How new payment platforms will transform personal finance | Jul18 Newsletter
The rise of new payment platforms
After years of hype and speculation, contactless digital payment platforms from technology behemoths like Apple and Google are beginning to take off. If the experts are right, the days of paying with coins, bills and plastic cards could soon be behind us.
Also known as ‘mobile wallets’, this refers to apps that allow you to make purchases using your smartphone at point-of-sale (POS) terminals that accept contactless payments. According to data compiled by Statista, proximity mobile payment transactions could total US$190 billion in the US by 2021, with over 60 million users switching over before 2020. In Australia, the Deloitte Mobile Consumer survey reported a 25 per cent growth in mobile purchasing between 2016 and 2017. As of August 2017, there were 87 million Apple Pay users worldwide.
How do mobile wallets work?
Mobile wallet apps communicate with contactless POS terminals using a wireless technology called near-field communication (NFC). It’s supported by the Apple iPhone 6/6S and later, Apple Watch, and Google Android brands including Samsung, Lenovo, LG, Motorola and more.
It simply requires uploading the details of your eligible credit and debit cards to the payment app, after which you’re free to shop using your device. It’s the same kind of technology found in commuter cards, anti-theft tags and smart cards. The advantage of putting it in a phone is the universe of possible applications. For example, using NFC you can tap two Android phones together and exchange data such as contacts, links or photos.
The benefits of cashless payment
One reason for the boom in mobile wallets is their acceptance by a growing number of financial institutions as a convenient alternative to cash and cards – one that particularly appeals to younger, more tech-savvy shoppers. Benefits compared to these older forms of payment include:
Convenience
Mobile phone POS payments don’t offer a huge convenience advantage over bank cards that are embedded with a contactless payment chip. The real shift in consumer behaviour may come when NFC-capable wearables – e.g. smart watches, smart glasses and bracelets – become more widely adopted, making contactless payments super-fast and simple.
Security
Apple argues that its Apple Pay mobile wallet application is safer and more secure than the plastic card issued by a bank. Why? Because when you make a purchase, your card details are completely hidden from the merchant behind an encrypted code. Further verification is provided by requiring that the user enter their fingerprint passcode.
Flexibility
Contactless POS payment is just one feature that smartphones can offer. Both Apple Pay and Google Pay support in-app purchases as well. That’s in addition to third-party digital wallet apps that allow instant money transfers around the world, like Venmo, PayPal and Square Cash. These apps also help users avoid hefty bank processing fees.
So is this good or bad news for banks?
The demise of cash and credit cards won’t happen overnight. But as more payments go mobile, the big financial institutions can either lead the charge or watch their payments business disappear to their competition. Companies like American Express, MasterCard and Visa already offer their own NFC mobile payment options. For banks that aren’t already on board, it’s never too early to innovate.