A Comprehensive Guide to Mobile Payments and Mobile wallets

With the advent of the mass adoption of smartphones, more and more consumer spending is shifting towards contactless. Some say the change in the payment industry is driven by rapidly changing consumer habits.

Mobile eCommerce sales in the U.S., also known as mCommerce, or eCommerce conducted over mobile devices, are forecast to balloon past $432 billion. That is nearly triple the amount in 2018 of $148 billion, a compounded annual growth rate of over 30%. The groundwork for such paradigm shifts has been laid for years now, with the commercialization of Near-field communication (NFC) technology in smartphones over a decade ago.

Regardless of which came first, we are in the midst of an evolution of payment technologies, opening the door to more changes in how we spend and store money. As a result of these changes, we have delved into mobile payments and some examples of them. We also compare that to what mobile wallets are and what payment methods we include in them.

Regardless of which came first, we are in the midst of an evolution of payment technologies, opening the door to more changes in how we spend and store money. As a result of these changes, we have delved into mobile payments and some examples of them. We also compare that to what mobile wallets are and what payment methods we include in them.

What is Mobile Payment?

The traditional method of paying has been cash, check, credit cards, and debit cards. With the dawn of smartphones, as more consumer behavior shifted towards mobile devices, so did consumers’ tendencies to spend and pay for that spending.

Mobile payments are a new payment type, where consumers pay for their transactions using their mobile device, a smartphone, a tablet, or a smartwatch. This new payment method has required merchants to update their point of sale terminals (POS) to handle such payments, requiring specific technology upgrades to settle the payment transaction.

A mobile payment transaction can be completed by simply scanning a barcode of an app or by tapping or placing a mobile device near a POS terminal.

What are some examples of mobile payments?

There are three leading technologies by which mobile payments are processed.

1. QR Codes – With this technology, a user opens the smartphone camera or the QR code scanning app to scan the QR code visible at checkout. Alternatively, the user can open the payment app on their smartphone to process a transaction that generates a QR code which the merchant can scan using their POS to process payment.
2. Near-field communication (NFC) – this payment technology uses the NFC technology, found on all smartphones, to transmit payment details stored in the mobile wallet app on the smartphone to process payments in traditional brick and mortar settings by either tapping on or placing the mobile device next to the POS terminal. NFC is the foundation of both Apple Pay and Google Pay.
3. Magnetic secure transactions (MST) are a technology where the smartphone gives out a signal mimicking the signal of a magnetic stripe payment to process a transaction. The smartphone saves the credit or debit card details and then utilizes MST technology to process a payment with those card details at traditional POS terminals equipped with a magstripe reader. The latest MST technology utilizes EMV compatible tokenization to secure the payment method. Both Samsung Pay and LG use MST as part of their smartphone payment backbone.

What is a Mobile Wallet?

A mobile wallet, a.k.a. a digital wallet, is an app that combines many payment options such as credit card and debit cards or even currency received or transferred into the mobile wallet. The app also stores loyalty cards, rewards cards, and coupons or vouchers that smartphone users can utilize.

A mobile wallet effectively stores payment information to be utilized for payment purposes. Mobile wallets include many functionalities and allow for payments to be seamlessly accepted by a growing number of merchants. Apple Pay, Samsung Pay, Google Pay, and Amazon Pay are all examples of mobile wallets.

What is a part of the mobile wallet?

Since mobile wallets effectively let you store payment information digitally to use later to make a payment, it is essential to look at the functionality mobile wallets generally have and the type of payment transactions they facilitate. Some examples of these functionalities and transaction types are:

• Payment at traditional POS – the mobile wallets use the payment details stored to process payments to transmit payment details stored in the mobile wallet to process payments in conventional brick and mortar settings by tapping on or placing the mobile device next to the POS terminal.
• Peer-to-Peer (P2P) transfers – users of common mobile wallets can transfer funds to each other for small payments. Examples of mobile wallets utilizing this type of payment facilitation are Apple Pay and Venmo, among others.
• Cash Balances – mobile wallets let users hold their cash balances on the app. Research by FinTech and Future of Banking analysts[ believe that with demographics preferences shifting towards cashless transactions, the emergence of the relevant technology and security safeguards, and the opportunity of financial inclusion will all lead to mobile wallets replacing physical cash.
• Security: Mobile wallets apps have robust encryption and security settings such as passwords, pins, fingerprint scans, and face scans offered by way of the smartphones on which they are stored. As a result, mobile wallets provide much more security than physical cash, especially for those not utilizing traditional banking channels.

The difference between mobile payment and mobile wallets is a technical one and is an obscure one for regular consumers. However, these are terms vital to the payment processing and FinTech industry as more and more companies vie for market share, offering their mobile wallets driven by a burgeoning of mobile payments and mobile commerce.