A new way to pay

There is a growing interest in using mobile phones to make payments for goods and services – both online and here in the real world. This could have a profound impact on Point of Sale and the very nature of what it means to be a shop assistant or checkout clerk. But most retailers need to understand how mobile payments can work: and its quite a confused picture.

The number of UK smartphone users continues to grow rapidly. In fact, this year there will be 30.9 million smartphone users in the UK, representing 48.4% of UK residents and 60.4% of UK mobile phone users, according to eMarKeter.

Already, one in five UK consumers use their mobile to make payments, according to the UK Payments Council. As consumers become more and more reliant on their smart phones, there is no doubt that mobile payments will continue to increase.

So how can you tap into this as an SME retailer? Well, first you have to know what is actually meant by ‘mobile payments’.

Mobile Wallets

Perhaps the easiest mobile payment tool to understand is the mobile wallet. It is essentially an app that sits on the smartphone or tablet into which the consumer can load in their various debit and credit cards, loyalty cards and so on. It essentially keeps them all in one place electronically. They offer great potential for integrating payments and loyalty schemes and offer great security.

The problem comes when trying to pay. If the consumer is trying to pay through an app or website that site has to be compatible with that wallet. Same when it comes to paying in-store with a mobile wallet. The danger with wallets is that they are often tied to one brand or vendor – mobile network, bank, a particularly retailer or loyalty scheme.

The issue is that often the consumer has to have several wallets for different uses and it can get very complex. And m-payments isn’t going anywhere unless it offers something more simple than handing over cash or using chip and PIN.

Wallets such as Apple’s Passbook are yet to offer card storage and the ability to pay, but there are many others out there – Isis, Google, Square, Samsung and Microsoft, along with O2, Vodafone and many other retail branded ones – it pays to wait and see, I think, who becomes the defacto winner before committing.

Payment apps

Alongside the proliferation of mobile wallets, there have been a raft of payment apps and payment services that sit as apps on the phone that can be fired up when triggered by clicking the ‘pay by that app’ button on a mobile site or app or to pay in store using that app.

Usually these things – such as Paddle – work by either being linked to a card or by being the front end of an account that is topped up by the user. To pay with it, the consumer has to fire up the app and enter a code, typically after scanning a barcode or QR code at the merchant site, shop or on the product. Some work by giving you a button to click on the mobile site that automatically fires up the app.

Again, as with wallets, the problem is that it all takes time and, while it is easier than entering a 16 digit card number into a mobile phone, in store it is less simple than cash or card.

Banking apps

Similarly, banks have their own apps and many are looking to make them payment apps. But some of these offer the most potential for actually becoming the way mobile can be used to make payments.

Barclays PingIt – which started life as a person to person payment tool between Barclays customers – is being morphed into a rather canny payment tool that allows, through the scanning of QR code for the user to easily pay things like utility bills. It also now has the ability to let consumers scan adverts in magazines and purchase from them.

What makes these apps useful is that they are very easy to use and directly linked to the users bank account, making them an easy way to pay using a trusted source – the bank. For the merchant this makes it also much less of a worry that they won’t get paid.

Bank agnostic tools

While bank branded payment apps are really handy, they are constrained by being tied to one bank. As a result, the idea of these sorts of banking apps has been extended by some canny companies to offer the same sort of functionality buy agnostic of any one bank – so anyone can use them.

The two prime examples are Zapp and Znap. Both are bank agnostic and allow the consumer to scan, or tap to pay using their bank account or choice of cards and all they have to do is tap in a security code. They are quick and easy and don’t require much in the way of technology investment by the retailer.

They are in their early days right now, but these types of tool are ones to watch for in-store mobile payments in 2014.

Operator billing

The first ever application of mobile payments was using a premium rate telephone number, then a premium rate mobile number and eventually a shortcode to make a call or send a text that initiated a payment to someone that then appeared on the users phone bill where the operator would collect it and pass it on.

This has been around for 20+ years and has been very successful. Right now it has morphed into a service run by all four of the UK’s operators called Payforit.

The drawbacks of this service are, currently, two-fold: firstly, it is so far limited to digital goods only (such as paying for wifi on trains), not physical goods. Secondly, it is limited in terms of price points and total permissible spend per day.

Both of these issues are constrained by telecoms regulation, but there are rumours that eventually Payforit will be able to be used for the purchase of physical goods. And if this is the case it would be ideal for low value purchases in small independent shops. One to watch.

NFC

Say mobile payments to anyone in retail and they will more than likely roll there eyes and mutter “NFC” under their breath. NFC – or near field communication – is a radio technology that allows very short distance transmission of data between a chip and a receiver.

It is already used in your Oyster Card if you live in London and is increasingly being found in some banks debit cards. The big idea is that soon it will be in all mobile devices and will link wallets, payment apps, bank apps or whatever you use to pay to allow the consumer to wave their phone over the payment terminal and transfer funds.

The problem is that this is unlikely to really ever take off. For starters most mainstream smartphones still don’t feature NFC as standard so we are at least 12 to 18 months away from it appearing. It also requires hefty investment by the retailer in equipment that allows the reading of NFC phone and chips. Handle with care.

Card readers

Perhaps the most innovative, practical and workable face of mobile payments for retailers to use in store are the new breed of card reader devices and associated apps that turn a smartphone or tablet into a POS. Square, iZettle, PayPal and more all offer tools like this that simply plug into the merchants device and, with a free download of an app, turns the device into a payment taking till.

This is cheap and simple, allows everyone from a market stall holder or plumber to a small business to a shop-floor walker in a large department store into some one who can take card payments. And they work today. OK, so they are not using the mobile device to make payments, but they do bring the advantages of mobile to payments and clearly make POS a very new experience and one that is ideal for the smaller, independent retailer.