Mobile payments are expected to balloon to $250 billion by 2024, according to MarketWatch.
- The use of mobile wallets is on the rise.
- A mobile wallet is defined as any smartphone capable of making financial transactions.
- There are many types of mobile wallets from companies like Square and GoPayments. - Many smartphones now include mobile wallets as a built-in feature.
When Apple Pay was introduced in 2014, many people scoffed at the idea that a smartphone could replace cash and credit card transactions at the point of purchase. Today, mobile payments are on the rise. By next year, mobile payments are expected to increase to $250 billion by 2024, according to MarketWatch.
Several factors are converging to drive this growth: the proliferation of smartphones (about 96% of Americans use them); enabling technology; lifestyle changes; demand for improved customer experiences; and the need for fast, easy, and secure transactions.
Millennials are currently the largest audience for mobile payments – nearly half the people in this age range report using a mobile wallet.
Over the last few years, top technology innovators like Apple, Google and Samsung have advanced the mobile payment industry by introducing next-generation mobile payment apps, making mobile payments more accessible to more consumers. And companies like Paytm and Square have dominated the mobile wallet market.
Credit card companies are finally adopting the idea of mobile payments. Increased merchant support for the technologies across point-of-sale (POS) terminals is expected to fuel mobile payment growth in retail, according to Allied Market Research.
For small businesses, accepting mobile payments can improve customer experiences, streamline processes and reduce transaction costs, to name just a few benefits.
Some industry experts say that adopting mobile payment technologies is one way to future-proof your business. But does it make sense for small businesses to get on board now?
To help you weigh the pros and cons, here's an overview of mobile payments, potential benefits and the technology needed to support them.
What are mobile wallets?
As a broad definition, a mobile wallet involves any technology that turns your smartphone into a wallet capable of making financial transactions. This can also involve making credit card payments, relying on near-field communication technology (tap to pay), and often includes other incentives, loyalty programs, and coupons available to customers.
The clear advantage has to do with “contactless payment,” which typically involves a near-field communication (or NFC) technology. Phones such as the Samsung Galaxy S10 use NFC so you don’t have to swipe a credit card; you simply place the phone on a reader.
Mobile wallets work in the store for small business transactions, but they can also be used for online payments. It’s a way to avoid carrying a real wallet or purse, and for customers to pay using one device. Mobile wallets do not technically use a credit card but use encrypted tokens.
Of course, the mobile wallets complete the transaction with your existing credit card. For example, Apple Pay can be linked to your bank card or a credit card.
With various digital wallet apps, a smartphone can be used to make payments, record and redeem loyalty rewards, replace paper boarding passes, convey personal identification, and transmit credentials that grant access to secured doors and rooms.
One important factor with mobile wallets: According to the Small Business Administration, small companies should definitely consider a marketing and sales strategy based on mobile wallets and their popularity. It’s tempting to jump in as a retailer or other small business with the accepted transaction process, but including mobile wallets can help with long-term strategy and planning, and they can help you grow your business.
How safe are mobile wallets?
Mobile wallets come with preinstalled security features designed to stop anyone else from using your account. Whereas credit cards are easy to scan or steal, mobile wallets are easier to keep track of and usually include encryption technology.
You can also set up security measures to prevent unwanted users from using the mobile wallet app – this can include a face scan, fingerprints, a PIN or a password.
Mobile wallets are harder to steal from because they are harder to replicate.
Usually, people hang on to their phones more than their wallets. If someone loses their wallet, all their cash is gone. If someone loses a phone, the lock on the phone and the app protects against theft. The downsides have to do with the phone dying right when you need it for a mobile payment, a bug that prevents the traction from working or user error.
Although there's been a lot of concern about security, mobile payments are more secure than other forms of payment. Customers don't have to worry about leaving a credit card behind at the terminal, and since the data for mobile payment is encrypted, the risk of data theft is reduced. This can build stronger trust between merchant and customer. If the phone is lost or stolen, it can be locked. Plus, many systems offer fingerprint identification to verify a purchase.
Mobile payments and digital wallets should be integrated with traditional payment forms. You'll want to continue offering all the forms of payment you currently accept in addition to digital wallets. As mentioned previously, mobile wallets should fit an overall sales plan.
How do mobile wallets make money?
Mobile wallet app companies earn a percentage (usually between 2% and 20%) from every purchase made through the mobile wallet app, depending on the purchased product. This happens through service tax and transaction fees. For example, Paytm.com has a 1.99% transaction fee and charges a .30% service tax.
The most common method of mobile wallets making money, though, has to do with business-to-business partnerships. Companies like Paytm can operate a bit like a bank, and you can expect the inevitable added charges for reporting, additional transactions, and added security.
There are additional revenue models as well. Mobile wallet providers might also partner with other service providers and vendors, offering deals and incentives. If you, as a small business owner, decide to sign up for a subscription to a credit card provider or a bank, or if you purchase tickets through a vendor that’s a partner, the mobile wallet company earns a commission.
How do you accept mobile wallet payments?
Setting up mobile payments is generally fast and affordable. To accept mobile payments through digital wallets, you need a digital wallet provider, such as Apple Pay or Google Pay.
There are dozens of digital wallet companies from which to choose. Talk to your existing payment providers to see if they already work with mobile payments and digital wallets.
For online businesses, you'll likely need to add a module to your current shopping cart software to accept mobile payments. For brick-and-mortar businesses, you'll need a reliable internet connection and a POS terminal that accommodates mobile payments in addition to the other forms of payment your business accepts. The scanner or terminal cost should run no more than $500 or, depending on the mobile payment provider, can even be free.
Companies like Square, GoPayment, and ROAMpay can assist the small business by offering a terminal (sometimes for free or at low cost) to make a proprietary mobile wallet payment faster and easier. There may also be a small transaction fee associated with the terminal itself.
Mobile payments help a small business reach more customers. The business model for mobile wallets fits perfectly with the growth in smartphone use. We're relying even more on these devices as consumers, so small businesses can tap into that trend even more.