“How Will You Be Paying?” — The History & Future of Mobile Payments

May 18, 2015

Walk into any Starbucks this morning and order a grande caramel latte. How do you pay? If you use the Starbucks app on your smartphone, you’re in good company. Over 12 million Starbucks customers pay with the app at the rate of about 7.5 million transactions per week. In 2015, mobile payments are growing in popularity, although not yet the norm. Let’s take a brief look at the history and growth of this method of payment.

Mobile payments began around 1997 when Coca Cola released their first vending machine that accepted a mobile payment via text message. Not long after, companies like Ericsson & Telnor Mobil and Domino’s Pizza began offering mobile payments for movie tickets (1999) and pizza delivery (2001).

How does it work? Mobile wallets process a payment when a company’s terminal physically interacts with a customer’s mobile device by either touching or scanning it using Near Field Communication or scan-able code. Google Wallet, Apple Pay and Softcard are good examples of mobile wallets. PayPal is considered a digital wallet, not a mobile wallet, but they’ve recently purchased mobile wallet technology company Paydiant, which might create an opportunity for a PayPal mobile wallet option.

Closed loop mobile payments, such as the Starbucks app mentioned earlier, is another type of mobile payment in which a company creates its own system where users can load and re-load money onto an app.

Square is a good example of a mobile as the point of sale (mPOS) type of mobile payment. In this scenario, the mobile device itself processes and encrypts the card payment. There is a transaction fee to use it though, so it’s best saved for occasional transactions.

It seems so easy — surely everyone must use mobile payments! Not quite. Despite an increasing number of people with mobile devices, most people — 64 percent according to one survey — do not use mobile payments. Why? The reasons vary, but it seems to come down to three factors: not enough information, not enough incentives, and the fear surrounding recent major data breaches.

Yes, companies are making huge strides in the technology used for mobile payments, but consumers need more of a reason to get out and unlock their phones and open an app when they could have just grabbed their credit cards. Rewards would go a long way in enticing more people to use mobile payments, as would reassuring customers of increased security protocols.