Consumers are increasingly demanding new forms of payment that do not rely on the standard magnetic strip credit card. The emergence of such a demand is a direct result of online payment systems, such as PayPal. The next logical step after online payment systems was the development of payment systems that can be used through mobile devices. In recent years, the processing power and memory of smartphones has expanded dramatically, making the devices fully capable of managing the data required to process payments. With the advent of the iPhone and the app market, phones have become miniature personal computers capable of multiple functions.
Among the first financial tasks that were accomplished with mobile phones was
mobile banking. Mobile banking, while not specifically standardized, could be
accomplished across several different mobile devices and operating systems.
Before long, it became routine to check bank balances, make transfers and perform
other account maintenance through a mobile phone. As part of their mobile
services, some banks also offer bill pay capability and online payments from a
checking account, debit card or credit card.
The next step in mobile payments is to use NFC chips and a standardized system to turn mobile devices into virtual credit cards. Visa and MasterCard have both released roadmaps to detail how the standardization, known as EMV, will be implemented in the coming year.
Mobile bank transactions were the beginning of mobile payment systems. However, after mobile banking took hold, the further evolution of mobile payments has suffered from slower development and slower acceptance. Numerous applications have been developed to allow for mobile payments and other ancillary services, such as electronic coupons and customer loyalty programs, but they are far from standardized. Different applications are required at different stores and for different situations. For example, one app may be required to complete a transaction, while another app is used to track purchases for a loyalty program.
Some mobile banking systems have been developed by specific retailers and have gained strong customer support. Perhaps the greatest success in retailer-specific mobile payments is Starbucks’ mobile payment system. After its release in 2011, over 26 million transactions were made, totaling $110 million by the end of the year. And, with their recent partnership announcement with Square, they are poised for continued growth in the mobile payments and mobile commerce space.