Thursday, June 21, 2012

Why Mobile Payment Systems Might Work for Your Business


Much has been written about mobile payment options and if you read any articles about this topic you find that one or two companies dominate the discussions; however, the list of businesses creating readers/apps/programs continues to grow.  Though not an exhaustive list, this article compares 19 of the currently available readers, such as Intuit GoPayment, Square, and Flagship ROAMpay (http://tinyurl.com/cq7t4r5).  

What equipment will you need?

For most basic operations you need at least one of the following:
  • Smartphone (e.g., 3rd generation iPhone running iOS 4.0 and higher, Android phone running 2.1 and higher, Blackberry)
  • iPod touch (2nd generation and newer running iOS4 or higher), or 
  • tablets (e.g. iPad and Android).

Others systems allow the business owner to expand their functionality when additional devices are used.  Square, for example, provides a card reader for “anywhere” payments but also turns iPads (running at least iOS5.0) into a Square Register with an additional app (squareup.com/register).   Do a thorough investigation of each reader you are considering.  Some are compatible with Android phones and/or Blackberry while others are not.   

Readers for swiping credit cards 

With credit card terminals already using card swipers to process payments, many businesses may feel the most comfortable investing in a mobile payment system that uses a similar type of tool.  

The most common type of reader for swiping cards is a “dongle” that plugs into either the headphone jack on a mobile device (for example, Square) or plug into the iPhones and iPads charger port (for example, Eventbrite, http://tinyurl.com/77bvczo).

Groupon has recently entered the market and instead of offering a dongle the company has decided that a wrap-around case as dongles could potentially snap off (http://tinyurl.com/6mhdlp6). Other systems with a wrap-around style include Mophie (http://tinyurl.com/26or6oy), and Chase Paymentech (http://tinyurl.com/7yd5dlz).  Yet another variable you’ll need to consider when selecting the right system for your business.  

Payments made with smartphone apps 

Google Wallet, which works with Android phones, has been around for about a year.  This mobile payment app first requires users to link their account with a Citibank MasterCard or load a Google Prepaid Card using any other credit card.  When at the store, customers “tap” their phone against a near field communications (NFC) reader/credit card terminal. (Apple recently announced that a iOS 6 Passbook will app is in the works, http://tinyurl.com/cq3ut82). 

More recently, FaceCash has emerged onto the mobile payment scene.  Instead of matching a customer’s signature with that on the back of their credit card to verify a purchase, “merchants use FaceCash to verify that [the customer’s] real face matches a digital image linked to [his or her] account” (https://www.facecash.com/).  

Like many other systems, customers activate their account prior to shopping.  During the registration process customers link their account with their checking or savings account (users also have the ability to load their card with cash at retail locations where FaceCash is used) and upload a government-issued photo (driver’s license or passport).  When at the retailer, customers tap their phone against the NFC reader or businesses use a CCD Barcode Scanner to scan the barcode on the customer’s phone and then compare the image in the FaceCash system with the person making the purchase.  FaceCash also allows the user to load loyalty program cards (e.g., airline frequent flyer accounts, supermarket frequent purchaser cards) which can be scanned at checkout.  A video that provides an overview can be found at: http://vimeo.com/17175906

Other payment options

PayPal is more recognized as a payment option for consumers who want to make online purchases without supplying their credit card number.  Instead, consumers authorize purchases at websites offering this option using their email and PIN number.  In 2011, PayPal had over 100 million active accounts worldwide (http://tinyurl.com/6leeyre).  

At least one home improvement store has implement PayPal as a payment option for customers.    In addition to using a card reader to swipe credit cards and accepting checks via the mobile device’s camera, businesses can process payments by asking customers to enter their telephone number and PIN on  the credit card process terminal. 

Comparison of costs for retailers

Transaction fees and other costs are likely to change as this technology becomes more widely used and as more competitors enter the marketplace.  Remember that you will need to consider the costs for processing each type of credit card you honor (can range from 1.74% to 3.7%), as well as whether there is a per-transaction charge (can range from $0.10 to $0.30).  

How might these fees add up during an average month and what might you expect to save annually?   Consider using websites such as http://tinyurl.com/cs4fwf4.  The site allows users to enter an expected monthly revenue, select whether credit cards are processed by swiping or being keyed-in, and see estimated costs for several different brands of mobile readers. 

Another question to think about: Based on your average customer transaction size – will one system provide more savings than another?

According to an article written about Groupon’s mobile payment system (1.8% transaction fee [2.7% for American Express] and $0.15 per transaction) compared to Square (2.75%  transaction fee but  no per transaction charge), Groupon’s system might be a better choice for sales greater than $15 while Square would cost the retailer less than Groupon for sales less than $15.00.  

An example that shows how these transaction fees impact sales: “On a $100 Visa transaction, Groupon would charge $1.95 vs. Square’s $2.75. That’s a 41% premium for Square” (http://tinyurl.com/6ncbxbn).  

Do this comparison for yourself based on common sales transactions you process.  With several variables to consider, including how you would prefer customer to “pay” for purchases, take the time to investigate several systems to find the best one for your business.  

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