It's a phone, it's a computer and now it's a wallet. The ability to complete secure, wireless transactions is the latest technology adapted for smartphones, and its widespread use is growing on a daily basis. According to a study by Juniper Research, there will be more than 200 million mobile-wallet users across the U.S. by the end of 2016.
This technology is an opportunity for restaurant and retail operators to better serve guests. First it's important to know the difference between mobile wallet providers and how to take advantage of the new opportunities that mobile payments provide.
How does it work?
Users store their credit card information in a mobile payment system that uses near-field communication (NFC) chips to make wireless payments without sharing the physical credit card. When a user makes a purchase, a unique tokenized code is sent from the smartphone to the point-of-sale terminal to process the transaction. This also prevents the credit card number from being shared with the merchant, which increases security and protects against data breaches.
Mobile wallets are a boon for online and advanced ordering, too, providing faster service and another level of convenience that appeals to consumers. Mobile wallets are particularly appealing to millennials who essentially grew up with cash-less transactions; the move from debit card to mobile payment is a trade up for this age group who manage their entire lives on their phones.
Tracking real-time loyalty rewards and serving up special offers through mobile payment programs also give customers another reason to appreciate a brand and build loyalty.
And most importantly, the encryption of the credit card and owner-control of the mobile device help minimize card fraud.
Research by CNBC found that mobile payments could also lead to higher tips. Since customers aren't counting out physical dollars and cents for gratuity, they are more likely to tip a higher percentage of their bill.
Types of mobile payment systems
Here's an overview of the top mobile payment players, though before long there will be more choices for consumers.
Launched in September 2014, it's no surprise that Apple Pay has already amassed a network of 220,000 merchant locations across the country. For the iPhone 6 and newer models, the fingerprint sensor is used to complete the payment transaction, adding an extra level of security.
Apple Pay is only available for the iPhone 6, and the NFC chip added to the iPhone 6 only works with Apple Pay, locking out other uses for the technology, such as speaker pairing.
Samsung Pay uses the same NFC payment method as other mobile pay systems, but it has the added benefit of also being compatible with regular swipe-based card machines. Magnetic Secure Transmission (MST) technology created by LoopPay, a company that Samsung acquired earlier this year, makes this possible.
Newer Samsung products like the Galaxy S6, Galaxy S6 Edge, Galaxy Note 5, and Galaxy S6 Edge Plus all are all MST-capable, which allows these devices to work at wireless and traditional payment terminals in the U.S. In a comparison to Android Pay, Gotta Be Mobile found that this additional functionality was a notable improvement over Google's offering.
Google rolled out Android Pay in September. The replacement for Google Wallet, this app was redesigned to compete directly with Samsung Pay and Apple Pay.
While the LoopPay integration makes Samsung Pay functional at more locations – and Apple users typically shudder at the thought of using a Google product — Android Pay has several unique benefits. First, unlike the proprietary mobile payments methods listed above, Android Pay is available to anyone who downloads the application.
Second, Android Pay's Smart Tap technology uses a phone's NFC chip to transfer more than just payment information. It also syncs with data from loyalty and rewards programs, as well as discounts, coupons, and other offers connected to the transaction. (Apple and Samsung have been slower to roll out such a system, though they're starting to catch up.) Google believes that this data will improve the relationships between merchants and customers, making Android Pay the mobile payment method of choice. This data also helps restaurants and retailers better understand what appeals to their customers.
The competition for mobile wallet market share is fierce, and this is the next step in making smartphones indispensable to consumers. And as more consumers rely on this technology, restaurant operators need to follow.
Founder and CEO of Custom Business Solutions, Art Julian started in the restaurant business selling cash registers, and helped reimagine the use of technology to create a networked, cloud-based tablet point-of-sale system called NorthStar Order Entry.