The world of payments is quickly changing. Last year, 3.4 million Canadians used their cellphones to pay for goods or services, and this number is only going to climb, says Andrew Patterson, Vice President of Payment Software and Emerging Products at Moneris Solutions Corporation (“Moneris”).
From mobile point-of-sale (POS) card readers to contactless services to cloud-based wallets, new mobile payment technologies are being developed faster than you can swipe your card. The growth of mobile payments will have a significant impact on your business, so it’s vital to follow these developments so you’ll know how and when to make the most of them.
Payments have never changed as quickly as they are changing right now. It’s a pivotal time in our market and it will be very interesting to see how quickly things continue to change."Andrew Patterson, Moneris Solutions
Today’s payment environment resembles the “Wild West” says Patterson. Canada’s banks, telecommunications companies and mobile tech innovators are scrambling to create a mobile payment platform that will become the industry standard, with most merchants and consumers taking a “wait and see” position. Around the globe, however, mobile payment methods have been in place for some time. While Kenyans have long sidestepped banks and used accounts stored on their mobile phones to make purchases and transfer money, Japanese commuters are using their smartphones to pay for train fares.
In Canada, several technologies have established a foothold in niche markets, with no single method acting as the forerunner. Here, we review these technologies from both the merchant and consumer perspective to give you a clearer understanding of the mobile payment space:
The merchant - Mobile checkout
Mobile checkout, or mobile POS, is the use of a mobile device in place of a traditional POS terminal or system. This technology most directly affects merchants says Akhil Mittal, Director of Product Marketing at Moneris. “Amid all the noise and hype around the mobile space,” he says, “card payment acceptance on the mobile phone is the most relevant for merchants today.”
Mobile POS is currently available in three main formats:
- Smartphone card readers - These devices enable merchants on the move to accept credit cards on their smartphone or tablet. According to Mittal, these devices are growing in popularity in Canada, with more than 4,000 merchants2 currently using this option. The flexibility of these devices – which plug into the audio jack of a smartphone or tablet – allows merchants to process card transactions wherever and whenever they do business.
- Dedicated mobile terminals - Mobile POS terminals aren’t new to merchants but improvements in technology have made them faster and more efficient. They communicate using the same networks as mobile phones, letting them handle payments remotely, process directly into merchant bank accounts, and issue receipts from a built-in printer. This well-established option is a popular choice for taxi drivers, bus charters, golf courses, and delivery services.
- Customized solutions - Some retailers are choosing to replace their traditional POS operation entirely with a customized mobile solution, often linked to their inventory systems. Apple® stores, for example, have equipped in-store staff with iPhones® or iPads®, enabling them to roam the aisles answering inventory questions and closing sales, which frees up space on the sales floor and improves customer service.
Mobile technology is changing the customer experience. We can expect technology to change the way we shop and the way merchants interact with their customers."Andrew Patterson, Moneris Solutions
The consumer - Mobile payments
Mobile payments let consumers use a mobile device to transfer funds as payment for goods or services, anywhere they take their phone. “Soon, the mobile app may replace the credit card so the app itself becomes the method of payment,” says Patterson. This is happening in several key ways:
- Bill to mobile - With mobile billing, digital purchases appear as a charge on your mobile phone bill. This payment method is widely used for “digital goods” – such as ringtones, wallpapers, and social networking credits.
- Short Messaging Service (SMS) - SMS involves sending payment instructions via text messaging. As with bill to mobile, SMS payments are billed to a mobile phone account, but to initiate a purchase you need to text a special code. This method is widely used by charities and online gaming.
- NFC/Contactless - A Near Field Communication (NFC) microchip in a mobile phone can transmit credit card data (loaded onto the phone’s SIM card or via mobile app) over short distances. Consumers can make purchases by waving their smartphone at a merchant’s NFC-enabled digital reader – much as they would a contactless credit or debit card.
Canada’s first NFC debit purchase recently took place at a Toronto restaurant using a BlackBerry® smartphone equipped with NFC functionality and an Interac® Flash application. The purchase was made using funds deducted directly from the customer’s RBC® bank account. According to Interac, Canadians can expect a wider roll out of Interac’s full debit services in the coming year.
- Cloud-based payments - “Cloud wallets” store personal data – payment account information, billing and shipping addresses, and more – in a secure cyberspace cloud where it can be accessed via an application on a mobile phone whenever a purchase is made.
With cloud-based technology, both the merchant and the customer need to subscribe to the payment application for the transaction to work – but merchants don’t have to change their POS infrastructure. For the consumer, the experience will be similar to the PayPal™ checkout but will also be available for making in-store purchases (by entering a PIN and receipt number into their mobile app). Expect to see early cloud-based “wallet” options become available by 2014, says Patterson.
Both the cloud- and NFC-based payments also allow merchants to offer real-time couponing and loyalty promotions. For example, based on the individualized purchasing data both technologies provide, the merchant could send customers targeted offers on the spot, such as: “You’ve bought five pairs of shoes in six months, buy a sixth pair today at 20% off or boots at 50% off.”
The changing payment landscape underscores the need for merchants to work with a trusted partner who fully understands the marketplace."Andrew Patterson, Moneris Solutions
Preparing for a mobile-payment future
Viewing these mobile payment developments from both a merchant and consumer perspective highlights the drivers behind these solutions, and helps you prepare for them. Here’s where to start:
- Do your homework: “Understand your options,” advises Akhil Mittal, “and how quickly things are changing.” Find out all you can about these new technologies, where they are being test-marketed and how well they are being received by industry leaders. Assess not only whether a solution would work for your business, but if it has staying power in the marketplace.
- Proceed cautiously: “Small businesses have finite resources to allocate to experimentation,” advises Andrew Patterson, so before making any critical business-changing decisions, research your options carefully. Some clear winners should begin to appear by 2014, says Patterson. Make sure any payment solution you choose – even your current one – brings you strong business benefits, such as faster checkout, increased sales, and better overall customer service, while ensuring security and reliability.
- Optimize customer touchpoints: Even if customers aren’t using their mobile devices at your checkout quite yet, they are likely using them to browse your inventory – or your competitor’s – at home or in-store. Make sure your website is optimized for phones and tablets or consider installing tablets in-store to allow customers to review your catalogue.
Still have questions? Talk to us. Moneris has a team of payment experts who are continually evaluating the marketplace and emerging technologies. We can help you determine what your next steps should be.
1 - “Mobile and Alternative Payments in Canada,” Packaged Facts, 2012.
2 - Based on Moneris merchants in Canada using the smartphone card reader as of April 2013
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