How #Mobile #Payment Systems Are Redefining #Commerce

The phrase “mobile payment system” can apply to a number of different technologies and implementations for initiating and accepting transactions using a mobile device.

Forrester Research separates systems into two broad categories:

  • Payment systems that utilize a mobile network to initiate or authorize a transaction.
  • Contactless systems that use a mobile phone in lieu of a traditional credit card.

In other words, mobile payment systems apply to both how consumers pay for goods, as well as how merchants can process transactions.

Systems that Process Payments

On the processing side, startups like Square want to cut down the barriers associated with accepting credit card transactions.

Last October, Mashable’s Jennifer Van Grove discussed three services that allow merchants to accept credit card payments on mobile devices.

Square works by combining a small, square-shaped card reader with a free app for iPhone and Android. Simply plug the reader into the microphone jack of your smartphone and open the app. Now transactions can be processed either by swiping the card or hand-keying the digits.

The promise of something like Square — which charges a 2.75% transaction fee but has no other associated costs — is that it eliminates the need for smaller businesses to set up expensive point-of-sale systems. It’s also portable and can be used with any Android or iOS device.

Square isn’t the only mobile payment processor in town. Intuit GoPayment and VeriFone’s PAYware Mobile are also actively investing in the space.

Systems that Let Consumers Pay by Mobile Phone

When it comes to actually paying for items using your phone instead of with cash or a credit card, the future is all about NFC. Near field communication, or NFC, has been in the works for nearly ten years.

Analysts predict, however, that 2011 is the year that a sizable number of NFC-enabled devices will finally ship to consumers. The premise behind NFC is simple: Rather than swiping a card, just wave your phone at a payment terminal and be on your way.

We’re already seeing pilot NFC implementations from credit card companies and banks, including Visa, Bank of America, American Express and MasterCard.

Last fall, Visa worked with the transit and port authorities in New York to install Visa payWave terminals at select New York City subway stations. The advantages of NFC and contactless payments in areas like the subway are two-fold. First, it’s fast. Second, it helps cut down on the need for paper tickets.

A number of public transit systems are already in the process of transitioning to RFID-enabled transit cards. Using a mobile phone would accomplish the same feat, but with the benefit of also being refillable on the spot.

Going Green and Going Hands-Free

Aside from being able to accept and make payments in more locations, one of the advantages of modern mobile payment systems is environmental. Sure, the ecological impact of a paper credit card receipt is likely small — relatively speaking — but cutting down on excess waste is still good for the environment.

It can also be good for businesses’ bottom lines. Apple, one of the first major retail chains to accept payments using mobile devices (first Windows Mobile powered terminals and later the iPhone), has long emailed customers their receipt by default, only printing it on request.

It’s not clear how much money that decision has saved Apple over the years, but given the high number of transactions that each Apple retail store processes each day, it is likely significant. Moreover, every receipt that is emailed is one less wasted piece of printed paper.

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