For centuries, cash was king. It didn’t matter if your pockets were full of dollars or rubles, francs or yen; the more you carried, the higher your social status became. Local retailers around the world responded to this reality, often adding staff and running sales and other promotions to coincide with the days when most people got paid. Thanks to the credit card industry, however, this centuries-old trend is fast going the way of the horse and carriage and the phonograph. That ubiquitous jingle of coins in pockets has been replaced by sleek plastic cards and, increasingly, by mobile phones loaded with all the information a customer needs to complete a payment transaction.
The trend of mobile transactions is skyrocketing upward at a phenomenal rate. According to Gartner, there were around 235.4 billion mobile payments worldwide in 2013. That number was expected to rise to 325 billion in 2014 and to elevate to an astounding 717 billion by 2017. In the United States alone, $50 billion were spent using mobile payments. There are several reasons for this mobile payment phenomenon: an increase in the number of people using mobile phones, more merchants understanding the benefits of mobile payments and adopting them, customers’ positive response to promotions and loyalty programs, and a shift away from magnetic strip credit cards toward chip and pin cards and mobile wallets.
The precipitous rise in mobile payments around the globe is great news for the major credit card companies, including MasterCard and Visa. These entities earn a small percentage of the purchase price every time a customer swipes a card or pays on a mobile device. At the same time, customers love the enhanced personal safety and convenience that they find when they can conduct most or all of their business free of cumbersome cash. Furthermore, they are not constrained to make purchases on the basis of how much money they have in their wallets at the time. Finally, businesses large and small are able to offer buyers a fast, secure and seamless payment process that enables customers to swiftly get on with their day, while also knowing that a receipt awaits them in their email inbox.
Changes in the Mobile Payment Landscape
In spite of the many attractive features of credit cards and mobile payments, all is not smooth sailing for these technologies. Recent years have seen numerous serious information breaches that compromised the personal data of millions of customers and cost companies such as Target and Home Depot millions of dollars. Perhaps more damaging than the concrete costs was the erosion of customer trust that has occurred. In direct response to these security concerns, MasterCard and Visa recently launched their “tokenization” technology. This system modifies customer data during the payment process, replacing sensitive information with encrypted random numbers. In addition, U.S. consumers will soon be made very familiar with the chip and pin card, also known as the EMV or smartcard, which has become ubiquitous in Europe and Canada and is far more secure than the out-dated magnetic stripe cards still common in the United States. After October of 2015, American merchants who have not installed the new EMV readers will be held liable if credit card fraud occurs. While many retailers might cringe at the idea of the added expense and inconvenience of bringing new readers into their stores, they are sure to realize that the benefits will outweigh the liabilities. This is because chip and pin readers do not store customer data, leaving would-be hackers and thieves with very little to exploit.
Another innovation in credit card payments is the mobile wallet. This technology enables a customer to simply take out a smartphone or tablet, open an app and enter a PIN and the payment account to be charged. He or she then taps the smartphone or tablet to a mobile terminal, which receives via near-field communication (NFC) all of the necessary payment information. Two of the best-known examples of this technology are Apple Pay and Google Wallet.
Merchants are embracing mobile wallets for several reasons. First, payments are more secure because all of the information stays with the customer. Furthermore, the process is cutting-edge and streamlined, leading to increased customer satisfaction. In addition, no cash changes hands, leaving the merchant safer and with less room for money-counting errors at the end of the day..
Although many of the statistics being bandied about today refer to the U.S. market, the developed world by no means has a monopoly on the mobile payments bandwagon. In Africa, for instance, there are at least nine countries where there are more mobile money accounts than there are bank accounts. Recently, Visa partnered with Bharti Airtel, the second largest mobile phone company on the continent, and will soon be bringing mobile payment services to seven African markets. As an increasing amount of consumers in both the developed and developing worlds gain access to tablets and smartphones, this trend will only be magnified in its power and influence.
No matter where in the world they have set up shop, today’s merchants are doing business in an era of constant flux and technological innovation. In a matter of just a few years, retailers went from bartering, to cash and cash registers, to checks, to plastic credit cards, and now to mobile payment solutions. As companies move away from the cumbersome cash register and fixed point of sale credit card terminal, they now have much more flexible alternatives. Mobile solutions allow retailers to accept payments on the go—throughout the store, the neighborhood and even the country. Thus, boundaries are broken down while the need for old-fashioned cash becomes a thing of the past. Considering the scope of the developments that have occurred just in the past few decades, the near future promises even more breakthroughs that stand to benefit customers and retailers alike.