Mobile Payments the new frontier in transactions is slowly taking over the market

Mobile Payments the new frontier in transactions is slowly taking over the market

Mobile Payment is nothing new as companies such as AT&T, and Google already offer mobile payments, however, it was not since the release of Apple Pay on October 20, 2014 by tech giant Apple that retailers, banks and consumers are beginning to take a second look at mobile payment system.

The Genesis of mobile phones and Mobile Payments

It was in 1979 that the world saw its first nationwide network when Japan’s Nippon Telegraph and Telephone (NTT) launched the world’s first 1G network. Soon after Nordic-wide network followed in 1981 and US came after in 1983. This was the beginning of mobile phones. In the years that followed 2G, 3G, and, just recently, 4G networks have been launched.

With advance in technology each generation of mobile networks introduces to the market enhanced capabilities to the point that now mobile phones have literally taken over our lives from meeting new friends while linking up with lost contacts to making appointments amongst other things. This is a generation that believes that mobile phones should be able to do any and everything. With an increasing diverse and advance array of mobile devices- iPhones, Samsung, Blackerry, Nexus amongst others, it is now estimated that over 4.6 billion mobile phones are in use worldwide- mobile phones have simple taken over our lives. In fact, according to a CTIA survey, an average of 4.1 billion text messages are sent per day; Cota Research Consultancy expects mobile data traffic to jump from 8 petabytes/month in 2010 to 327 petabytes/ month in 2015; and, according to a survey from Ground Truth, social networking sites comprises more than half of all time spent on the mobile internet.

Mobiles Phones are not simple for just communication any more as millions of users are daily using more advance capabilities of the mobile phones, especially to access the web. Therefore, mobile phones have become the choice of connectivity supplanting PC for most users.

With the advance in mobile phones capabilities, mobile phones have now dive into the application of using mobiles phones to access and conduct financial services. In a day and age where mobile phones are widely use and consumers are ready to use it for just about anything while the technology is made available, the use of mobile for financial transactions is extremely appealing to most consumers. Coupled with the rise of identity and credit card theft, the ease of use and convenience, many merchants have realized this from very early and have thus introduced mobile payment system to the market.

Many m-payment offerings are very complex and require changes to the payments infrastructure for all parties involved—the banks, the telecom operators, and, most importantly, the consumers.

Originally mobile payments relied heavily on text messaging to complete transactions. Many companies started off using this method of text messages and later upgraded to the use of mobile apps that do not require the user to send or receive a text message.

It was in 1997 that the first mobile payments were introduced to the market when Coca Cola introduced a limited number of vending machines where the customer could make a mobile purchase. How this would work is that the customer would send a text to the vending machine to setup payment and the machine would then vend their product. It was around the same time mobile banking was also introduce to the market through Merita Bank- they also accepted text messages for making bank account transactions.

The first example of contactless payment came in the form of Speedpass in 1997. Mobil gas stations offered payment devices that clipped onto a key ring which allows customers to make payments simple by waving the device over a labeled square at the gas pump and paid instantly. Many gas stations are now incorporating contactless payment technologies into their payment choices.

Since then technology has evolved to a whole new level with the introduction near field communication (NFC) technology. NFC technology allows users with smartphones to easily store multiple credit cards and other payment methods all in one mobile device. NFC means no more sending text messages or swiping through menus to make payments and yet still offers the security of a credit card. NFC technology offers a high level of compatibility with different companies and technologies that works anywhere the customer wants to make a purchase.

Today where technology has reach an advance capabilities in mobile phones, it is no surprise that now we are able to store personal information such as financial information securely to now able to conduct transactions using our mobile phones quickly and securely. Consumers are looking for a system that is quick and easy, at the same time very convenient and secure.

How Apple Pay is changing the mobile payment landscape

In 2012, there were an estimation of about 750 million credit cards in use in the U.S.A while in 2013, consumers spent only $1.6 billion through “contactless” mobile methods. Compare that to the $264.3 billion spent on e-commerce and the staggering $4.26 trillion consumers spent on traditional, in-store purchases. Mobile payments however account for a very small fraction of total payments for e-commerce and in-store purchases. You can therefore understand that mobile payments can grow to exponential level especially with the growth of mobile phones.

There is no doubt that mobile payments is very convenient and appealing to consumers, however, one of the biggest obstacles to the introduction of mobile payments is that retailers are afraid of losing valuable consumer transaction data that they normally use in predictive analytics and other vital business intelligence functions.

And this is exactly one of the main reasons why many retailers are afraid of introducing Apple Pay in their stores. The level of easy and convenience Apply Pay brings to the market could have the same impact on credit and debit cards that the cards had on cash and checks- and that is exactly what Apple CEO Tim Cook’s is hoping as he envision Apple Pay to be the service that will replace consumer wallets.

This is a vision that Apple knows will take a lot of work, and no doubt making a lot of deals, for this vision to succeed. Apple is hoping to accomplish what many others have failed to do. Google, Paypal, and Square are just a few of the big names that have tried for years to persuade large enough following to get on board, but failed to see their offerings gain traction. For me this begs the question that, what did these big brands did that didn’t work? Can Apple Pay be the deciding factor in the talk about mobile payment- there have been a lot of buzz about mobile payments over the years but still retailers dragged their feet in the sand.
However, I strongly believe that Apple has the right team, culture, and technology to make mobile payments big. Apple is one of the most beloved iconic brands in the world with millions of loyal followers worldwide, when Apple speaks, everyone listens. Apple have a long history of taking products and or services that failed, and are failing, and making it (them) into a success- just look at how much buzz Apple Pay is already getting since its launch on October 20- to the point that many big retailers are running to release their very own mobile payment system.
This, as I said earlier, will not be easy as one of the biggest barriers to success is the approximately 90+% of physical retailers in the US that won’t be able to accept Apple Pay. This is because they will have to upgrade their hardware to accept payments via Near Field Communication (NFC); Apple will also face challenges in scaling the service internationally as they will need to broker deals with banks and retailers around the world. This will be one of the most daunting tasks Apple will face, especially in third-world countries like here in Jamaica.

If Apple succeeds with Apple Pay, mobile payments will never be the same as consumers will be able to conduct transactions in very short time, there will be very little fear of credit card theft and fraud, and retailers will have very little worry about paper-works and fraud. Apple Pay is also tackling ecommerce (online shopping sites) and apps. Very soon users will have the option of using Apple Pay when making purchases offline and online, I hate typing in my credit card on sites, therefore Apple Pay will be breath of fresh air– if I can afford iPhone 6.

Apple Pay functionality is made possible because card companies are providing a new way of authorizing transactions through a mechanism dubbed “network-level tokenisation”. I am sure that very soon we will be seeing similar services on Android phone and other mobile devices when, the world no doubt waits in great anticipation on this development.
If Apple should succeed they will have to find away of lowering cost. Currently, banks are being ask to pay a fee for each transaction and banks will no doubt push some of that cost unto their bank customers. Apple Pay therefore adds another layer of high cost associated with accepting payments in already struggling economy where business seeks to lower cost.

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See also: Consumers are happy with Apple Pay but many Retailers refuse to allow it in their stores
Also: Apple Pay will greatly impact how consumers and merchants do business. Will Apple Pay be welcome by the public and businesses?
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