What's In Your Mobile Phone?

By Mark Maser

Living in San Francisco, one of the most tech-savvy cities in the world, I've been fortunate to witness the proliferation of mobile payment options among vendors who were once "cash only" establishments.

For example, the staff at the independent coffee shop I frequent every morning not only knows how I like my coffee, but now they ask if I'd like my purchase charged to my mobile phone, allowing me to complete the transaction without removing my phone from my pocket. Cool, right? It's also convenient and time saving, a process that makes everyday life a little easier.

Although it may be premature to say that the long-awaited day of mobile payments has arrived for all establishments, mobile payment options are definitely arriving. What's more, they're radically changing the way consumers and retailers complete transactions.

Mobile Payment Options in the Consumer Marketplace
Mobile payment options are extremely diverse. There are several different types of mobile payment methods at play in today's marketplace:

Near-Field Communications (NFC): NFC leverages a chip inside a mobile device that securely contains credit or debit card information. The seller's device holds a transmitter chip that communicates with the mobile device to initiate and complete the transaction. Google Wallet (available on Android phones with NFC) and the Sprint Nexus 4G phone currently use this technology.

Smartphone Credit Card Readers: Smartphone credit card readers are popular with highly mobile retailers such as craft show vendors, personal trainers and coffee kiosks. Using a service like Square (available for iPhone, iPad and Android), sellers use a free card reader that allows them to accept credit card payments anytime, anywhere. It's fast, simple and easy, and everything consumers and retailers look for in a convenient payment option.

Software-Based Solutions: Software-based mobile payment solutions use an application loaded directly onto the consumer's mobile device, allowing users to send and receive payments through the transfer of funds directly from a bank account, debit account or a prepaid account balance. Software-based solutions like Dwolla are available for a broad range of devices including iPhone, Android and Windows 7 Mobile.

SMS-based payments and transfers: SMS payments are more common in underdeveloped countries because they don't require the use of a smartphone. After setting up an account on a website, the user sends a text message containing the authorization code, the amount and the recipient's ID to complete a transaction. ZayPay is a SMS payment option that's common in many parts of the world.

The Future of Mobile Payments
Mobile payment options have experienced slow adoption rates here in the U.S., but with the volume of mobile payments expected to reach $670 billion worldwide by 2015, many companies are gearing up to capture their slice of the mobile payment pie.

According to VentureBeat, Square has announced that 1 million merchants use its mobile payment services to accept credit cards. Based on national credit card merchant figures, this means one in eight U.S. merchants who accept credit cards are now equipped to do so using mobile payment technology.

The race towards mobile payment adoption will also have significant implications for retail marketers. In addition to consumer data mined from 60 billion transactions per year, marketers will now have access to a plethora of new possibilities, including the following:

customer targeting opportunities leveraging ads and promotions connected to consumer spending habits and interests;

location-based data that enable consumers to receive in-store offers based on in-store locations (e.g., aisles, departments, etc.); and

"no line" checkouts that allow consumers to pay using mobile devices and instantly receive receipts via email or text messaging.

At this point, a future free of wallets appears to be inevitable and may not be as far away as you think. Improved standards in the areas of technology, transaction processes and security may be all that's standing in the way of skyrocketing mobile payment adoption rates and the dawn of a new era in the consumer marketplace.

Mark Maser is senior business analyst at Acquity Group. Mark can be reached at mark.maser@acquitygroup.com.