What Are Mobile Payment Services?
Mobile payments are electronically processed through a mobile device, usually a smartphone, tablet, or smartwatch. Consumers find mobile payments more convenient because they can use their mobile devices instead of carrying around cash or cards. Businesses wanting to accept mobile payments need a mobile card reader and/or the appropriate mobile app. There are several kinds of mobile payments.
- NFC mobile payments are contactless payments made between mobile wallets saved on smartphones and NFC-enabled card readers that communicate payment instructions wirelessly when the devices come within two inches of each other.
- Magnetic secure transmission payments are also contactless and work like NFC except they use a magnetic signal between a credit card and a card reader or POS.
- QR (quick response) payments involve QR codes, which either belong to the consumer and are scanned by the retailer or vice versa to confirm and authorize a mobile payment.
- SMS payments complete mobile payments via text messages with charges tacked on to the consumers’ monthly phone bills. Mobile bank transfers are more common for bill and peer-to-peer payments, don’t require a card reader or POS and work by directly transferring payments out of the consumer’s bank account and into the payee’s account.
Benefits of Mobile Payment Services
Mobile payments have become popular primarily due to convenience and security. People who prefer this payment method frequent retailers who cater to this preference, so it’s a great way to attract new customers. Additionally, mobile payments typically process much faster than swiped or inserted credit cards, so transactions are handled more efficiently.
For small businesses, mobile apps may offer them an opportunity to securely accept credit card payments, which might not have been an option previously due to expense. Mobile payments often have lower processing fees than swiped or keyed cards. Good mobile credit card readers usually cost under $100, and some companies provide equipment to new merchants.
What to Look for in a Mobile Payment Service
When comparing mobile payment services, look carefully at payment limitations. Providers with low per-transaction limits or that cap weekly or monthly sales can cost you sales. This is common with new merchant accounts, individuals with poor credit histories, and/or start-ups without a proven credit history. You can request an increase of these limitations, but if you fall into one of these categories, you’ll likely be denied.
To cater to as many customers as possible, choose mobile payment processors that support many different types of payment options and devices. It’s important to have all the major credit cards covered and devices with popular digital wallets, such as Google Pay, Apple Pay and Samsung Pay.
Small businesses especially need to compare fund transfer speeds, which can greatly affect cash flow. Transfer speeds determine how quickly the transactions you ran today hit your bank account. Most payment processors take one to five days to transfer funds, but three is average. Some companies make next-day deposits or transfer funds in a matter of hours or even minutes. If you need funds fast, compare the “instant” deposit processors. However, instant usually translates to higher priced, so weigh the pros and cons carefully.
Encouraging customers to repeatedly return to your establishment is important to your success. Choose mobile payment services with reward and loyalty programs that provide incentive to consumers to make mobile payments at your business.
The Cost of Mobile Payment Services
There are all sorts of costs involved in mobile payment services, especially for all-inclusive services that operate as both your merchant account and your payment processor. Always compare per-transaction fees, preferably looking for those with lower interchange plus pricing or flat-rate pricing.
The providers in our list ran between 2.5% and 4.4% per swipe, with some also having an extra 20 to 30 cents tacked onto each transaction. Also, per-transaction fees often vary based on the card network and payment method. For example, some processors charge a higher rate for American Express, and keyed card transactions are almost always higher than swiped transactions.
Beware of other “hidden” fees. Some companies charge a gateway fee, and other companies require a monthly subscription for systems that house their payment processing app. Also, make sure there aren’t separate fees for PCI compliance, fraud protection, or other must-have security features. On the flip side, some mobile payment apps are free of charge, but that doesn’t mean there isn’t a fee involved. Depending on how it’s set up, you may still need a merchant and/or payment processor, and these providers will charge you for their services.