Mobile Payment Processing- How Does It Work & What Are The Risks?

Jin Hyun9/8/2020

There are over 3 billion mobile phone users around the world, with over 100 million in the U.S. alone. And those numbers are only expected to grow. With so many people in possession of a mobile phone, it is easy to see the attraction of using the device to buy items and pay for services. In fact, over a third of internet users have reported using mobile payments.

Even top tech and mobile phone developers have caught onto this trend, going as far as creating their own mobile payment apps like Apple Pay, Samsung Pay, and Google Pay.

What Are Mobile Payments?

Mobile payment is a broad term that refers to payments made with a mobile device. In other words, they are regulated transactions that take place digitally through a smartphone or tablet device. This can include-

  • In-Store Purchases - Customers that use their phones to buy something in a shop are using a type of mobile payment.
  • mCommerce - Smartphone owners can use their devices to make purchases online by entering their card details into a secure payment gateway.
  • Peer-to-Peer Payments (P2P) - Shoppers can use apps or services such as digital wallets to send money to friends and family at no additional cost.
  • Merchant Method - Vendors or other merchants may use a digital device, such as a smartphone to accept payments for their goods or services. This does not require a traditional stationary POS terminal.

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How Do Mobile Payments Work?

The majority of mobile payment processes are built on Near Field Communication or NFC technology. Essentially, NFC allows two devices that are in close proximity to exchange information. In the case of mobile payments, transactions can be completed using consumer devices such as smartphones or tablets and a merchant device like a credit card terminal.

Most consumers will access this feature through the built-in mobile wallets on their smartphone devices. A mobile wallet is an app that stores debit and credit card details so users can pay for items digitally. To use a mobile wallet, a consumer can securely add their debit or credit card information to a mobile wallet app. Most mobile wallets will require thumbprint or facial recognition authorization to prevent fraudulent transactions.

Alternatively, mobile payments can be accepted through the use of customized QR codes. In these scenarios, it is the customer's device that creates a QR code with key payment information. The merchant simply uses their POS system to scan the code and complete the payment.

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Are Mobile Payments Secure?

Keeping customer data secure is a major priority for businesses in the 21st century.

The good news is that mobile payment processing with NFC technology is one of the safest ways individuals can shop. When a customer swipes their credit or debit cards, the banking details are stored and transmitted over a network. However, NFC technology based mobile payments rely on tokenization to reduce the risk of data theft.

This means that when a customer uses their mobile device to make a payment, the device creates a single-use card number for the purchase. This unique number is then passed on to the merchant's POS system for the transaction. As a result, merchants do not have to directly handle and manage sensitive customer information.

Additionally, the mobile device does not usually store the transaction information on the CPU. Rather, the single-use credit card number is created by a secure chip on the device and is separate from the smartphone or tablet's CPU. Instead, the card information is stored in the cloud and can also be erased remotely, if necessary.

As an added level of security, mobile wallets require shoppers to verify their identities before completing the transaction. This can be done through biometric data recognition such as a fingerprint scan or by unlocking the device using a specific numeric code. While no payment method is completely risk-proof, mobile payments remain one of the most secure methods of payments for consumers and merchants due to the multi-layer security measures.

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How Can Merchants Accept Mobile Payments?

Merchants that want to offer mobile payment options to customers do not need to invest in an entirely new POS system. Instead, businesses should look into obtaining an NFC-enabled credit card terminal. With an NFC-enabled terminal, customers can pay with any of the major mobile wallet apps including Apple Pay, Google Pay, or Samsung Pay.

For merchants, the benefits of offering mobile payment options to customers include-

  • Integrate loyalty and incentive programs
  • Analytics on customer trends and purchases
  • Automate inventory tracking
  • Quicker payment processing
  • Lower transaction fee than credit cards
  • More security for customers
  • Increased convenience for shoppers

While NFC-enabled technology may seem like an investment purchase for smaller businesses or organizations with legacy POS systems, popularity, and reliance on mobile payments are only projected to rise.

Many merchant accounts and point of sale providers offer updated hardware with NFC capabilities, along with integrated payment processing, free customer support, and more. Businesses should assess their clientele and operations before selecting the right payment processing technology for their organization.

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