Future of Mobile Payments
Are Mobile Payments Dead or Thriving in 2020? It’s Up to You.
Mobile payments used to be the sole province of early adopters in the retail industry. Not anymore.
Some analysts predict that, by the end of 2015, as much as 5 percent of the millions of NFC (Near Field Communication)-enabled mobile devices will be used to make contactless payments in retail stores at least on a monthly basis, more than four times the number from last year.(1) Even though the majority of consumers are not using mobile payments regularly yet, many “niche adopters” in the retail industry – Starbucks and Disney, to name a few – are paving the way for mainstream use.
How is NFC different from other transactions?
The major difference between mobile payments and normal card-based transactions is the technology in which the transaction occurs. Mobile payments depend on NFC, a system that allows payment information to pass between the customer’s smartphone and the merchant’s POS terminal without the two touching. Although NFC has existed for many years, the emergence of payment service providers has made the technology more widely known among the buying public.
More options for consumers and retailers
Consumers now have more options for mobile payments than ever before. In 2014, Apple Pay joined Google Wallet and Softcard as the largest touchless payment providers in the market.
Financial institutions are also guiding retailers into adoption by integrating payments into their mobile applications. By enabling their apps to use NFC to transfer data to POS systems in stores, banks are helping customers move through checkout lines quicker. This also helps retailers serve more people in a shorter time.
Not only do contactless payments offer a faster, more convenient checkout experience for customers, they also add several layers of security to transactions. This technology helps fight fraud on three different fronts, offering consumers and merchants peace of mind:
- Unlocking the device – Even though processing a transaction using NFC technology is pretty simple, consumers would likely tire of having to enter login information every time they want to make a purchase. Biometrics allow people to access their accounts quickly and securely using faces, fingerprints, hand shapes, retinas, handwriting or speech for identification tools. (2)
- Secure element for storing data – A secure element is a microchip designed specifically for storing and transferring data to the POS terminal. Like an EMV chip, it connects with the merchant’s transaction device, sends encrypted information and verifies the cardholder’s account. This technology provides a tamper-proof, highly secure environment for managing data and allows the transaction to process.
- Encryption and tokenization – When terminals send customer account information to the acquiring bank, hackers often try to capture the data and use it for creating counterfeit payment cards. Since NFC technology does not use a hard connection between devices for sending information, a third party could potentially intercept the transfer and steal data. This is why encrypting information as it moves between devices is a vital component of NFC technology. In addition, NFC terminals use tokenization to hide customer account data in a secure virtual vault while sending a “token” in its place to the bank for verification. A token represents a transaction from one device and one store, pertaining to a limited number of products and services. This makes the information useless to any cyber-attacker who steals the data. Many payment service providers use both encryption and tokenization to offer maximum protection to consumers and businesses.
Other benefits for customers
While convenience and security are high priorities for consumers, people are also finding other uses for mobile payments. In addition to just making purchases, they are able to store several items on their phones, including coupons, tickets to concerts and sporting events, and subway passes. As people get more familiar with storing digital purchases on their phones, they will likely seek out merchants that use similar technology.
As customer adoption of mobile payments continues to climb, so will expectations in the checkout line. Touchless payments will set the new bar for fast, secure transactions, helping merchants better track customer data while also processing more transactions in a shorter amount of time. Integrating touchless payments into your POS system is an investment into the future, and merchants who wait will likely play catch-up for years to come.
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