Consumers are increasingly using digital wallets like Apple Pay at checkout. Learn more about this payment method and how your small business can accept it.
- The use of mobile wallets is on the rise.
- A mobile wallet is defined as any smartphone capable of making financial transactions. Many smartphones now include mobile wallets as a built-in feature.
- You can work with your credit card processor to accept mobile wallet payments.
- This article is for business owners who are considering accepting mobile payments.
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 – and expected to surpass $250 billion by 2024, according to a Global Market Insights Inc. report.
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.
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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.
Merchant support for the technology has also increased, as most new credit card readers and point-of-sale (POS) terminals can accept mobile wallets and other contactless payments.
For small businesses, accepting mobile payments can improve the customer experience and streamline processes, 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 necessary 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 incentives for consumers like loyalty programs and coupons.
The clear advantage is "contactless payment," which typically involves NFC technology. Phones such as the Samsung Galaxy S20 use NFC so you don't have to swipe a credit card; you simply place the phone on a reader that scans the QR code for the customer's card.
Mobile wallets work in the store for small business transactions, but they can also be used for online payments. It's a way for customers to avoid carrying a real wallet or purse, using one device for all payments.
Of course, the mobile wallets complete the transaction with the customer's existing credit card. For example, they can link Apple Pay to their bank card or credit card. Sensitive card data is replaced with encrypted tokens for extra security.
With various digital wallet apps, a smartphone can be used to make payments, record and redeem loyalty points, replace paper boarding passes, convey personal identification, and transmit credentials that grant access to secured doors and rooms.
Key takeaway: Mobile wallets let customers use their smartphones to make payments online or in-store via tap-to-pay or QR code scans.
What are the benefits of mobile wallets for businesses?
Among the benefits of digital wallets for businesses are:
Growing increasingly popular with consumers. A November 2020 report on mobile payment predicted that, by the year's end, 760 million people globally would count themselves as mobile wallet users. With such a large user base, it only makes sense for your company to allow for mobile payments – more convenience for customers may mean more sales for you.
Quicker transactions. Mobile wallets facilitate quicker transactions than traditional payments such as debit and credit cards. Debit cards require customers to enter a PIN and credit cards may require customers to give their signature before a transaction is complete, neither of these requirements is part of mobile wallet payments.
May slowly replace debit cards. Mobile wallets are usually extensions of debit cards rather than entirely new bank accounts that customers open just to be able to pay from their phones. As such, they could grow to entirely replace debit cards. This is especially true since many millennials and Generation Z customers always have their phones with them, so accidentally leaving a card or wallet at home isn't a concern for this group.
Mobile apps can be part of mobile wallets. Look to Starbucks for an example of this advantage in action. The ubiquitous coffee brand offers rewards programs, coupons and more incentives through its app, which can also be added to a customer's mobile wallet and used as payment – think of it as a digital Starbucks card. This model at once gives Starbucks a loyalty program and a payment avenue through which 25% of its transaction occur.
Additional security. Credit cards come with security risks, many of which are eliminated when using mobile wallet payments. For example, since mobile wallets must be verified by the customer using a fingerprint or a four to six-digit PIN they set, you don't have to worry about your staff failing to match the customer's name or signature to those on a card. There's also no chance of accepting fake credit cards, as without connections to a real debit account, mobile wallets and payment programs simply don't work.
- Can earn customer loyalty. Some customers are dead set on only paying with mobile wallets. If your company is among a few in its industry or market that take mobile payments, then those customers will likely choose you over a competitor.
Key takeaway: The benefits of using mobile wallets for business include faster transactions, a growing user base, more secure transactions and the potential facilitation of customer loyalty programs housed in your company’s mobile app.
How safe are mobile wallets?
Mobile wallets have preinstalled security features designed to stop anyone else from using the account. Whereas credit cards are easy to scan or steal, mobile wallets are easy to keep track of – since most people usually know where their phones are – and include encryption technology. They also offer optional security measures to prevent unwanted users from using the mobile wallet app, such as a required face scan, fingerprint, PIN or passcode.
Mobile wallets are harder to steal from because they are harder to replicate. Usually, people hang on to their phones more than they do their wallets. If someone loses their wallet, their cash is gone. If someone loses a phone, the lock on the phone and the app protects against theft.
There are some inherent risks in relying solely on a mobile wallet for payments, of course. The phone could die right at the point of purchase, a bug could prevent the traction from working or make the QR code unreadable, and there's always the chance of user error. (For these reasons, you should give your customers as many payment options as you can.)
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 lower. This can build stronger trust between merchant and customer. In addition, many phones use fingerprint identification to verify a purchase.
Key takeaway: Mobile wallets were built with security in mind. The data is encrypted and requires face scans, fingerprints, PINs or passcodes to unlock phones and verify transactions.
How do mobile wallets make money?
The apps' banking partners (i.e., the banks that host the customers' connected payment cards) pay the mobile wallet companies a small percentage of every purchase their customers make through the app. For example, Apple earns 0.15% of each Apple Pay transaction.
For peer-to-peer payments through Venmo, the app charges the payer a percentage of the transaction's value (if they're paying with a credit card). Businesses that accept Venmo payments assume this fee and pay a 2.9% fee for each transaction.
Key takeaway: Mobile wallet app companies earn money by taking a small percentage of every transaction made through their apps.
How do you accept mobile wallet payments?
Setting up mobile payments for your business is generally fast and affordable. First, you need to choose a credit card processor that supports mobile payments. There are hundreds of payment processing companies on the market, and all the best ones can set you up to accept digital wallets.
If you already have a payment processor, call your rep and ask what you need to do to accept mobile payments and digital wallets – it may be as simple as upgrading to a new credit card reader that enables NFC. The card reader or terminal should cost you no more than $500; depending on the mobile payment provider, it might even be free.
If you're not yet accepting credit cards, consider working with a mobile credit card processor like Square or PayPal, as it's quick to set up an account with them, upfront costs for processing hardware are minimal and there are no monthly or annual account fees.
Key takeaway: Your credit card processor can set you up to accept mobile wallet payments. If you're already processing card payments, you may need to upgrade your card reader to one that has NFC technology.
What are some mobile wallet providers?
The mobile wallet market has exploded in recent years. Here are the five mobile wallet companies that stand out from the pack and serve millions of consumers:
Apple Pay lets its users make digital payments in-store and online. It works with iPhones, iPads and the Apple Watch.
PayPal is a leading mobile payments provider that lets customers make purchases online or in-store without using a credit card. Funds can be loaded to PayPal's digital wallet, or users can link credit cards and debit cards to the account.
Google Pay users can make purchases with payment card information stored in the digital wallet. Customers can also use stored payment information for Google services to make purchases online or in-store.
Click to Pay through Visa, Mastercard, American Express and Discover lets customers store their payment information from those card companies and use it for purchases.
- Amazon Pay customers can make purchases with the credit and debit cards they have stored with the e-commerce giant. Amazon gets a commission for each purchase made through the service.
Key takeaway: Apple Pay, PayPal, Google Pay, Click to Pay and Amazon Pay all allow customers to store their card details and pay merchants with their smartphone.
John Brandon and Max Freedman contributed to the writing and research in this article.