The evolution of the mobile payment

By John Rampton 

It’s anticipated that there will be more than 4.8 billion individuals using a mobile phone by the end of 2016. A recent report noted that 39 percent of all mobile users in the U.S. had made a mobile payment in 2015. This is up from 14 percent in 2014 and by my estimations will in the 70 percent range by 2017.

Because of this enormous growth — and potential growth that mobile devices present — we can expect to see the mobile payments industry and startups in the space evolve to meet the growing demands of users.

To understand how big this industry is going to be, you need to understand the history of mobile payments and their evolution over time.

Brief history of mobile payments

Throughout history, human beings have relied on some sort of payment system to purchase the goods or services we wanted or needed. Starting with the bartering system, humans began to use livestock, grain, shells, metal coins, pieces of white deerskin, the wampum, gold, the gold-backed dollar, charge cards, credit cards, the U.S. dollar and, most recently, electronic payments.

If there has been one consistent theme regarding the evolution of payments, it’s that we prefer payments that are convenient and transactional. These preferences began to take shape in the early 20th century with the introduction of the charge card.

Despite being first mentioned by Edward Bellamy in 1887’s “Looking Backward,” the first charge card didn’t’ appear until 1921 when a charge card was issued to Western Union customers. Soon after, department stores, service stations and hotels also began offering charge cards to customers so they didn’t have to travel to their hometown bank.

After the introduction of the Diners Club card in 1950, the credit card industry began to resemble what we’re familiar with today. The BankAmericard, founded in 1958, was the first modern-day credit card issued by a third-party bank. The card became Visa in 1977. Since then, technology has given us the videotex systems of the late-1970s/mid-1980s; online banking and bill pay in 1994; the mobile web payment (WAP) in 1997; and the current wave of mobile payments apps.

With that in mind, here’s a timeline of how electronic payments have advanced into the 21st century:

• 1983: David Chaum, an American cryptographer, starts work on creating digital cash by inventing “the blinding formula, which is an extension of the RSA algorithm still used in the web’s encryption.” This is the beginning of cryptocurrencies.
• 1994: Although this is disputed, some believe that the first online purchase, a pepperoni and mushroom pizza from Pizza Hut, occurs in this year.
• 1998: PayPal is founded.
• 1999: Thanks to Ericsson and Telnor Mobil, mobile phones could be used to purchase movie tickets.
• 2003: 95 million cell phone users worldwide made a purchase via their mobile device.
• 2007: Both the iPhone and the Droid operating system are released.
• 2008: Bitcoin is invented.
• 2011: Google Wallet is released.
• 2014: Apple Pay is launched, followed a year later by Android and Samsung Pay.
• 2020: 90 percent of smartphone users will have made a mobile payment. It’s estimated that by 2017, there will be $60 billion in mobile payment sales.

Types of mobile payments

There are three types of mobile options. Commerce payment options are where customers open an internet browser, add items to the cart, order, receive their goods or services and are provided with a receipt. With payments, customers use contactless/mobile technologies, where payment information is stored on their device and they enter a PIN to complete a transaction. Finally, mobile wallets are looking to replace your current wallet by storing all your payment information.

There are other types of options available within these types of mobile payments. For example, with mobile apps, payments will occur on a consumer’s device in order to purchase goods from a specific retailer, such as the Starbucks mobile app, and data is stored on the device. Mobile POS takes places on a merchant’s device, but data is not stored. Online payment services occur on a consumer’s device, such as PayPal, for purchasing goods. Mobile P2P transfers, such as Venmo, also occur on a consumer’s device for bank transfers. Still think it’s not big enough? Venmo reported transferring more than $1 billion in January 2016 alone.

Bluetooth Low Energy (BLE) takes place on either the consumer or merchant’s device where data is stored in a mobile payment account. Examples include PayPal’s beacon and iBeacon. Finally, Near Field Communication (NFC) occurs on a consumer’s device; data is stored on the mobile device and is used to purchase goods. Examples include Apple Pay, Android Pay andSamsung Pay. In most cases, startups would begin with a text message service, then mobile apps and finally contactless payment systems.

Merchants are using BLE and NFC that connect mobile devices with either beacons or NFC tags. With BLE, the transmission is continuous and can be used in large areas so that customers can receive notifications and coupons. NFC must be activated by the customer and is better suited for one-on-one interactions.

The changing mobile payments scene

Mobile payments have been quickly evolving, with more recognizable brands stepping into the industry to advance technology and offer what consumers and businesses want in terms of apps and services that allow them to pay with their phones.

For example, Google’s recently announced Hands Free. It’s a new mobile payment app that uses either Bluetooth or Wi-Fi, like most other payment apps — except that this app allows you to keep your phone in your wallet or purse. Google is also tinkering with facial recognition to confirm an individual’s identity.

Meanwhile, major banking institutions, such as JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and U.S. Bancorp, have a created a joint venture called clearXchange that allows customers to transfer funds instantly to another bank account through their phones. Besides the experiments going on at Google, some of the latest trends in the mobile payment industry are offering greater convenience, security and a glimpse into the near future.

When it comes to “pay” as a feature, Apple, Android and Samsung are just the tip of the iceberg. More tech companies will continue to roll out their mobile payment platforms. Wearable tech will be next. Don’t think that mobile payments will be limited to your smartphone or tablet. Expect to be able to make purchases with wearables like the Jawbone UP4, bPay band and the Lyle & Scott bPay jacket.

Retailers like Wal-Mart Stores Inc. are rolling out their own products to fuel mobile payments, including more use of geolocation technology to provide localized coupons and deals delivered to customers’ phones while they are shopping. Bloomberg Technology noted that, “by 2019, eMarketer estimates that the total value of transactions made by tapping a phone on an in-store terminal will reach $210 billion, up from $8.7 billion in 2015.” This means that retailers, and even banks, will give Apple Pay and Google’s Android Pay some competition, more options for consumers and businesses to use as mobile payment tools and greater transaction savings for everyone.

There are ongoing signs of growth for cryptocurrency and blockchain use within the mobile payments world. The technology behind bitcoin has been one of the most buzzed topics recently. In fact, tokenization is expected to disrupt the entire financial industry. Companies like Movile are realizing the potential to use bitcoin for in-game micro payments as well as an alternate mobile payment currency across developing economies like Brazil.

Perhaps the biggest disrupter may be the technology behind digital currency. Blockchain has been noted as the potential “foundation for building a new generation of transactional applications that establish trust and transparency while streamlining business processes,” which is critical to advancing adoption of mobile payments among consumers and businesses.

Social media and messaging apps have also joined the fun. You’ll be able to make purchases directly from social media apps like Facebook and use WhatsApp has a commerce channel. Big data, beacons and sensors are already helping merchants reach customers. With big data, merchants and retailers will be able to send targeted coupons, promotions, flash sales and even the chance to complete a purchase in advance.

Regulations could lead to global standardization. There is no global standard regarding payments, but there is a push (which I strongly support) to create one technology standard that would have the same set of regulations for countries across the world. This could be the real game-changer for propelling payments in general and mobile payments all over the globe.

With companies like Venmo processing more than $1 billion in one month in mobile P2P payments, and the thousands of other companies like Square processing billions more on mobile devices, the fintech industry and mobile payments industry is ripe to becoming one of the next hottest sectors in tech.

There is room for countless unicorns in the space. Before that can happen, many issues will need to be addressed, including the security questions, but the uniform help and speed in which we will be able to carry out transactions continues to show us a compelling movement in the evolution for mobile payments and the trend that by 2020, 90 percent of smartphone users will have made a mobile payment.

First appeared at Techcrunch