By Henry Helgeson
Merchant Warehouse
The global popularity of mobile devices such as smart phones and tablet computers has driven an increase in the demand for mobile payment methods that reduce the time needed for consumers and retail companies to transact business. Mobile payment systems are becoming more accepted and even expected by consumers.
As a result, more companies are implementing these systems in order to compete effectively for consumer dollars. And for many business owners and administrators, the opportunities presented by mobile payments far outweigh the challenges present in implementation and deployment of these advanced payment systems.
Mobile payments offer an exceptional degree of convenience and access to commercial goods and services for end users. Consumers can charge transactions directly to a mobile phone bill or, more commonly, to an online wallet with stored financial information that authorizes and transfers the funds electronically.
In the United States, mobile payments are now most commonly used to pay for digital downloads, including ring tones and music. In the global marketplace, however, advanced technological systems allow mobile payments for a variety of goods and services, including transportation, groceries and fast food. It is likely this trend will continue to expand to even more areas of commerce, making mobile payments a vital part of any continuing marketing strategy.
For at least the last decade, mobile payment platforms and strategies have been under discussion within the computing community. An article published in the December 2002 issue of Computer magazine outlined potential uses and challenges for mobile payments. Author Upkar Varshney concluded these convenient methods of payment would soon be used for movie tickets, vending machines and automated tollbooth systems - and they might provide new ways to pay at brick-and-mortar retailers as well.
This promise has been realized in the European and Asian markets, where mobile payments are a part of daily life and business in most major metropolitan areas.
A number of research studies have been conducted on consumer acceptance and adoption of mobile payment technologies. One such study was published in The Journal of Strategic Information Systems in December 2007 and outlined a number of factors that influenced consumers in choosing whether to use mobile payment methods.
The study cited the urgency of a consumer's need for the product and a lack of other options as factors in favor of mobile payment choices; added costs, complicated payment methods, security concerns and lack of merchant participation were noted as reasons not to adopt this new technology.
A more recent study examined the role of consumer trust in online technologies as it translated to trust in the mobile payment platform. Results published in the October 2010 issue of Communications of the Association for Information Systems indicated that users who had a high degree of trust in Internet security for commercial transactions also demonstrated higher levels of trust in mobile payment platform technologies, making them likely first adopters of these new applications.
Overall, necessity and trust seem to be the most important determining factors for consumers in choosing mobile payment methods over other more familiar ways to pay, with younger consumers more open to these methods than older individuals.
Resistance to mobile payment methods has been equally present among merchants, especially those who also maintain a brick-and-mortar presence. While some forward-thinking companies offer their customers the option of mobile payments, many merchants find the technology cumbersome or the costs too high.
A study conducted jointly by Boston University and the Federal Reserve Bank of Boston indicated that the problem is self-sustaining. Merchants are unwilling to invest in these new technologies until sufficient consumer demand exists for mobile payments, while consumers tend to delay adoption until a clearly established merchant network exists for the technology. This creates an impasse that has delayed the implementation of mobile payment systems in the United States.
While Japan and Korea are the undisputed leaders in mobile payments, the technology has been implemented with considerable success in the European market due to advanced near field communication (NFC) technologies that allow smart-phone users to pay automatically in venues such as McDonald's, Subway and EAT restaurants.
One element in the success of mobile payments in Europe may be the prevalence of contactless payment card transactions that use similar technologies to allow pass-and-wave payments in department and grocery stores. As consumers became familiar with these systems, they may have gained trust in the underlying technology, which allowed them to accept mobile payments more readily in other shopping and dining venues.
As previously indicated, most mobile payment transactions in the United States are in the digital downloads sphere. However, this trend is likely to change with the increasing adoption of mobile payments in restaurants, coffee shops and other businesses that do a large number of small financial transactions each business day.
The convenience of mobile payment systems has already made them popular in several larger metropolitan areas. Additionally, the rise of location-based coupons that automatically download to smart phones based on proximity may help consumers become accustomed more quickly to NFC, quick-response codes and Europay/MasterCard/Visa technologies, prompting higher demand for mobile payments.
Mobile payments offer significant benefits for consumers, including speed of processing, ease of use, advanced security methods, and the ability to link points and rewards programs directly to their mobile transactions. Businesses that implement these systems benefit as well from added traffic and faster processing times. This allows them to serve more customers in the same amount of time and provide greater customer satisfaction. Generally, the costs of mobile payment systems can be passed along to customers without a significant increase in the costs of products or services.
Mobile payment processing can also widen a company's potential customer base because it allows consumers to pay using online wallets or mobile payment accounts without supplying credit card or banking credentials. This is especially important in developing markets, where cell phones are far more common than credit cards. But the option can be just as important within the United States for customers who prefer to manage their financial transactions using online wallets.
As smart phones and mobile payment systems become more prevalent, companies that lead the way are likely to be better positioned to manage the increasing demand for these advanced payment systems. The flexibility and ease of use that these systems provide for consumers and merchants alike will help to drive the demand for mobile payments throughout the retail industry, especially for smaller purchases at fast food restaurants, rapid payments at toll booths, and incidentals like parking meters and other venues where small transactions are required frequently.
Businesses that adopt mobile payment technology ahead of the curve are likely to reap significant benefits as younger consumers become more influential and advanced payment methods become common and expected in the modern marketplace.
Henry Helgeson is the CEO and co-founder of Merchant Warehouse. He is responsible for driving the future vision of the company and leading day-to-day operations. He is also the driving force behind the company's recently launched Genius Customer Engagement Platform. For more information, email him at mwhelgeson@merchantwarehouse.com.
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