Ready to leave your wallet at home and use only your cell phone to perform all your everyday financial transactions? With smartphone ownership taking off, mobile payments may soon replace physical payments (cash and credit cards); at least, investors, big financial companies and payment services hope so. What exactly is a "mobile payment", though? Many people are talking about the "mobile wallet" these days, but there's a lot of confusion about these terms and how they work.
Do you swipe your cell phone at a terminal at the supermarket like you do a credit card? Is it like those commercials where you bump your phone with your friend's cell phone to give him or her some money for your share of dinner? What about just making payments from your phone? What's the difference between all these things (and why should you care)?
This infographic from Mobile Payments Today helps straighten it all out, with a breakdown of the five main types of mobile payments and the companies and services behind them. I've added some more detailed descriptions and resources to help you learn more about this new alternative way to pay for stuff or make money--with your cell phone.
The Mobile Wallet
Probably the most hyped-up type of mobile payment, this method uses "tap and go" or your smartphone's built-in NFC (Near Field Communication wireless technology; About.com's New Tech site has a great overview on NFC if you want to learn more) or another method to enable you to pay for stuff with your cell phone, much like you would your credit card. It's faster and more convenient than cash, and you may be more likely to have it on hand than your credit card (some surveys have shown people are more likely to forget their wallets than they are their cell phones).
Companies: Google and ISIS are the two big mobile wallet providers.
- Like all things Google, Google Wallet is a significant mobile payment initiative. Google started Google Wallet with Sprint's Nexus S, with other NFC-enabled phones to follow. You add funds to the Google Wallet app with a credit card then can "tap-and-go" at Google Wallet merchants (as of this writing, places where MasterCard PayPass Network is used, though Visa, Discover, and American Express are also joining Google Wallet.)
- The ISIS network is a digital network formed by AT&T, T-Mobile and Verizon Wireless. The Isis mobile wallet on your cell phone promises to combine funds with coupons and more.
The Mobile Phone as a Credit Card Terminal
You could also use your cell phone to accept payments from others, i.e., process credit card payments. This capability could obviously be useful for businesses and entrepreneurs--especially sales people on the go or if you sell things at street fairs and things like that.
Companies: The biggest players in this space are Square (which has partnered with Visa) and VeriFone.
- Square offers a free credit card reader and app that connects to your iPhone, iPad, or Android device. It charges a simple flat rate of 2.75% for all cards, including American Express.
- VeriFone's PAYware Mobile, works with iPhone, but you're required to pay a $49 activation fee, buy the encrypted card reader, and there are standard merchant fees as well that vary depending on the transactions.
Other Types of Mobile Payments
Besides the mobile wallet and the credit card processing types, there are a few other types of transactions you could do with your cell phone that could be considered a "mobile payment." For example, if you send money to someone via PayPal by bumping your phone with your friend's phone, that's a mobile payment (also P2P or person-to-person).
Companies: PayPal and Serve.
- PayPal, one of the first alternative payment services, lets you bump iPhones to send money. You can also use PayPal mobile through text messaging. Money is taken out of your linked bank or credit card account, as with other PayPal transactions.
- Serve is American Express' version of PayPal. You can send money from your iPhone, Android, or Windows device and fund using a bank account or credit card. Unlike PayPal, you can use prepaid forms of payment and create subaccounts. P2P transfers are free, but after January 1, 2012 fees will be charged for funding by credit card or getting cash out of an ATM.
