Smartphones and Financial Technology (FinTech) Enable New Mobile Payment Methods

A wide variety of services, technologies and strategies are now competing with conventional cash and credit cards for consumers’ payment needs.
Smartphones as Credit Card Terminals:  Smartphones are being used by merchants and service companies as credit card readers, thanks to technology from companies like Square.  Using a small scanner that plugs into a smartphone, users can process credit cards for a small fee.  Square, for example, makes a device that plugs into the earphone jack of an iPhone or iPad (as well as some other smartphones).  Square quickly developed into one of the world’s most innovative payments companies, adding many levels of tools and services for small business, including debit cards and marketing assistance.  Likewise, PayPal has an iPhone app with transactions for bank accounts or PayPal accounts.  The technology is a boon for small businesses that previously worked only on a cash or check basis.  For example, a plumber can get paid by credit card, on-the-spot, after completing a job.  Like Square, PayPal has also added numerous important tools for business.
Mobile Commerce: Payments via Smartphones (Digital Wallets):  The Google Wallet is an app that enables smartphones to be used to pay for goods and services by waving the phones across readers at checkout counters.  Related apps are available on both the Apple App Store and Google Play.  Users with a Google Wallet account also are able to take advantage of Buy With Google icons on online shopping sites.  Google Wallet account holders simply log into Google, and then do not have to enter shipping addresses or credit card numbers that are already stored in Google Wallet.  Around the world, multiple other mobile payment systems compete with Google and Apple, including Alipay (which originated in China) and Paytm (which originated in India).
Payment via smartphone is fostered by the fact a vast number of consumers are already managing their banking and investment accounts on their phones, keeping tabs on account balances and making transfers as needed.  However, Americans have been slower than people in Asia and parts of Europe in adopting mobile payments.  Challenges include the facts that typical American smartphone users are wary of security issues, and there are already hundreds of millions of credit and debit cards in widespread use across the nation.  U.S. households are very comfortable with using debit cards for day-to-day purchases, and it has been difficult for wireless payment firms to change their habits.
There are also questions about the fees generated by using mobile phones as payment devices.  Every business involved in a transaction, from the credit card company to the smartphone service provider, wants a piece of the immense potential revenue.  On the other side of the transactions, many retailers and restaurants are anxious to control mobile payments themselves and reduce their transaction costs.
In the U.S., consumers were barely aware of the payment by smartphone concept until 2014, when Apple announced Apple Pay.  Apple Pay users wave their iPhones over sales terminals and their accounts are charged.  (Touchless payment features like this are highly desirable due to the Coronavirus.)  Money can also be sent by text message or by using Apple’s Siri voice-controlled assistant.  Banks pay Apple a tiny fraction of every transaction made.  The technology behind it, developed by Visa and MasterCard, replaces credit card information such as account numbers and expiration dates with unique series of numbers that validates the user’s identity.  Credit card accounts may be linked to Apple Pay by taking a photo of a card or manually entering card information.  Apple promises that credit card information will not be stored on iPhones or on the company’s servers.  The technology also works with the Apple Watch.  Apple has been growing rapidly in popularity on a global basis.
By working with existing payment networks such as MasterCard, Apple is seamlessly entering the payment market.  It doesn’t need to invent a new network or new technology.  It is simply adapting it into the iPhone and pushing it to its vast base of very enthusiastic Apple fans.  The recent introduction of the Apple Card credit card is a logical extension of its brand.
Digital wallets are also evolving to assist the rapidly growing number of consumers who make payments online.  For example, MasterCard offers MasterPass.  This service enables users to set up credit or debit card and shipping information in one secure electronic wallet.  Once a user has filled out a shopping cart at a participating online store, he or she then clicks the “Buy With MasterPass” icon, logs in, and completes the purchase and payment.  The intent is to increase convenience while reducing fraud. 
In China, the potential of the mobile payment market is staggering.  Social media giant Alibaba’s Alipay mobile payment system holds a major share of the Chinese market.  A number of other contenders are attempting to challenge Alipay’s hold, notably major gaming and social media firm Tencent’s Tenpay.  WeChat, a multi-service platform in China that has more than 1 billion users, offers a number of simple payment apps accepted by individuals and businesses throughout the country.