E-commerce

An introduction to popular mobile payment methods - how they work and how to start accepting them

Illustration of a hand holding a smartphone
Phoebe Lown
Phoebe Lown

Content Writer

An introduction to mobile payments

Physical payment methods have been making their way to the door over the last decade, and the recent COVID-19 pandemic has given them a hard kick over the threshold slamming the door shut on them forever.

To limit human-to-human contact, retailers, merchants, and governments are discouraging the use of cash. While consumers, conscious about touching POS terminals, are embracing contactless mobile methods like NFC and QR codes more than ever before.

We're already seeing the impact, total m-commerce spends on digital services, and physical goods purchases are set to reach USD 2.66 trillion by the end of 2020, and the trajectory will skyrocket to USD 3.16 trillion in 2021 and USD 3.79 trillion in 2022.

The era of mobile payments has been on the horizon for a while, but COVID-19 has well and truly hit the fast forward button for consumer adoption.

Fortunately, there’s a plethora of methods already available to merchants who are looking to offer their customers more contactless ways to pay. In this handbook, we'll drill into the ins and outs of the most popular methods, look ahead at what's to come, and see how retailers can start accepting mobile payments. 

First things first, what are mobile payments exactly?

Mobile payments are contactless transactions that happen digitally via a customer's mobile device, to pay for digital or physical goods, both in-store or online.

How do mobile payments work?

Mobile payment is an umbrella term for payments that happen via a smart device, they’re not just limited to smartphones and can happen though tablets and wearable technology. There are a few ways mobile payments can happen, depending on if the transaction is taking place in store or online, most rely on Near Field Communication, Bluetooth and QR codes.

What types of mobile payment methods are there?

There are numerous ways to make mobile payments, we’ll dive into the 4 most popular methods among merchants and consumers today:

Near field communication (NFC)

The front runner for consumers is a payment method you'll already have heard of. NFC is the power behind contactless debit/credit cards and mobile wallets like Apple Pay, Google Pay, and Samsung Pay in smartphones and wearables. 

The backing of powerful brands behind NFC has paved the way for the popularity and demand among consumers. By 2022, more than 2.7 billion people will use a mobile app to pay for in-store transactions.

The rise is also partly triggered by the COVID-19 safety measures, NFC proximity payments will jump 58% y-o-y in 2020, as consumers who were previously hesitant about contactless payments are becoming more interested in methods that reduce human contact and are turning to mobile wallet brands they know and trust.

What are mobile wallets and how do they work?

Also known as digital wallets or e-wallets, there are several brands on the market all eager to grab a slice of the m-commerce pie, but while they’ll all claim to be top dog, and they have rather a lot in common:

  • Apple Pay, Google Pay, and Samsung Pay all allow users to upload credit, debit, prepaid, and loyalty cards into their mobile wallets
  • At the POS, the user holds the device near the terminal and open their mobile wallet
  • The POS sends the payment data, which is encrypted, via soundwaves to the mobile device. The device converts the payment data into analogue signals
  • Users need to physically accept the transaction with via their fingerprint, facial recognition or through password protection
  • Users can also send funds to each other via peer-to-peer transactions via messaging apps and email

However, while users can choose their preferred wallet as most POS terminals are NFC compatible - retailers will only need to have a payment provider in place that can process these types of transactions.

The security benefits of NFC and mobile wallets

The NFC chips that are found in most POS terminals and smart devices communicate via radio waves and will only work when the two devices are close together. The two cannot communicate further than 5cm apart, so you wouldn't able to accidentally pay for the items from the person standing in front of you when in line at the checkout. Unless you wanted to, of course.

For added measure, mobile wallets can only communicate with the POS when the user unlocks the app on their device and selects which card the payment will be taken from.

Mobile wallets rely on tokenization

In laymen's terms, tokenization refers to the act of securing sensitive payment data that can be easily stolen and used by scammers. Such as credit card numbers, cardholder names, CVV codes, and so on.

Tokenization hides the details by converting them into non-specific IDs called "tokens". The token is generated randomly at the POS when the user completes the transaction and they're as unique as a fingerprint.

Here's an example:

A card number:  4321-1354-1652-3962
The token:  A4r8%2lbJu

The merchant's gateway will then match the token to the card details and complete the transaction. The token is unreadable and therefore useless if it falls into the wrong hands. Even the merchants can't match the token to the data - so the cardholder's sensitive details are always kept safe and sound.

Illustration of payment using NFC and a mobile wallet

QR code payments 

Quick Response or QR codes are 2D barcodes codes that are quickly readable (hence the name). They may look like fancy versions of linear barcodes that you find in stores but they hold a wealth of information and can facilitate instant mobile payments.

The well-known black squares on white backgrounds can be scanned by a smart device camera from either a screen or paper, which is why you'll find them on pretty much everything from movie posters, concert tickets to banking apps. Once the user scans the code, it will send a push notification to open the appropriate app or webpage on the mobile device and display the information.

How do QR mobile payments work?

Static codes:  used to facilitates single payments, most used in delivery services and in-store. All the user needs to do is scan the code and authorize the payment via their baking app.

Dynamic codes: these codes are editable by the sender and features like password protection, and access management. Merchants can use dynamic codes to send the payment amount and the merchant information - which means the user only has to accept the transaction on their phone.

Customer-facing QR codes: The merchant offers a static or dynamic QR code to their customer to scan. The payment is debited from either an e-wallet, official store app, or banking app.

Retailer-facing QR codes
This is when a customer collects the items in their phone app, which generates a QR code for the merchant to scan to get the total transaction amount.

While it's your choice which codes to implement, dynamic customer-facing QR codes are the easiest for merchants to set up.

The security benefits of QR codes

Making payments via QR codes is completely safe. As the QR code is just a method of exchanging information - any sensitive payment data that are then transferred via a QR code is encrypted and fool proof.

QR codes are really popular in emerging markets

We’re seeing an unexpected increase in the adoption rate of QR-code based wallets and services in emerging markets. Countries in Latin America, South East Asia, and Africa are now rolling out common and standardized QR code payments in a bid to move towards a cashless society.

India is one standout case, where big players such as Visa, Mastercard, American Express, and the National Payments Corporation of India have collaborated to develop an interoperable QR code acceptance solution.

In comparison, QR wallets are not as popular in Western markets, especially amongst European customers and merchants. However, there is an increasing demand from Chinese tourists to popular European tourist destinations for QR code payments; consequently, we're witnessing Alipay and WeChat Pay partnering with merchants in Europe to enable such payments for Chinese tourists.

This means that European merchants have a unique opportunity to become a first mover and boost in-store sales, as and when the travel market recovers from the impact of COVID-19.

How merchants can accept payments via QR codes:

There are many ways merchants can start accepting QR code payments, but options are limited in some countries.

For example, the most popular payment method in Belgium, Bancontact, has a mobile wallet that can facilitate QR payments in-store and online. While in the Netherlands, iDEAL allows merchants to generate QR codes on printed customer receipts or online. You'll just need to be set up with a payment provider like Payvision, that offers the processing for their QR codes.

Illustration of a mobile phone scanning a QR code

Direct carrier billing (DCB)

Globally, there is only 1 credit card owner per 5 mobile phone owners - so it makes total sense that carrier bills should be used to facilitate payments.

DCB is an online payment method that allows users to make purchases by directly charging payments to their mobile phone bill, whether it's a smartphone or feature phone. The user only needs an active SIM card to be billed.

DCB simplifies online checkout experiences:

Direct carrier billing differs from other popular mobile payment methods like mobile wallets, NFC, and QR codes because it bypasses banking infrastructure and credit card companies altogether. You could say it's the true alternative payment method.

 While the other payment methods are convenient for point-of-sale purchases, direct carrier billing provides the best purchasing experience in online environments and is currently mostly used for purchasing digital content.

As the user doesn't have to input any of their credit card details, merchants can enjoy higher conversion rates. Compared to credit card and PayPal payments, DCB increases conversion rates by up to 3x in Europe and 5x Asia. And the proof is in the pudding, 70% of all digital content purchased online in Asia uses the Direct Mobile Billing method.

The fastest-growing mobile payment method in APAC

As the most populous region in the world, APAC is home to more than half the world’s total mobile subscribers. This surge of mobile users directly correlates to engagement in mobile financial services, as APAC is expected to witness the highest growth in the global mobile payments market. Poised to acquire a share of 42.5% in the global market by the end of 2024.

However, more than half of the world’s unbanked population lives in APAC. In fact, just three countries—India, China, and Indonesia—together account for almost 40% of unbanked adults globally. Mobile technology has been a boon for these consumers, allowing them to participate in activities such as online commerce, microloans, or P2P payments, without having to sign up for a bank account.

Spurred by the inadequacy of formal institutions in meeting their financial needs, consumers from developing economies actively seek out alternatives to traditional banks like DCB. In doing so, they inadvertently “leapfrog” over those in advanced markets by adopting mobile money at a much faster pace.

Is DCB a secure payment method?

Making payments with carrier billing is extremely secure. No sensitive personal data gets transferred during the payment process so a user's details will never fall into the wrong hands - and merchants don't have to worry about storing any data.

DCB always requires the user to authorize the payment on the mobile device, usually through SMS pin code verification. This makes card-not-present type fraud impossible, increases consumer trust and improves the payment conversion rate for merchants.

Illustration of a mobile phone processing direct carrier billing

Payment Links

Also known as ‘pay by link’, it’s the process of sending a button/link via an email, SMS, messaging app, or social media. When the user clicks the link, a checkout page opens in an internet browser where the recipient can enter their credit card details or authorize the payment through their banking app.

Merchants can set the payment amount in advance, before sending then link. But in cases like making charitable donations, the donor can set their preferred amount.

The security benefits of payment links

Payment links are completely safe for both merchants and consumers. On the merchant side you won’t have to worry about storing sensitive customer information or being PCI compliance as you’ll never see the screen where the consumer is authenticating the payment. What’s even better, as the transaction has to always be authorized by the user, the risk of chargebacks is low.

How merchants can accept payments via links

One downside to keep in mind, is that you’re reliant on the customer entering their details manually – so you may see fewer conversion rates compared to methods like a quick tap at the POS or a website checkout where the payment details are already saved.

That being said, accepting payments via a link is one of the simplest methods for merchants. You don’t have to worry about having an online store, POS terminal or any other payment system. As long as you’re set up with payments provider like Payvision that can process the transactions, you can start accepting payments on the fly.

Illustration of a  a payment link being sent to a mobile phone

There we have it! You’re now up to speed on the most popular mobile payment methods on the market. Of course, depending on the regions and industry that you’re operating in, there’ll be a payment method that’ll fit like a glove – take the crash course into mobile payment global and regional trends with our latest insider report: