operator takes their share of the SMS premium price before they send the rest of the payment to the payment provider that operates the SMS payment gateway for the merchant.
- Pay by Link: Merchants send a secure payment link with a predefined transaction amount to customers via a direct link, email or text message. Upon clicking the link, the customer is redirected to a secure payment page to finalise their transaction.
What are the advantages of mobile payments?
Here are a few key benefits related to mobile payments:
- Mobile payments are convenient: Putting payments in the hands of consumers makes the process easier and more convenient than ever before. As payment details are saved digitally on their mobile device, customers don’t have to manually enter in all their details each time they make a payment but instead use a CVV code and/or strong customer authentication to finalise the payment.
- Mobile payments are fast: The customer presents their mobile device, authenticates the transaction and completes the transaction. This creates a faster, more user-friendly experience for consumers and helps merchants expedite transactions.
- Mobile payments are secure: Mobile wallets also provide extra layers of biometric authentication like a fingerprint, facial recognition or passcode. Sensitive cardholder information is replaced by tokens that fraudsters cannot use if intercepted during payment sessions, reducing fraud chances for both merchants and consumers.
How can I accept mobile payments at my store?
Listed below are a few typical requirements for accepting mobile payments at your store.
- Technology to accept mobile payments: Your payment service provider should have a variety of options based on your business’ and customers’ needs. Most POS terminals are ready to accept mobile payments with little configuration. If you want to set up mobile payments for online purchases, you’ll need to ensure you have a website or app.
- Software to accept mobile payments: The POS terminal you choose will need to be equipped with NFC technology. Additionally, you’ll need to ensure your eCommerce website is optimised for mobile payments and allows customers to easily make payments using mobile wallets.
- A trusted payment service provider: Your payment service provider can work with you to help you implement a mobile payments strategy that will help maximise your revenue and increase your sales. They’ll help you set up encryption and tokenisation to help protect your business against fraud.
How can emerchantpay help
Mobile payments have revolutionised the way businesses get paid. With the use of mobile devices by consumers on the rise, it’s crucial for every merchant to ensure that their business provides a smooth payment experience, where the customer can easily check out and pay for their purchase.
emerchantpay is a PCI Level 1 certified all-in-one payment service provider and acquirer for in-store and online mobile payments. Our team of payments experts can help you integrate popular mobile wallets like PayPal and Apple Pay among other common payment solutions, helping you provide a more frictionless and secure checkout experience for your customers. Alongside this, you’ll have access to your very own Account Manager, Risk Analyst and 24/7 technical support to help your business grow and succeed.
Want to learn more about how to optimise your payment performance and boost conversions with mobile payments? Contact our team of payment experts today.