Mobile payment technologies nearly ready for prime time.
by Phil Britt
Consumers enter 2015 with a new payment option at some retailers–a mobile wallet that enables users to pay with their phone rather than swiping a credit or debit card, writing a check or using cash–but this alternate payment method is still in its very embryonic stages.
Apple Pay, available on the iPhone 6 and iPhone 6 Plus, made some consumers aware of mobile payment options for the first time when it debuted in October along with a media campaign and backing by some early-adopting retailers.
Two of the retailers that promote their acceptance of Apple Pay are Panera Bread and Whole Foods, which each have several locations throughout Northwest Indiana. However, besides those two merchants, there are very few merchants that accept Apple Pay or other forms of mobile wallets today. In all, Apple Pay is accepted at about 220,000 merchant locations, a small portion of the estimated 12 million in the U.S.
Yet even with this small footprint for Apple and competitors, banking experts agree that mobile payments will grow quickly and become a viable payment option at an increasing number of merchants by the time the new year comes to a close.
Mobile payment proponents point to the ease of payment and the enhanced security of smartphone payments. Several studies have shown that people would rather leave their wallet at home than their smartphones. The phones also include additional security known as tokenization, which uses a randomly generated number rather than a payment card number to secure payments from hackers.
Here's a brief look at some of the different mobile payment options:
Apple Pay
Payments run through a payment card the consumer enters into the Apple Pay platform, much like PayPal works for online purchases.
Apple Pay uses near field communications (NFC), a technology not included in most merchant point-of-sale terminals today. Many merchants are upgrading their terminals due to new payment card industry standards that will go into effect in October. But even if the merchant has an NFC-capable terminal, the feature may not be activated. In addition to the tokenization, the payments are secured by the iPhone's fingerprint technology.
Beyond limited merchant acceptance, other restricting factors for Apple Pay are the lack of any Android-based option, the inability of older iPhones to use this payment option and a limited number of payment cards that can be enrolled for usage.
Google Wallet
With its media blitz and promotions from Panera and Whole Foods (which have Apple Pay signage in the stores), Apple Pay quickly became the mobile payment option that most people discussed, even though Google rolled out its Google Wallet mobile payment platform some three years earlier.
Google touts more than 10 million downloads of the wallet, according to the company's app store, but the number of active users is nearly nil. As with Apple Pay, only a limited number of merchants accept Google Pay, and only a limited number of cards can be used for payment.
There are other limitations as well. While Apple aggressively pushes its mobile payment option, Google is relatively quiet in the press and has limited the use of the mobile wallet to those Android phones running system 4.4 (KitKat) or higher. Just as Apple Pay won't run on Android devices, Google Wallet won't run on iPhones. Additionally, Google announced in early November that it would no longer accept its own digital wallet as a payment method for apps and software, though it will still support payments for Google Play Store apps.
CurrentC
CurrentC is in its earliest trials today, with a more aggressive rollout planned by the next holiday shopping season. Large merchants such as Wal-Mart, Target and Best Buy joined forces to develop the Merchant Customer Exchange and CurrentC as a way to get around the fees charged by Visa and MasterCard.
Like Apple Pay, CurrentC Wallet will rely on NFC technology and tokenization. However, much of the wallet's functionality has yet to be determined.
Closed-Loop Options
Beyond the above three, there are also several “closed-loop” payment options that can only be used in a single merchant's store. The most notable and successful of these is Starbucks, which includes mobile payment as part of its app. According to the company, about 6 percent of U.S. transactions take place via a mobile device–about 7 million mobile payments per week, dwarfing Apple Pay, but they're limited to Starbucks locations.
Other merchants have tried to copy the Starbucks effort by enabling customers to enroll payment cards through the merchants' apps, but the results are still sporadic at best at this time.
Phillip J. Britt, owner of editorial services firm S&P Enterprises Inc., has covered financial services since the mid-1980s for a variety of local and national publications.
