Making sense of mobile payment

What exactly do the words "mobile payment" mean? That depends. We take a look at the four leading ways that a cell phone can help part you from your money.

There's been a lot of talk recently about mobile payment, from casual money transfers over PayPal mobile apps to using a mobile phone to physically kick-start a payment, as we observed during our  field test with the Bling Nation tag.

These examples both fall under the category of mobile payments, but their technology differs as much as their goal.


Four and a half categories

Depending on how you slice it, there are four or five possible definitions of "mobile payment," with up to two off-shoots. For simplicity's sake, we'll outline the major four and will mention the others as off-shoots, though this definition certainly isn't final.

Mobile Peer-to-Peer (P2P)
Peer-to-peer (P2P) payments, as with other peer-to-peer services like music-sharing, are informal transactions made between two people. Paying the babysitter and reimbursing a friend for your share in a lunch tab fall into this category. PayPal and similar services might facilitate this type of transaction (though PayPal, of course, can also be used for more-formal payments, such as eBay and other online purchases.)

International transfers might also fall under this category, such as remittances sent overseas from an earner in one country to family in another. M-Via is one company that specializes in using text messages to authorize funds sent to Mexico.

PayPal for Android 2.0, with Bump
PayPal's iPhone and Android apps can transfer payments between peers. Screenshot by Jessica Dolcourt/CNET

Mobile Point of Sale (POS)
Unlike mobile P2P technology, which may use text or a software application to transfer funds, mobile point-of-sale (POS) is all about hardware. The cell phone becomes a wallet or payment token, the physical object that carries a radio frequency ID (RFID) chip or near field communication (NFC) technology. This could be an external sticker, or perhaps be integrated as a hardware component on the device. It's this chip that communicates with the payment terminal to green-light transactions.

Because transactions are triggered wirelessly without requiring physical contact between the sticker or card and the payment terminal, this type of solution is also known as "contactless" payment.

We explored mobile POS in a field test of Bling Nation , one of the most recent companies of its type that's cropped up.

Bling Nation payment terminal
Bling Nation is an example of the mobile POS category. CNET

The barriers to adoption are many for both consumers and merchants. Retailers must be willing to install the proper chip-reading devices, said Russ Jones, payments industry consultant with Glenbrook Partners, and they'll want a proven business model before committing. In addition, replacing their equipment is expensive, especially if the store has multiple locations. Cashiers need to be trained to accept an additional payment type, and that can be time-consuming, especially given the high rate of turnover. An extra payment terminal also clutters counter space, and questions by confused consumers can slow the flow of the line.

Retailers are motivated by high consumer demand, and consumers just aren't demanding mobile POS payments en masse. We're more likely to see the expansion of one-off NFC solutions in the short term, said Julie Ask, a vice president and principle analyst at Forrester Research. Before major stores pick up the technology, it will first start being adopted more and more to pay for parking meters, city transportation tickets, and other inexpensive, single-item purchases.

The mobile point-of-sale model is much more prevalent outside the U.S., notably in countries like Japan and Korea, and in parts of Europe.

Mobile commerce

Square on Android
Square is a payment terminal that can also be used for P2P. Photo by Jessica Dolcourt/CNET
Mobile commerce, or m-commerce as it's sometimes known, uses the mobile handset as the gateway to online shopping. Instead of buying items from your desktop or laptop computer, you would open an app or the mobile browser and shop for everything from clothing to movie tickets to books.

Amazon and eBay are further moving into m-commerce, which has already successfully been proven in the U.S. with content stores like iTunes, Amazon.com MP3, and movie apps. Web sites that aren't optimized for the mobile phone screen is one hurdle to widespread adoption that would be easier to surmount.

Mobile payments acceptance
Instead of swiping your credit or debit card through a separate machine at the ice cream shop or farmers market, what if you slide it through an attachment you can stick in a mobile phone?

This is what's meant by mobile payments acceptance, and CNET has already taken a look at one company, called Square , whose small card-readers plug into the 3.5-millimeter headset jack on your Android and iPhone, and can then manage the transaction using an app. Verifone's PAYware Mobile for iPhone also processes credit cards.

Mint on iPhone
Mint is a personal finance app for Android and iPhone. Mint

Banks view sellers who look to these solutions as micromerchants, according to Glenbrook's Russ Jones, and merchants are for the most part required to be an approved agent through Visa or MasterCard. Square is the exception, Jones said.

And also...
In addition to the four silos of mobile payments spelled out above are mobile bill pay and mobile banking. We see evidence of these types of activity in the apps a bank may release for viewing your account, and in third-party apps like Mint and Pageonce Personal Assistant, which also let you view your financial activity.


Is there room for them all?

There may be cross-category competition of course, and one company or technology may wind up dominating multiple categories. However, considering the variety of payment methods we use today--cash, debit, credit card, check, traveler's check, gift card, PayPal, money order--it's safe to assume that our access to mobile payments will only grow.

Variety benefits mobile payment companies, of course, by skimming off a percentage of the transaction fees, and it benefits shoppers by giving them control over exactly how they hand over their dollars.

 

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