The Ultimate Guide to Accepting Mobile Payments
In 2012, the PewResearch Internet Project found that 65 percent of respondents in its survey believed that by 2020, mobile payments will have almost entirely replaced the need for cash or even credit cards. And if you’re a merchant who’s not accepting mobile payments yet, you’re already behind the curve.
Now is a good time to take a look at why you need to accept mobile payments, the technology in play (and what’s on the horizon), and of course, the major players. We’ll also show you how to go about getting the tools you need to accept mobile payments.
Why You Need to Accept Mobile Payments
The fact is, business owners can’t afford to work on cash-only systems. Even if you’re just a small-time crafts business and attend a few shows a year, if you don’t accept card payments, you are missing out on a massive amount of potential income.
According to a 2012 study by the Federal Reserve, many people carry less than $20 in cash. And while cash transactions were the most common type of transaction, their overall value was less than credit, debit, or electronic transactions. By 2017, experts predict cash will account for just 23 percent of all transactions.
In short: if you want people to spend more money with you, you need to accept cards.
Technological progress on the mobile payments front has been slow. Square introduced its mobile payment system, enabling smartphone owners to turn their devices into card readers, in 2009.
Google Wallet debuted in 2011, turning those same phones into digital wallets that replaced cards and cash, providing, of course, that the business had the necessary equipment.
PayPal, the darling of e-commerce for years, didn’t introduce its own mobile payment solution until 2012.
But in 2014, Apple finally debuted its own mobile payment solution, Apple Pay, which uses biometric authentication and NFC to make payments via the iPhone and Apple Watch. The adoption rate among Apple Pay is promising, with major retailers reporting massive increases in mobile payments.
In short: Apple joining the mobile payments field, and bringing on board dozens of major businesses in the process, was a big step forward.
And then in 2015, Google decided to replace Google Wallet’s mobile payment capabilities with a new app called Android Pay. Google Wallet became a peer-to-peer payments tool, allowing users to send money to friends and family.
A 2015 study by the Fed found that 22 percent of all mobile phone users and 28 percent of smartphone users had made a mobile payment within the past year. That’s up from 16 percent of mobile phone users in 2014. And mobile transactions grew by a whopping 118 percent over 5 years, according to Business Insider.
Market research is the cornerstone of any successful business plan. And here is no different: Before you start adding mobile payments to your business, it’s important that you understand a little bit about the consumer mindset regarding them. Knowing your consumer will help you decide which option is best for you and your business.
Overall, there’s good news. In the US, Europe, and many parts of Asia, the outlook is generally positive and consumers are receptive. And once people start using mobile payments, they are more likely to continue doing so. The speed and convenience of mobile are both big factors in their appeal, so you need to bear this in mind.
Plus, smartphones are beginning to saturate the market. A whopping 82 percent of 18-to-25-year-olds had smartphones as of Q4 2013. About 60 percent of their parents have smartphones, too.
That, however, doesn’t mean there aren’t any barriers to resistance or objections. In fact, a few pervasive myths could be keeping consumers from going mobile:
A 2013 survey by Accenture revealed some surprising insights about consumer sentiment toward mobile payments:
- Many people are aware their phones can complete mobile payments, but the adoption rates are low. That said, once people have made a mobile payment, they are very likely to continue doing so.
- People aren’t willing to switch banks, upgrade phones, or make other changes just to get more support for mobile payments. In other words, it’s on the merchant to be as flexible as possible where mobile payments are concerned.
- Above all, consumers are worried about privacy, security, and convenience when it comes to mobile payments. They also care about value. Sixty percent of people who have made mobile payments would make more of them if using their smartphone generated instant coupons. More than one-third of mobile payment users are even willing to hand over personal information in exchange for that convenience. They are also interested in value-added tools like receipt tracking.
- In addition to coupon incentives, consumers would like to see other tools to supplement mobile payments. That means features like receipt tracking or even balance checkers could make a big difference in adoption rate, as would being able to use a mobile phone as proof of ID.
- Perhaps most surprisingly, consumers AREN’T waiting to see which technology claims dominance. That means there’s likely room for many forms of mobile payments in the market, and it would not be impractical to consider finding a way to accept different forms.
There’s a bit of push and pull going on here. There’s a healthy segment of consumers who want to use mobile payments. You can also entice new users to use mobile payments with the right incentives.
Also worth noting: Millennials, by far the biggest users of technology, are far more interested in financial offerings from technology, e-commerce and payment giants like PayPal, Amazon, Google, and Apple than they are in services from their own banks. One-third of them feel they won’t need to use a bank at all soon.
That said, more than half of the commercial banks have some form of mobile banking, and 61 percent of 18-to-25-year-olds who own smartphones do use mobile banking. They tend to see their bank as interchangeable with other banks, which is probably part of the reason for interest in alternative payments. The 2008 recession probably didn’t do much to help Millennial perceptions of banks, either.
Mobile Payment Technology
At this point, there are three contenders competing for dominance in mobile payments. Each one has its own benefits and drawbacks:
- QR Codes
Let’s take a closer look at each to really understand how they could dominate mobile payments.
NFC, or near-field communication, is a contactless data transfer system similar to RFID. When two NFC-enabled devices come into range, you can transfer data from one to the other (such as bringing a phone in range of a credit card terminal). It plays well with other technology such as Bluetooth and Wi-Fi, which is a big advantage.
NFC isn’t ubiquitous (yet), but it’s found in a lot of phones, especially the flagship devices from Samsung, LG, and Sony. Apple finally jumped into the NFC game in 2014, and Google relaunched its mobile payments service as Android Pay in 2015. Samsung also launched its own app, aptly named Samsung Pay, in 2015.
NFC is a safe method for payments. Sensitive data is stored in a secure element, either built into the SIM card of a phone or placed in a separate chip. In most cases, retailers never actually see your card or bank account data.
For a deeper look at NFC, take a look at our guide, “What is NFC, and Why Should You Care?”
QR codes, or quick-response codes, have the sort of ubiquity that NFC lacks. They work a bit like your standard bar codes, except that instead of relying on one-dimensional analog scanning, they are digital. That means that with a QR code reader app, your smartphone’s camera can be temporarily converted into a scanner. QR codes can embed way more information than your standard bar codes, which gives them the power to do things like open mobile sites, direct you to YouTube Videos, and yes, even enable you to complete mobile payments.
iBeacon is an Apple-developed technology that uses Bluetooth Low-Energy (BLE, or sometimes also called Bluetooth Smart). Unlike the other two types of technology, it’s really still in the developmental stages. While it can be used for mobile payments, at the moment the biggest application for iBeacon is actually as proximity alert or geo-fence that can go where GPS doesn’t.
It works like this: iBeacon units are set up throughout a building (such as a department store). When someone with an iBeacon-enabled device comes into range of those beacons, they transmit information. Some of the ways this technology could be used would be to transmit mobile coupons or other special offers, to guide customers throughout the store by department, or even to help them find specific items on a shopping list.
One of the reasons that NFC had an edge over Bluetooth for a long time was the massive amount of power that Bluetooth required. However, BLE uses far less energy than its predecessors, which is why it’s now becoming popular for pairing wireless mice and keyboards (the batteries will last much longer). iBeacons with Bluetooth Smart technology won’t be a massive power-suck for consumers. Plus, iBeacons have a much further range than NFC: NFC devices need to be within 8 inches (though 2 inches is really most effective). iBeacons, on the other hand, have a range of 50 meters, or about 165 feet.
For payments, iBeacons would work nearly the same as NFC: the phone would wirelessly transmit payment information to the terminal or beacon via Bluetooth.
It’s also worth noting that while iBeacons are Apple technology, they are not exclusive to iOS devices. The phone just needs to have Bluetooth Smart and the appropriate app. Furthermore, Samsung announced its own version of the iBeacon, called Proximity, at its 2014 developer conference in November. it works the same way as iBeacons, but rather than going through an app, Proximity works directly with the phone’s hardware.
Even Facebook has its own Beacon service for businesses. The beacons prompt visitors to the location to like the company’s Facebook page and provides other information.
Major Players in Mobile Payments
Let’s start by examining some of the major players in mobile payments, where they stand, and how they compare when stacked up against each other. These include:
When Apple announced the iPhone 6 and iPhone 6 Plus in September 2014, it also introduced Apple Pay, which uses a combination of biometrics and NFC to complete mobile payments. Moreover, Apple already had major merchants lined up to start accepting Apple Pay. With this mobile payment method, consumers never have to give their names, credit card numbers, or security codes to retailers. Instead, Apple uses a unique device ID to process the transaction.
Apple Pay works with credit and debit cards for major US banks, including Visa, MasterCard and American Express from Chase, US Bank, Wells Fargo, PNC, and more. You can check out the full list of banks and merchants here.
Before Apple Pay, there was Google Wallet. It never gained much traction, but in 2015, Google launched Android Pay, the successor to Google Wallet. (GW is still available, but as a mobile wallet and peer-to-peer payments app.) Android Pay also uses NFC. To make it work, you need to enable the lock screen on your device. Unlock the phone with your preferred method (fingerprint scanner, PIN, or pattern) and tap it to the terminal to complete the transaction.
There’s also the Google Wallet Card. It’s a debit card issued by MasterCard, that is linked directly to your Google Wallet balance. You can link your GW account to your Android Pay account and even withdraw cash from ATMs with the card.
Apple Pay ran into some trouble when some major retailers (including CVS and Rite Aid) disabled its NFC terminals to block Apple Pay. The reason? Wal-Mart, Best Buy, Rite Aid, CVS and other merchants have teamed up in a joint venture called the Merchant Customer Exchange, which is developing a mobile payment option called CurrentC.
CurrentC uses QR codes rather than NFC. But the CurrentC process is slow, much slower than NFC, and incredibly clunky. It’s the same sort of system used with direct deposits. First, the customer must scan the QR code generated by register using the CurrentC app. Then, the cashier scans the QR code generated by the phone.
The reason members of the MCE are throwing their support behind CurrentC is that it could conceivably help them sidestep the fees that credit card issuers charge. Most retailers pay anywhere between 1 percent and 3 percent of the transaction in fees. CurrentC would sidestep this by using checking accounts, gift cards, and retailer-issued debit cards.
At the moment, CurrentC has not gone live, but the app is available in iTunes and Google Play. Worth mentioning is that in October 2014, CurrentC was hacked and user emails were stolen. That’s even before the platform is fully up and running.
Here’s why that’s so troubling:
CurrentC collects your driver’s license number, your social security number, and your date of birth to verify your identity. It also collects your health information. Plus, one of the key selling features of CurrentC is the coupon-and-rewards feature. While it would be a big draw for customers, it also reveals a large amount of data about users and their shopping habits. All that information goes directly to retailers, since retailers are the ones who developed the platform.
Apple Pay, by contrast, does not collect that data, and it doesn’t share any information with retailers.
Unlike the other mobile payment options we’ve discussed so far, Flint doesn’t need any sort of terminal. It’s a truly “mobile” solution because all you need to accept payments is your phone, which makes it ideal for service businesses that make house calls and other vendors who travel. Flint’s mobile app works with your camera to scan cards (note: it never stores the photos it takes of a credit card) and process payments. That means no fighting with card readers as you have to with PayPal and Square. However, you can only accept Visa and MasterCard at the moment, and no pre-paid cards. (It’s also worth noting that in October 2014, Flint secured $9.4 million in funding, with Verizon contributing most of it).
Flint also provides invoicing, support for mobile coupons (via email and Apple Passbook), and digital receipts for cash and check options. If you also sell online, you can also set up an e-commerce system for checkout using Flint. For merchants, Flint’s rates depend on whether you are charging a credit or debit card: for debit, you pay 1.95 percent; for credit, 2.95 percent. Funds are deposited directly into your account within 2 business days.
Square was really the first company to enter the mobile payments space, all the way back in 2009. Anyone with a mobile phone could start swiping cards and accepting payments with a dongle that connects to headphone jack. Square, like other mobile payment services, charges a flat rate per transaction.
For card swipes, merchants pay 2.75 percent. If you key the transaction in manually, that jumps to 3.5 percent plus $0.15. Square’s biggest issue, from a merchant perspective, is its issues with holding funds when it suspects fraud. Otherwise, merchants get their money within 1-2 business days.
With the EMV liability shift, Square introduced a new card reader that is capable of reading the chip-and-PIN cards. It offers 2 models of the reader, including one that has NFC support so that you can accept payments via Apple Pay, Android Pay, and other NFC-based services.
LevelUp is a mobile payments processor with more functionality than any of the other options we’ve seen. It works similar to CurrentC in that you scan QR codes. However, instead of linking to a bank account, it allows users to create a mobile wallet with their credit and debit cards (the site says any U.S. debit or credit card is accepted). It also integrates with loyalty programs and generates coupons for you. LevelUp has more than 14,000 partners, and you can check out the list here.
Like Square, LevelUp has a POS functionality. However, LevelUp also adds its own terminal devices, which also support NFC and iBeacon. Even more promising, LevelUp’s app for consumers is available not just for Android and iOS, but also Windows Phones.
Something else that sets LevelUp apart is its open platform, which you can use to integrate into your own systems. You can integrate it into more than 40 other POS systems as well as e-commerce and online ordering platforms.
Merchants pay just 1.95 percent per transaction, with no chargebacks. Funds are deposited the next day into your account.
PayPal is, unquestionably, a giant in e-commerce, and in 2012 it finally moved into mobile payments. Like Square, you just need to swipe the card using the free card reader. The funds you collect go directly into your PayPal account and are available to you almost immediately. If you have the PayPal debit card, you can spend the money in your PayPal account as soon as it’s in there at any location that accepts credit cards.
Like Square and LevelUp, merchants are charged flat fees per transaction. There is also a POS system and support for invoicing. You can accept checks by snapping photos with your phone’s camera. PayPal Here charges 2.7 percent for card swipes, though manual key-ins are 3.5 percent plus $0.15.
Something also worth mentioning is PayPal’s One Touch. This mobile solution allows you to stay logged into your PayPal account on your phone and use that to complete any in-app purchases.
Like Square, PayPal also has an EMV-compliant reader with NFC capabilities so that you can accept mobile payments via consumers’ chosen apps.
Accepting Mobile Payments with a Merchant Account
What do you need to do to start accepting mobile payments? If you travel for your business, a mobile solution like PayPal Here is probably the better option for you. However, if you need POS capability and have a brick-and-mortar location, you need an NFC-enabled terminal that can accept Android Pay, Apple Pay, and others.
Merchant account providers can often help you obtain a terminal, either for free or at a low cost. Let’s take a look at some of the top-rated providers, from their fees to their terminal options.
Dharma Merchant Services offers retail and e-commerce solutions alike, so if you have an online shop as well as a physical store you can integrate them easily. Rather than a tiered pricing model Dharma charges a $15 monthly fee (which includes PCI compliance) with an interchange-plus cost model for transactions. Dharma charges 0.25 percent plus an additional $0.10 per transaction for in-person transactions, and 0.35 percent plus $0.10 for e-commerce.
For small businesses (those earning less than $10,000 a month), Dharma has a partnership with Flint, so you can use a smartphone or tablet to process credit cards. However, this doesn’t provide NFC capabilities.
Terminals: At the time of writing this, Dharma can re-program your existing equipment to work with its services for $100. For $299, you can get a VeriFone Vx520 terminal, which is NFC enabled as well as EMV ready.
(EMV is a global standard that is going to become much more common stateside in 2015 because of a massive liability shift that starts in October 2015. In essence, it means that credit and debit cards will come with a special chip that provides extra security. While we’re more concerned with mobile payments here, you should definitely look for a terminal that is EMV compatible as well.)
Also worth mentioning: Dharma donates 50 percent of its profits to charity. It’s also a certified green business and B-corp. If social or environmental responsibility are a part of your business model, this seems like the obvious fit.
CDGcommerce also offers retail and e-commerce payment solutions — but it also has a mobile payment option that Dharma lacks, called ProcessNow.
Pricing wise, CDG charges 1.95 percent plus $0.30 for online transactions, 1.7 percent plus $0.25 for swipes, and 1.7 percent plus $0.25 for mobile transactions. On top of that, there’s a $10 monthly support package and an optional cdg360 package with value-added security features for $15 a month.
Terminals: For $79 a year, CDG will provide you an EMV-ready and NFC-enabled PerkWave terminal and a customer-facing reader. It’s compatible with Apple Pay, Google Wallet, and Softcard, as well as the rest of the NFC payment services. CDG also promises to replace it within 24 hours. The future-proofing guarantee ensures that if another piece of technology becomes standard (such as iBeacon), it will upgrade your terminal. Plus, you get free terminal reprogramming for any existing equipment, a free USB card swiper that’ll work with most Windows and Mac devices if you have existing software, and more.
Helcim is another processor with multiple solutions: it offers a virtual terminal for using computers or running an e-commerce site, retail solutions with terminals, and a mobile payment solution, all on a monthly subscription plan plus interchange-plus pricing (Helcim calls it cost-plus pricing).
The virtual terminal package runs $30 a month, the retail package runs $12 a month, and the mobile package runs $25 a month. CDG charges just 0.18 percent per transaction for mobile and retail transactions, and 0.36 percent for virtual/e-commerce transactions.
Your monthly subscription also covers PCI compliance. The mobile package includes a free card reader and unlimited users — but additional card readers are $45 apiece.
Terminals: With Helcim, you have an assortment of terminal options to accept mobile payments, starting at $199. Re-programming of terminals is free, and the company offers exchanges for $45, where it will send you a refurbished pre-programmed model.
Payline Data again provides retail, e-commerce, and mobile solutions, and it claims to offer the lowest rates, guaranteed. They’ll even give you $500 if they can’t beat your existing pricing.
Payline uses interchange-plus pricing on top of a monthly fee. Standard plans start at $5 per month for a subscription, though you can get the pro account for $20. With the standard plan, you pay 0.5 percent plus $0.10, and pro accounts pay 0.2 percent plus $0.10.
Terminals: Here again you can choose from multiple terminals from VeriFone and Ingenico, including EMV and NFC devices. Prices start at $195. You can also get a host of other retail supplies, including check readers, card readers, PIN pads, and even receipt paper.
Also worth mentioning is that Payline Data will donate 10 percent of the processing revenue from your account to a charity of your choosing from Payline’s list of approved partners.
Payment Depot operates a bit differently than the other processors we’ve talked about here. Again you have mobile, retail, and e-commerce solutions. You can pay a monthly fee or an annual fee that discounts the cost by 20 percent. But instead of interchange-plus, you pay a flat rate.
That fee depends on the package you choose, which depends on your monthly volume.
- For sales under $10,000: $199 per year ($20 per month); $0.25 per transaction.
- For sales up to $40,000: $399 per year (40 per month); $0.15 per transaction.
- Unlimited: $599 per year ($60 per month); $0.10 per transaction.
With the mid-tier package you also get a free virtual terminal so you can enter payments from a browser or mobile device. With the unlimited plan, Payment Depot provides an EMV-ready Smart Terminal.
Terminals: Again, you can get a free Smart Terminal with the unlimited plan. If you’re not doing quite that volume, Payment Depot can reprogram existing equipment for free. Otherwise, you can work with the company to get a new terminal of your choosing, which comes at wholesale price (the site says costs start at just $49).
We’re living in the digital age, folks. Consumers have never had so many options, or so much power — and for retailers, that can certainly seem scary. And if you’re not devotedly following the latest developments in technology, the thought of getting into the game can seem overwhelming.
Whatever you do, don’t just sit around in the dark ages.
We’re here to help. Check out our reviews of credit card processors/merchant account providers, as well as our review of mobile payment solutions. Need help choosing a provider? Contact us for help. We can also help you choose an online shopping cart to get into e-commerce, and select the best POS software for you.
What else do you want to know about accepting mobile payments? Ask away!