Square Guide

What Are Mobile Payments? And How to Use Them

Intro to Mobile Payments

Mobile payments are an increasingly attractive way to pay because they’re secure, fast, and convenient. In 2017, mobile payment volume will reach $75 billion and should increase to $503 billion by 2020.

Since the growth of Apple Pay and other NFC payments isn’t slowing down, adapting to mobile payment technology is extremely valuable for your business. This guide walks you through everything you need to know about mobile payments—from mobile money transfers to how to accept NFC mobile payments at your business.

Table of contents

Apple Pay is a type of mobile payment

FAQ

Five Frequently Asked Questions About Mobile Payments

1. What are mobile payments?

Mobile payments are regulated transactions that take place digitally through your mobile device.

2. What is a mobile wallet?

A mobile wallet is an app that (securely) stores your credit card details so that you can pay for things digitally. How do you use a mobile wallet? A consumer can download a mobile wallet app on their phone and add credit or debit card information which will be stored securley. Most mobile wallets require thumbprint authorization- or other security measures- in order to access the mobile wallet and pay.

3. How do mobile payments work?

In stores, mobile payments are enabled by a technology called NFC, which stands for “near field communication.”

4. What are the benefits of mobile payments?

Mobile payments are secure, fast, and convenient.

5. What’s the future of mobile payments?

Because of their enhanced security features and convenience, mobile payment adoption will continue to increase.

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Deep Dive

What are mobile payments?

Mobile payments (which encompass mobile wallets and mobile money transfers) are regulated transactions that take place through your mobile device. That is, instead of paying for stuff with cash, checks, or physical credit cards, mobile payment technology allows you to do so digitally. Mobile payments can be used in a “peer to peer” context or for paying at a brick-and-mortar business. In a peer-to-peer mobile payment, you could be using a mobile payments app to, say, pay a friend back for dinner or someone on Craigslist for a piece of furniture. In a mobile payment at a brick-and-mortar business, you’re using an app on your mobile device—instead of cash or a card—to pay for specific goods or services at the checkout counter. In this instance, the business would need a specific type of point-of-sale device (which we get into below) to process the transaction.

What is a mobile wallet?

A mobile wallet is essentially a digital wallet. In a mobile wallet app, you can securely add and then store the bank details associated with your credit card (some mobile wallet apps allow you to add more than one card). So instead of using your physical credit or debit card to make purchases, you can pay via your mobile device. If you want to accept mobile wallet payments at your business, you need to have a point-of-sale system that’s equipped with the technology that can process the transaction.

Mobile wallet technology

The technology that underpins mobile wallet payments is something called NFC, which stands for “near field communication.” NFC is what enables two devices—like your phone and a payments reader—to communicate wirelessly when they’re close together (that’s where the “near” part of NFC comes in). Typically, a mobile device has to be two inches or less from a reader to process the payment.

NFC is actually a subset of something called RFID (radio-frequency identification), a technology that allows us to identify things through radio waves. RFID is nothing new—it’s been used for decades for things like scanning items in grocery stores and luggage on baggage claims, and tagging cattle. NFC and RFID are increasingly being used in the processing of mobile payments at stores.

Contactless payments have gained significant traction, and more businesses are beginning to accept this secure form of payment.

Mobile wallet adoption

From messaging to transportation apps to health monitoring, we’re using our phones more and more to take care of day-to-day life. So it’s no surprise that we’ve seen a proliferation of mobile payments apps in recent years. In fact, a recent Accenture Consulting report found that 23% of millennials make a mobile payment at a merchant at least weekly.

The nationwide switch to EMV chip cards is likely to accelerate mobile wallet adoption. That’s because while chip cards are more secure than magstripe cards, they’re not the most seamless experience. Transactions take noticeably longer to process than people are used to, which isn’t ideal, especially when there’s a long line to check out. Mobile wallets are just as secure as EMV chip card payments, but a lot faster. As people get aggravated with the sluggishness of EMV, it’s likely we’ll see mobile wallet adoption pick up some serious steam.

Mobile wallet companies

There are a variety of companies that offer mobile payments apps. But the most popular are Apple Pay (Apple’s mobile payments solution), Android Pay (Google’s mobile payments solution), and Samsung Pay (Samsung’s mobile payments solution). If you have a more recent model of an iOS or Android device, chances are it can support a mobile payments app. On the merchant side of the equation, Square offers a payments processor and system that can accept mobile payments. All you need to start accepting Apple Pay, Android Pay, and Samsung Pay at your business is Square’s mobile payments reader and your mobile device. (Check here to see if your device is compatible—most new iOS and Android models are).

Android Pay (pictured) is another type of mobile NFC payment

What are NFC mobile payments?

NFC, or “contactless,” payments are payments that occur in person between a mobile device and a payments processor that can accept them. To make an NFC mobile payment, you need to have a mobile wallet app on your device. And to accept an NFC mobile payment at your business, you need a payments reader (like the Square contactless and chip reader).

Contactless payments are as secure as EMV chip card payments but have some upsides when it comes to usage and speed.

Below are the most popular examples of NFC mobile payments apps. (To learn more about NFC, read our in-depth guide What Is NFC? Everything You Need to Know About Near Field Communication.)

Apple Pay

Apple Pay works on newer versions of the iPhone, as well as the Apple Watch. To pay with Apple Pay, add a credit or debit card to the Wallet app on your device. When you’re at a store that accepts Apple Pay, hold your iOS device over a payments reader while holding your finger on the Touch ID button (which is an added layer of protection). Read more about how to use Apple Pay—and accept it at your business.

Android Pay

Google’s mobile wallet technology, Android Pay, is available on all NFC-enabled devices that run Android version 4.4 or later. To use Android Pay, open the app on your phone (which requires the user to have a secure lock screen) and complete the transaction by holding your device over the payments reader.

Samsung Pay

To use Samsung Pay, open the app and then hold your device over the point-of-sale terminal. Samsung Pay works on the Samsung Galaxy S6, Galaxy S6 Edge, Galaxy S6 Edge Plus, and Galaxy Note 5.

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How do mobile payments work?

To pay with your mobile device at a store’s checkout counter, hold your device close to the NFC-enabled payments terminal. The reader should not be farther than 10 centimeters away from the source (mobile phone) to set the transaction in motion. Since there’s no physical contact between your device and the payments reader, mobile wallet payments are often referred to as contactless payments.

What’s happening in a mobile wallet transaction is that your device and the NFC-enabled point of sale are essentially talking to each other. Using that specific radio frequency we talked about, they pass encrypted information back and forth to process the payment. This all takes just seconds. Speed, in fact, is one of the coolest parts of NFC payments. They take a fraction of the time of magstripe and chip card transactions—and are leagues faster than cash.

Using mobile payments is simple and secure.

There’s also something called tokenization at play in a mobile payment transaction. Tokenization is part of why mobile payments are so secure, as the technology safeguards your bank details in mobile payments apps. Let’s take Apple Pay as an example. Here’s how it works: After you take a picture of your credit card and load it into your iPhone, Apple sends the details to your card’s issuing bank or network. The banks and networks then replace your bank details with a series of randomly generated numbers (the token). That random number is sent back to Apple, which then programs it into your phone. This means that the account details on your phone can’t be cloned into anything valuable to fraudsters.

How can I accept mobile payments at my store?

To accept mobile payments at your store, you need to get a point-of-sale device that’s equipped with NFC technology. This doesn’t have to be expensive. The Square contactless and chip reader is just $49 and also takes EMV chip cards (which is also something you’ll want to start accepting, given the new fraud rules).

Square’s contactless and chip reader accepting Apple Pay

Once you get your Square mobile payments reader, it’s super-easy to start accepting Apple Pay, Android Pay, and Samsung Pay right away. All you do is ring up a purchase, look for the green light to appear on the reader, and then have the customer hold the phone over the reader to pay. The whole transaction is completed in just seconds. Learn more about how to get set up to accept mobile payments.

How to use Square’s mobile payment system

  1. Purchase Square’s contactless and chip reader. For your convenience, consider the OtterBox case for iPhone 7/7s if you’d like to use your reader with your iPhone. You can learn more about setting up the contactless and chip reader here.
  2. Download the Square Point of Sale app for iOS or Android.
  3. Ring up your customer in the Square app. When it’s time to pay, your customer can hold their mobile device near (within 10 cm) of the reader to complete the transaction.
  4. Receive your deposits as soon as the next business day. Square sends payments directly to your bank account in one to two business days.

What is a mobile money transfer?

A mobile money transfer is a payment to another individual through your mobile device. Mobile money transfers can also be referred to as “mobile to mobile” transfers because each party needs the same mobile payments app to process the payment. As people are carrying cash and checks around less and less, mobile-to-mobile money transfers are becoming an increasingly attractive way to pay. A recent study by Accenture Consulting found that there’s already a high adoption of mobile-to-mobile money transfers among consumers. Of those surveyed, 46% reported having used mobile payments apps, with 15% saying that they make peer-to-peer payments regularly (at least weekly).

Mobile money transfer apps

As we mentioned, mobile money transfers take place through an app on your phone. To use a mobile money transfer app, download it from the App Store or Google Play, and then enter the card number of the account you’d like on file. Square Cash is an example of a simple, secure, and easy-to-use mobile money transfer app. With Square Cash you can send money free with your debit card or with your credit card for a 3% fee. The funds are usually deposited into the recipient’s bank account instantly.

Square Cash in an example of a P2P app for mobile payments

Our favorite mobile payment apps for consumers

  • WeChatPay — WeChat users can transfer money to one another, or make payments online and offline with participating retailers. As of 2016, the company had almost 700 million active users worldwide. You can download it here for iOS or Android.
  • Snapchat — Users of the photo-sharing app can send money to one another through Squash Cash, a service called Snapcash. Learn more about how to send money through Snapchat here.
  • Square Cash — Square’s free peer-to-peer payments app lets you send money free directly from your debit account. You can download it here for iOS or Android.

Why use mobile payments?

On the peer-to-peer side of things, utilizing mobile money transfer apps allows you to forgo the hassle of cash and checks, and get paid quicker. And for in-store purchases, mobile payments are the best solution for a number of reasons:

Speed and convenience are also strong reasons you may want to consider accepting mobile payments at your business.

They’re fast

Mobile contactless payments are by far the fastest way to pay. Usually, they take about a second. This is in stark contrast to EMV chip cards, which are extremely sluggish. As the United States transitions to EMV as the credit card processing standard (which is happening quite quickly), it’s likely mobile payments will see increased adoption because they’re a far better experience. And for businesses that have checkout queues (QSRs, retailers), contactless payments will become much more attractive as they can move the line faster (which means more sales in a shorter amount of time).

They’re convenient

People are carrying around cash less and less. People have their phones at the ready more and more. This combination makes mobile payments the most convenient way to pay. There’s no having to go to an ATM to pay someone back—you can do that through a mobile payments app on your phone. And there’s no need to dig into your bag for your wallet at the checkout counter—you can just tap your phone to pay.

They’re secure

Mobile payments have multiple layers of dynamic encryption, making them an extremely secure way to pay. They’re far more secure than magstripe payments, and just as secure as EMV chip card payments. In fact, if you’re using a mobile payments app with fingerprint ID (like Apple Pay), it’s arguably more secure than an EMV chip card payment.

An added bonus for businesses? Studies show that NFC payments increase tipping rates. Customers who used their phone or NFC device to pay were more likely to tip than customers who used traditional magstripe cards. Here are a few other ways acepting mobile payments helps businesses.

The future of mobile payments is bright. Now is the time to future-proof your business.

The Future of Mobile Payments

Consumers’ thoughts on mobile payments have revolutionized the way businesses are thinking about payments processing. On one front, we’re moving toward more secure, authenticated ways to process payments. And on another, we’re moving toward faster, more convenient ways to pay. Brands like Starbucks and CVS have created apps that allow you to save payment information and favorite products, so you can refill a prescription or order your favorite coffee drink with the tap of a button.

Mobile payments check both of these boxes, and therefore are where everything is headed. To quickly get set up for peer-to-peer mobile money transfers, download the Square Cash app. And to accept NFC mobile payments (as well as EMV chip cards) at your store, order the Square contactless and chip reader.

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