Mobile Payments How Do They Work?

There are many technologies available for businesses looking to offer a mobile payment option to their customers. To learn more on these different technologies, read our blog post Mobile Payment Terms and Concepts Explained.

Before going further, let’s define a few terms:

Mobile payment refers to payments that are made with a mobile device in order to pay for a good or service. Mobile devices include smartphones, tablets and smartwatches. This type of payment replaces paying with cash or a bank card.

Near-field communication (NFC) and radio-frequency identification (RFID) are contactless technologies. These types of technologies work with POS terminals that can read chip cards, smartphones, and other objects that have microchips.

Near-field technology (NFC)

NFC is a contactless technology used for e-wallet apps. It has a 4-5cm range limitation to prevent it from being captured by other nearby devices. There are a variety of terminals available that are compatible with NFC.

Terminals

Bluetooth terminals

Bluetooth technology allows communication between wireless terminals and fixed payment systems. For example, restaurants will often offer their customers the opportunity of paying directly at their table so that they don’t have to head to the reception desk. In this case, the wireless terminal communicates via Bluetooth with the fixed payment system to send the payment information. These wireless devices need to be compatible with NFC technology in order for the transaction to be processed with a smartphone. Bluetooth has a range of approximately 10 to 100 meters.

Traditional payment terminals

Traditional terminals are similar to bluetooth terminals except that they are physically connected by a cable to the payment system.

Mobile terminals

Mobile terminals allow businesses to request and accept payments with a mobile phone. This type of terminal is useful for businesses that are on the move, such as taxi drivers, delivery carriers and other mobile vendors.

Many options are available:

• Small mobile readers are physically connected to a mobile device, such as a smartphone or a tablet. They can request and accept contactless payments from a mobile device.
• A payment terminal equipped with Bluetooth technology can be paired with a smartphone to generate a wireless communication. In this case, the reading device does not need to be connected directly to your smartphone; however, you will be using its data.
• Mobile payment terminals equipped with a SIM card use a wireless network. They are therefore completely independent.

We often find this type of payment in trade fairs, public markets and food trucks. For a complete list of the solutions available to mobile vendors, read our blog post.

Mobile payment operations

How do mobile transactions work?

Customers need to tap their cell phones a few centimeters over a POS terminal. They will then need to confirm their identities to validate transactions by entering a confidential code on their smartphones.

What do customers need to do?

To use this payment method, customers’ smartphones need to be equipped with an NFC chip. The majority of newer smartphones in North America will have this chip. Their smartphones will also need to have an e-wallet app. This type of payment can only work if the smartphones are turned on.

What do vendors need to do?

Vendors need to be equipped with NFC-compatible devices that can process mobile payment transactions. Terminals that are compatible with contactless payments for bank cards can also be used for smartphones.

Benefits

This type of payment facilitates and accelerates checkouts. It is particularly valued by higher-volume businesses that want to reduce the time customers spend at the checkout. Businesses, such as car dealerships, grocery stores and fast-food restaurants, can greatly benefit from fast checkout processes.

Financial institutions can limit the amount per transaction for this type of payment. In Canada, the limit is usually of 100$ per transaction. In the United States, there is no limit. In some cases, a signature can be required for bigger amounts in the United States.

QR codes

QR codes can be processed in person or online. A QR code is a 2D barcode made up of black and white squares.

How do they work?

QR codes can be read using a barcode reader or a smartphone. Starbucks customers use this technology when they pay for their orders with the mobile app.

What do customers need to do?

Customers need to show their QR code to the vendor so the vendor can scan it. A QR code can be generated through the vendor’s app. It can also be generated by downloading a payment app for QR codes. This type of app allows customers to open and refill accounts by linking them to personal bank cards. These accounts can usually be automatically or manually refilled.

What do vendors need to do?

This solution can easily be integrated to any payment system since it only requires the addition of a barcode reader. Some terminals are already equipped with one.

Benefits

QR codes are often paired with loyalty programs, making it an effective two-in-one solution. When customers pay for their transactions by scanning a QR code, information related to the purchases will automatically be added to their loyalty accounts. Customers can therefore simultaneously redeem loyalty points and pay for their purchases.

SMS

Mobile SMS payments are processed when a good or a service is purchased through a text message. These text messages can be sent from a mobile phone, tablet or computer. This payment method can be processed remotely and is available for all smartphones.

How does it work?

The vendor sends a text message (SMS) to a customer with the invoice. The customer then receives a clickable link that leads to an online payment form. The customer can then remotely process the payment by simply filling the form. One the payment has been processed, the customer will receive a notification confirming the transaction went through. The confirmation may also include the transaction’s receipt.

What do customers need to do?

Customers need to enter their payment information. They can choose to process the payment with a credit card, e-wallet, or another type of online payment.

What do vendors need to do?

Managing a mobile SMS payment does not require any investments in equipment. However, the vendor will likely need to pay a fixed or variable fee for the text messaging platform.

Benefits

This payment method is simple, easy-to-use and efficient for both parties. For one, SMS payments are easily available for all smartphones. These payments are usually sent through a text messaging platform that provides businesses with the ability of having one-on-one conversations with their customers and send personalized offers based on preferences and past events.

SMS mobile payments let you:

• Reduce the amount of overdue payments by sending automatic reminders.
• Collect money faster by providing your customers with the flexibility of paying for their invoices remotely once they receive the text message.
• Enhance customer satisfaction and engagement by facilitating and accelerating transactions by offering clients the opportunity of paying in advance. For example, you could pay for your bike repair before heading to the bike shop or pay for your pet’s surgery before going to the veterinary clinic.
• Request deposits quickly and remotely. A bike shop could, for example, request a deposit before starting to work on a customer’s bike and order specific parts needed. This could also be beneficial for a veterinarian that needs to perform surgery or an emergency treatment.

Are mobile payment solutions adapted to your business needs? Try our calculator to find out: which mobile payment solution is right for you.

1. Worldpay - Global Payments Report 2018