Mobile payments have transformed the way that customers shop. With just a tap or scan from a smartphone, customers can complete a transaction in a fraction of the time it used to take. The convenience of mobile payments has led to widespread adoption: the mobile point-of-sale (POS) payments market is projected to reach US$6.11 trillion by 2028.

Secure digital wallets and contactless payment systems provide a layer of security that rivals or surpasses that of physical credit cards. Encryption and tokenisation bolster this security, safeguarding user information during every transaction.

Mobile payments facilitate greater financial inclusion and enable businesses to access a wider market. In areas with less developed banking infrastructure, mobile payments offer a gateway to economic participation, allowing users to engage in financial activities that had been out of reach.

User-friendly payment apps and digital financial services reinforce the popularity of mobile payments. Retail giants such as Starbucks have successfully capitalised on this trend: as of 2023, the Starbucks mobile app had 31 million active users in the US – a 15% increase on the previous year.

Mobile payments provide customers with speed, security and convenience, and market trends suggest that businesses will continue to expand and refine their mobile payment capabilities. Here's what businesses should know about mobile payments.

What's in this article?

• What are mobile payments?
  
• What types of businesses use mobile payments?
  
• The technology behind mobile payments
  
• Types of mobile payment systems
  
• Benefits of mobile payments
  
• Challenges and considerations of mobile payments
  
• How Stripe supports mobile payments
  

What are mobile payments?

Mobile payments typically use an app or a mobile web browser and can take place through a variety of technological methods, such as near-field communication (NFC), QR codes or mobile wallets, such as Apple Pay, Google Pay and Samsung Pay. The transactions are proximity payments (those made in person at a POS system) or remote payments (which occur online).

These payments are authenticated and secured through different methods, such as biometrics and one-time passwords. Mobile payments are part of a broader transformation that includes the shift from physical cash and cards to digital solutions, which provide the advantages of speed, convenience and improved security. Mobile payments are increasingly popular because of the widespread adoption of smartphones and changes in customer payment preferences, especially among younger demographics.

What types of businesses use mobile payments?

A wide range of businesses across different sectors use mobile payments. Here are some examples:

• Retail stores: Many brick-and-mortar retailers accept mobile payments at the point of sale. This can speed up the checkout process and provide an additional payment option for customers.

• E-commerce platforms: Online stores and marketplaces often provide mobile payment options to customers shopping on mobile devices.

• Food and drink industry: Restaurants, cafes and bars often use mobile payment systems for table-side payment processing or for mobile ordering systems.

• Service providers: Delivery services and personal grooming providers frequently use mobile payment systems to handle transactions.

• Ride-hailing: Ride-hailing businesses, such as Uber and Lyft, accept mobile payments for rides.

• Vending machines and kiosks: Increasingly, vending machines and kiosks use mobile payment technology, which allows customers to pay with their phones.

• Public transport: Many public transport systems have introduced mobile payments for fare purchases, making it easier for commuters to pay with a tap or within an app.

• Entertainment and leisure: Cinemas, event organisers and theme parks accept mobile payments for ticketing and on-site purchases.

• Freelancers and small-business owners: Mobile payments allow freelancers and small businesses to accept payments easily, with minimal setup, often through peer-to-peer (P2P) payment apps.

• Subscription-based businesses: Subscription-based businesses use mobile payments for recurring billing, offering customers the ability to manage subscriptions through apps.

• Non-profits: Non-profits can accept donations via mobile payment platforms, making it easier for supporters to contribute.

The technology behind mobile payments

Mobile payment technology has fundamentally altered the way that customers worldwide make payments. The core technologies that facilitate this are:

• NFC: This technology enables two devices placed within a few centimetres of each other to exchange data. In mobile payments, NFC allows smartphones to communicate with payment terminals, contributing to fast and secure transactions.

• QR codes: Customers can scan "quick-response" codes with a smartphone camera to initiate a transaction. When scanned, the codes direct the user to a payment application or website.

• SMS-based transactions: This method enables businesses to send payment instructions via text messages, which is particularly useful in regions with low smartphone penetration. Customers can complete transactions through a series of text messages, which include a confirmation code at the end of the transaction.

• Digital wallets: Digital wallets store payment card information securely on a mobile device, so that users can pay with their phone instead of a physical card. Digital wallets can also store loyalty cards, coupons and transport tickets.

• Encryption and tokenisation: Sensitive data is encrypted in mobile payment transactions. Tokenisation enhances security further by replacing card details with a unique digital identifier (or "token"), which is used to process payments without exposing account details.

• Biometric verification: Mobile devices often include biometric sensors, such as fingerprint scanners or facial recognition, which give transactions an additional layer of security.

• Cloud-based payments: Some mobile payment systems store payment information in the cloud. Users can make payments from any device, and security is managed centrally.

• Host card emulation (HCE): HCE allows a phone to mimic a physical card on an NFC-enabled device without relying on access to a secure element – a chip that stores sensitive data, such as payment information.

• Application programming interfaces (APIs): APIs facilitate transactions by enabling applications to communicate with each other and banking systems.

These technologies create an environment in which customers can use mobile devices for a variety of payment-related functions, including transferring money between individuals, paying for goods and services at physical locations, and shopping online.

Types of mobile payment systems

Mobile payment systems are categorised on the basis of their functionality and the context in which they are used. Each mobile payment system has unique advantages and use cases. For instance, proximity payments are typically valued for their speed and convenience in busy retail environments, while P2P systems are especially useful for splitting bills or sharing costs among friends. Closed-loop systems are a tool that businesses can use to build customer loyalty and collect data on purchase behaviours, which can be used for targeted marketing and to improve customer service.

Mobile payment systems also differ in terms of the stakeholders they serve. For businesses, they are a way to reduce transaction fees, capture more detailed customer behaviour data, and potentially integrate loyalty and inventory systems. For customers, they provide a more convenient and sometimes more secure way to pay, often with benefits such as rewards or the ability to track spending more effectively.

Here are the primary types of mobile payment systems:

Proximity payments

• Contactless payment apps: These use NFC or radio frequency identification (RFID) technology and complete a transaction when a user taps their phone against a POS terminal.

• Mobile POS systems: These are portable POS systems that businesses can use to accept payments anywhere, often through a mobile device connected to a card reader.

Remote payments

• Digital wallets: Digital wallets are apps, such as Apple Pay, Google Pay and Samsung Pay, that store credit and debit card information and allow users to make online or in-app purchases.

• Bank-based apps: These apps are similar to mobile wallets but are provided by banks and enable customers to make payments from their bank accounts.

• P2P payment systems: Services such as Venmo, PayPal and Cash App allow individuals to send money to each other using mobile devices.

• Carrier billing: This is a method in which purchases are charged to the user's mobile phone bill.

Closed-loop mobile payment systems

• Retailer apps: These are specific to a retailer (or group of retailers) and allow customers to make payments, earn rewards and receive discounts with (or in) the app.

• Brand-specific wallets: These are created by brands to foster loyalty by providing a single payment and rewards tracking system.

Benefits of mobile payments

Mobile payments provide numerous benefits for businesses. These include:

• Enhanced customer experience: Mobile payments streamline the checkout process, resulting in faster transactions and shorter queues. This convenience can improve customer satisfaction and lead to increased loyalty.

• Wider customer reach: Businesses that adopt mobile payments can cater to a broader demographic, including tech-savvy customers who prefer digital transactions over cash or cards.

• Reduced transaction costs: Mobile payments can be less expensive for businesses than traditional credit card transactions, which typically involve higher processing fees.

• Improved security: Mobile payment platforms often use advanced security measures, such as tokenisation and biometrics, reducing the risk of fraud and data breaches, which can be costly and damaging to a business's reputation.

• Access to customer data: Mobile payment apps can provide businesses with valuable data about purchasing trends and customer preferences. This data can inform marketing strategies, inventory management and customer engagement initiatives.

• Increased sales: The simplicity and speed of mobile payments can lead to more impulse purchases and higher average spending per transaction.

• Loyalty programme integration: Businesses can integrate mobile payments with loyalty programmes, providing branded experiences for customers and encouraging repeat business.

• Contactless payments: Contactless mobile payments are a safer and more sanitary alternative to cash and card transactions.

• Global transactions: For businesses with an international customer base, mobile payments can facilitate cross-border transactions by simplifying currency exchange and adhering to local payment preferences.

• Financial management and reporting: Mobile payment systems often come with analytical tools that help businesses track sales and customer behaviour, providing insights that can improve financial decision-making.

Adopting mobile payment technology enables businesses to stay up to date with customer preferences, while positioning themselves to adapt to digital economic trends.

Challenges and considerations of mobile payments

Mobile payments also have challenges that businesses must consider. These include:

• Security concerns: Even with their advanced security features, mobile payments are not impervious to security risks. Businesses must comply with the Payment Card Industry Data Security Standard (PCI DSS) and protect customer data from breaches.

• Technology and infrastructure investment: Implementing a mobile payment system might require significant investment in technology and infrastructure, including updating POS systems and training staff.

• Interoperability: Adding payment methods can complicate a business's payment system, especially if it involves managing multiple platforms.

• Fraud management: Like all digital payment methods, mobile payments can be susceptible to fraud and have unique risks. Businesses need to implement robust fraud detection and prevention mechanisms.

• Customer privacy: When businesses collect customer data, they must manage it safely. Businesses are responsible for dealing with regulations such as the General Data Protection Regulation (GDPR) and communicating with customers about data use.

• Transaction disputes: Mobile payments can lead to an increased rate of transaction disputes or chargebacks, which businesses need to manage efficiently in order to maintain customer trust and avoid additional costs.

• User adoption: Customers who are used to traditional payment methods can be resistant to change. Educating customers about the benefits and security of mobile payments is key.

• Regulatory compliance: Mobile payments are subject to financial regulations that can vary by region. Complying with these regulations can be complex and requires ongoing attention from businesses.

• Technical issues: Depending on mobile payment technology means that any downtime or technical glitches can disrupt sales. Businesses must have contingency plans in place for when issues arise.

• Market fragmentation: The mobile payment market includes a variety of providers. This can complicate the process for businesses that want to adopt a universal solution.

• Accessibility: Not all customers have access to smartphones or mobile payments, so adopting mobile payments could lead to a digital divide, in which some customers are excluded.

Handling these challenges requires a flexible strategy that balances payment technologies with risk management and customer preferences.

How Stripe supports mobile payments

Stripe supports mobile payments for businesses in these ways:

• Optimisation for mobile: Stripe's software development kits (SDKs) for Android and iOS enable businesses to integrate Stripe into mobile applications. This provides customers with a secure and convenient payment experience on mobile devices and supports popular digital wallets, such as Apple Pay and Google Pay.

• Local acquiring: Stripe's global payments and treasury network allows businesses to process payments with local acquiring banks. This can reduce transaction costs, improve authorisation rates, and support local payment methods and currencies, which appeals to international customers.

• Fraud detection and prevention: Stripe offers a suite of tools called Stripe Radar, which uses machine learning to help businesses detect and prevent fraudulent transactions. Businesses can choose their own control settings to provide comprehensive, automated fraud protection.

• Automation: Stripe's API and webhooks automate a wide range of payment tasks, helping businesses to increase efficiency and revenue. Businesses that use Stripe's checkout features, which include automatically upgraded mobile user interfaces, have increased revenue by more than 10%. Other tools create recurring billing and subscription plans, handle refunds and manage chargebacks. Stripe Sigma can also generate financial reports automatically.

• Contactless payments: Stripe enables businesses to implement contactless payments at scale, which has become increasingly important for customer convenience and safety.

Learn more about how Stripe powers mobile payments.