Mobile Wallets: The Future of Mobile Payments

October 20th, 2014 @ 09:00am Stephen Mutch Mobile

​According to data from ITU and Pew Research, it took 64 years for the telephone to reach 40 percent market penetration, and nearly 20 more to reach 75 percent. But the adoption of new technologies has sped up considerably these days. The same rate of Internet adoption happened in less than 15 years, and mobile device adoption has been far faster, with smartphones and tablets hitting the same milestones in under a decade and increasing exponentially.

Today, mobile devices are everywhere. Pew Research reports that as of January 2014, 58 percent of American adults own a smartphone, and 42 percent own tablets. What’s more:

  • 63 percent of adult mobile phone owners use their phones to go online
  • 34 percent of cell owners go online mostly with their phones, rather than a desktop or laptop computer
  • 29 percent of mobile phone owners say their device is “something they can’t live without”

Among emerging technologies, one of the newest is mobile payments. New technologies are rapidly evolving that allow mobile device owners to make secure online purchases, and even in-store purchases, through their smartphones or tablets. With so many aspects of our daily lives tied to digital devices, the future of payments is going mobile.

Mobile wallet solutions: The latest in payment technology

While the technology has actually been around for more than a decade, the past few years have seen major movements toward mobile wallets—apps that let you make purchases by tapping or waving your smartphone near a terminal. Mobile wallets use Near Field Communication (NFC) technology to transmit data, and this convenient payment solution is poised to overtake magnetic card payments within this decade.

Some of the major players in this field include:

Google Wallet: The pioneer. Launched in 2011, the Google Wallet solution stores credit and debit card information, as well as loyalty cards, gift cards, and more, allowing app users to pay at retail locations by tapping their phones on PayPass-enabled terminals. There are more than 300,000 merchants participating in PayPass.

LevelUp: The innovator. This solution was also launched in 2011, but operated first as a daily deals platform before shifting focus to mobile wallets. The LevelUp app works on iPhone and Android platforms, and stores payment information in QR codes, which can be scanned at LevelUp terminals for payment. This platform combines merchant-specific savings with mobile wallet payments. LevelUp is currently available in limited geographic areas with around 14,000 participating businesses, but plans to expand soon.

Apple Pay: The game-changer. Just announced is the mobile wallet with real potential to kick-start widespread adoption. Apple Pay is an NFC-enabled mobile payment solution available only with iPhone 6 (and presumably later models) and Apple’s new smart watch. With more consumer credit cards (three-quarters of a billion) registered through iTunes and the Apple Store than any other single company, and a deal already in place with Visa, Apple Pay could bring more payment industry and tech companies along the mobile wallet route.

Ecommerce fueled further by mobile wallets

These new payment solutions are also driving the explosive growth of mobile traffic and ecommerce. All major mobile wallet solutions not only allow consumers to physically pay with their smartphones, but also provide heightened security and convenience for ecommerce transactions.

More people than ever are using their smartphones and tablets to shop online. According to comScore data reported by Kissmetrics:

  • 78 percent of smartphone searches and 64 percent of tablet searches result in local purchases—compared to 61 percent of PC and laptop searches
  • 75 percent of mobile shoppers have used a mobile coupon
  • During the 2013 holiday season, 1/3 of all ecommerce purchases were made on a smartphone
  • A total of 55 percent of retail Internet minutes are spent on mobile devices (44 percent smartphone, 11 percent tablet)

U.S. retail ecommerce sales totaled $263.3 billion in 2013, a number that’s projected to reach over $300 billion for 2014 and nearly $500 million by 2018. A large percentage of these online sales are powered by—or made directly on—mobile devices. Mobile wallets are making it easier than ever for consumers to shop online.

The benefits of mobile wallet solutions

There are two primary advantages to using mobile wallets. One is the increased convenience. Whether shopping online or in retail stores, mobile wallet users have no need to enter their payment information every time. It’s stored securely in the device, so they can check out with just a tap or a wave.

Mobile wallets also offer greater security than magnetic stripe cards. Credit and debit cards can be stolen and easily used by someone else, often before the owner knows the card is gone. Massive credit card information thefts, such as the recent incidents at Target and Home Depot, and the ever-present threat of compromised user accounts and passwords through online services serve to increase the risk.

However, mobile wallets feature advanced security measures that make it extremely difficult, or even impossible, for anyone to steal financial information. These include:

  • Physical possession: In order to use a mobile device for a payment, you must use the device itself. Most smartphones have security features in place, including remote wiping capabilities, designed to protect data even in the event of physical device theft.
  • Personal security: Mobile device passwords and other measures like Touch ID, Apple’s fingerprint passcode security, prevent others from using your device and accessing the mobile wallet system
  • Tokenization: Many mobile and ecommerce solutions, such as the simplyCMS proprietary ecommerce platform, use tokenization to further protect sensitive information. In data security, tokenization replaces stored credit card numbers with tokens, or reference points, that contain random number strings instead of the actual card numbers—so even if another person accessed the information, they would be unable to get the right data.

Mobile wallets, combined with advanced security features like tokenization, represent the future of payments for both online and in-store purchases. Consumers can now enjoy the convenience of making payments from a device they already use, without having to rely on less secure forms of payment and risk devastating theft.

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