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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.
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
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
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