Mobile payment is simply the capability to pay for a product or service using your mobile phone. Mobile payments can take place over the Web or can be completed in the offline world through contactless payment options such as Near Field Communication (NFC) and Radio Frequency Identification (RFID).
All mobile payments fall into one of two camps, micropayments or macropayments, depending on the size of the transaction and how the payment is processed. As in nonmobile commerce, processing credit card payments (especially macropayments) usually requires that the merchant pay the credit card company a fee for each transaction. Credit card processing thus cuts into the margins of many mobile commerce solutions and must be figured into your business plan.You should also balance the potential revenue from mobile commerce with the credit card processing fees, as well as other hard costs and overhead that will be required to complete the transactions.
Micropayments are small mobile commerce transactions that can be completed on a phone and, in many cases, billed directly to a user’s mobile phone bill or to a credit card. These payments are useful for low-consideration purchases and the purchase of digital content. The most common types of micropayments are direct-to-carrier billing, subscriptions, and user accounts that are tied to credit cards.
(1)Direct to Carrier Billing:
One common instance of micropayments in the United States and around the world occurs when mobile carriers offer directory service (411) or premium SMS charges and downloadable mobile content such as ringtones or wallpapers. The carrier provides these goods and services, so they can be billed directly to your mobile phone bill.According to Wikipedia, 70% of all digital content in Asia, including traditional Web content, is purchased in this way. This type of mobile payment is ideal for the carriers. It is a simple and viable add-on to any mobile service plan and can be quite profitable. The carriers can bill customers directly instead of processing credit card payments and incurring merchant fees. Because credit card information does not need to be obtained, the processing of a purchase is quick and secure, and usually is completed within 10 seconds on a fast connection.
Carriers and other mobile content providers offer subscriptions to SMS updates that are charged to the subscriber’s bill in the same model. These subscriptions can be alerts about news, sports, weather, stocks, horoscopes, and the like, and the subscriber is generally billed for each text individually. These types of subscriptions are ongoing commitments, as with a magazine or a cable TV subscription, and subscribers must cancel or deactivate them if they want to stop incurring charges.
(3)User Accounts tied to Credit Cards:
Other types of micropayments can be completed via accounts where credit card information is stored and validated with a PIN or a password. In the mobile world, the most common company that uses this type of service is iTunes; people download music or videos directly to their iPhones. This format of payment is also quite common in the gaming and adult mobile industries, where users can pay for downloads one at a time.
Macropayments are used for purchases that cannot be billed as a micropayment. Prepayment, prompted mobile payment, full mobile Web transactions, and full brick-and-mortar transactions with proximity based mobile payment are the four most common types of macropayments.
A variety of different companies have begun to allow their customers to create prepaid accounts that are debited each time charges are incurred and that stop working when the money in the account has been spent. This mobile payment option allows account holders to track their spending and prevent charges for excess use of the service, by avoiding overage charges. Prepayment accounts are most commonly used for mobile phone bills themselves, but can also be used with public transportation and fast food.With this method of payment, users create an account, usually online, and submit an initial payment to start the service. Periodically, users are sent text messages to inform them of their account balance or remind them to add money to their account, otherwise known as “topping-up.” Because accounts have already been created, the customer has the option of repeating the payment amount and billing information of the last transaction, or adding different amounts or billing information to the account.
Restaurants are also beginning to test prepaid accounts, although so far this has mostly focused on the larger fast food chains. This mobile payment model works in exactly the same way as the public transportation scenario, but it can be a bit more complicated to implement. In fast food restaurants, the exchange is simple because food is purchased directly at the register, where the phone can be swiped over an NFC or RFID sensor and immediately deducted from the prepaid account, just as it would be with a debit card.
In more traditional restaurants, where the waitstaff either takes a credit card to swipe at a processing terminal or processes the card at the table wirelessly, there is the expectation to tip. In this instance, the signal from the NFC or RFID chip owned by the restaurant must prompt a screen that allows the customer to enter a tip. This is a bit more of a hassle, but you can preprogram the system to precalculate common tip percentages for the patron,making the process easier and quicker to complete.
(2)Prompted Mobile Payment:
Prompted payment is much like prepayment, except that the credit card on file is not charged until after the service is rendered. In this payment model, the service provider usually sends the customer an SMS with the total bill and asking permission to charge the credit card on file.Again, some carriers use this to remind their customers to pay their bill on time. In this scenario, the carrier sends a text message to the subscriber at the end of a billing cycle, notifying the customer of the total amount due and allowing him or her to respond with a preset PIN to pay the bill with the credit card information stored in the account. Prompted mobile payment is a great way to streamline bill payment or even charitable contributions because it can provide a cost savings over direct mail and can be used by a variety of different service providers, including home utilities, subscription TV services, and even childcare services.
(3)Full Web Transactions:
As on the traditional Web, entire transactions can be completed on the mobile Web without the need for an account or any kind of prepayment. Customers simply enter their credit card information, just as they would on the traditional Web. This type of mobile commerce is most commonly used by websites that offer some kind of mobile shopping experience.