Amazon Go

As we conclude our journey through the effects and types of mobile pay, our final blog will focus on the not too distant future of mobile pay: Amazon Go. Though at first it may appear to simply be a new retail store as opposed to an innovation in the market of mobile payments, this new Amazon creation is sure to have a massive impact in the market. 

Amazon Go is essentially a series of proposed retail and grocery stores with no checkout lines and no waiting; you simply grab what you want and go¹. As customers enter the store they scan their phones and the store’s computer system recognizes them by their Amazon account¹. As the consumer shops, the store uses advanced camera technology and sensor techniques to identify the items the customer places in their bag, which is then automatically added to their digital check-out cart¹. Finally, as the customer leaves the store, all products in their bag are automatically charged to their amazon account and paid for, no lines, no waiting, total convenience¹. Worried the system might not always be able to tell what you picked up? If the scanning systems can’t identify which exact product you’ve grabbed, the computer uses a complex algorithm based on previous purchases and current cart contents to assume what product you picked up¹. While this may seem a little too futuristic, it’s currently being beta tested in Seattle and the first stores are expected to open in 2018¹. 

This approach by Amazon presents a whole new level of consumer convenience, and it shows in surveys. A survey conducted by YouGov found that Americans are willing to at least try this new store because of the convenience it offers and are confident that Amazon will charge them correctly every time². Although there was some skepticism in the practicality of a store with no checkouts, with consumers believing that the store will introduce more problems for shoppers than it solves², it is clear people are willing to try the model out as they see the convenience it offers.

At first glance this may seem unrelated to mobile pay, but it directly targets the payment market. Every customer who uses the store has one option to pay: Amazon³. No other form of mobile pay could be used in the stores and the fluid experience relies on Amazon integration. The web giant already controls a large market share of internet commerce and these stores will drive even more business through their transaction centre³. Some strategists suggest that Amazon’s ultimate goal is to prove the technology is viable and then license it to any and every store, effectively allowing them to reap the transactional benefit of every purchase in any store utilising the system³. This would allow Amazon to bypass competing on a platform or application basis with other mobile pay services (which they have tried with Amazon Pay), cutting out the need for any form of payment system that isn’t Amazon integrated³. Though it seems like a lofty goal, if they succeed it could mean total domination of the payment market and the revenue from that market. 

While to many people this idea may seem far fetched, it poses a serious threat to the mobile pay market. Could this be a disruptive innovation that radically shakes up the mobile pay market, much like NFC and smartphone technology did to more traditional methods of payment? Only time will tell how much change this will create, but we could be looking at the dawn of a new era in payment methods. 

Footnotes

1 Bishop, Todd. (2016, Dec 5). How ‘Amazon Go’ Works. GeekWire. Retrieved From http://www.geekwire.com/2016/amazon-go-works-technology-behind-online-retailers-groundbreaking-new-grocery-store/

2 Dunn, Jeff. (2016, Dec 13). If you feel uneasy about Amazon’s cashier-less grocery story, you’re not alone. Business Insider. Retrieved From http://www.businessinsider.com/amazon-go-consumer-doubt-survey-chart-2016-12

3 Melville, Andrew. (2017, Jan 20). Amazon Go is about Payments, not Grocery. Forbes. Retrieved From http://www.forbes.com/sites/groupthink/2017/01/20/amazon-go-is-about-payments-not-grocery/#20bc7a80498a

Businesses and Mobile Pay: A Closer Look

Throughout these blogs we have addressed how mobile pay has affected businesses and banking. In today’s post we plan to show the importance of mobile pay for businesses, how they are integrating mobile payment into their functionality, and what it means for business competition moving forward.

Firstly, we should examine what businesses are benefitting from the adaption of mobile payment. A common consensus amongst experts is that any business that offers a service or sells a product should have a way to accept mobile payments¹. This seems simple and straightforward because it is. The U.S. alone has roughly 123 million smart phone users and leading business professionals agree that every business should be prepared to accommodate their customers in the most convenient method possible, which includes accepting mobile payment¹. Businesses cannot afford to be left behind in today’s market, making mobile payment a must have technology.

Now we can examine how businesses are integrating mobile payment into their service model. For mobile payments like PayPal or Bitcoin, businesses must simply create accounts or ‘wallets’ with these services to be able to accept the payment method². For PayPal, corporate accounts come with transaction fees, but for most businesses the fee is insignificant compared to the increased cash flow, especially if the business operates online². For other mobile payment methods we’ve discussed, such as Apple or Samsung Pay, businesses need two things: a terminal that can accept mobile payments (typically NFC readers) and registration with the mobile pay provider². Any modern sales terminal that can process tap card payments will have NFC functionality². To register with mobile pay providers businesses must often pay sign-up fees and transaction fees, however these are also often cancelled out by the business mobile payment can attract². A third, and more recent method of accepting mobile pay is a mobile point-of-sale technology (mPOS)¹. This technology allows anyone to plug the mPOS machine into their internet enabled smart phone and have the phone act as the terminal¹. The mPOS can accept credit or debit cards as well as registered mobile pay providers, giving businesses a massive mobility and convenience boost when looking to accept payment.

Finally, we can examine how mobile payment is changing the landscape of business competition. For traditional, established businesses, mobile payment simply presents a new technology to stay up to date with. If these businesses fail to join the mobile pay party they may find themselves less profitable. Although, by adopting mobile pay at this stage in it’s life cycle the competitive advantage is mitigated somewhat by the fact that all tech-savvy competitors are utilising it too. Mobile payment options present the greatest advantage to independents or entrepreneurs³. These small businesses or start-ups that don’t have the economies of scale available to large firms are now able to utilise mobile payment and mPOS technologies to compete on a larger scale³. Start-ups are now able to accept payment as soon as they sell a good or perform a service (no more invoicing or manual payment processing), they have access to the funds right away (as opposed to waiting for cheques to clear), and affordable mPOS options grant them these opportunities at very low costs³. The rise of mobile pay is a strong contributor to the rise in competitive equality amongst firms of all sizes.

Technological advances have always been key in a developing and interconnected business world. Mobile payment is a key example of how businesses can, and must, utilize technology to enhance their functionality and compete in the market. 

Footnotes

1 Lonoff Schiff, Jennifer. (Jan 29, 2013). How a Mobile Payment Service Can Grow Your Business. CIO Magazine. Retrieved From http://www.cio.com/article/2388694/e-commerce/how-a-mobile-payment-service-can-grow-your-business.html

2 Intuit. (2016). What Mobile Payments Mean for Your Small Business. Intuit Quickbooks. Retrieved From http://quickbooks.intuit.com/r/getting-paid/what-mobile-payments-mean-for-your-small-business/
3 Madden, Sam. (Nov 19, 2014). How Mobile Payment Apps are Energizing Businesses That Live on Cash Flow. Entrepreneur. Retrieved From https://www.entrepreneur.com/article/239604

Mobile Pay Security

In our previous blogs we’ve focused on the history and form of mobile payment. In today’s blog, however, we are going to examine an issue that is becoming more and more important as mobile pay grows: security. Everyone loves convenience, speed, and ease of use but most consumers have the same vital question – is it safe to use mobile pay? 

A definitive answer as to if mobile pay is secure enough for consumers can never truly be found, as the comfort levels with technology of consumers varies wildly depending on individual needs. Although one thing is certainly true, experts aren’t sold on the security yet¹. A 2015 survey conducted by ISACA found that only 23% of experts agreed current security for mobile payments was sufficient while 47% claimed mobile payment security is overwhelmingly insufficient¹. Despite this, 87% of experts agreed mobile pay usage will continue to rise, with a projected 4.77 billion mobile phone users by 2017, making security measures a necessity for the continued safe use of mobile pay¹. 

How are the payments currently secured? In previous blogs we touched upon the use of internet and NFC chips to process payments. Services like PayPal send payment information via the internet, while mobile pay services like Apple Pay utilize near-field communication (NFC) chips to send information between payment terminals and mobile devices². With NFC chips, a phone (or credit card) can be placed near a terminal, and the terminal is able to read information from the chip and subtract funds from the information stored on it, allowing for the payment to process². The security measure for NFC chips lies in a mechanism called the ‘secure element’ which holds authorization over the chips communications with a unique digital signature². The security measures of the secure element are designed to protect the chip from hardware and software attacks from unauthenticated sources². Whenever an authentic transaction takes place, the security element generates a specific, one-time use code which the terminal can use to access the information on the NFC chip². 

Despite these measures, mobile pay is still susceptible to attacks, which is reflected in the experts’ opinions. The biggest reason mobile pay is at risk is because of the massive amount of money being exchanged with it and one thing is always proven to be true: hackers follow the money³. Because there is such a large opportunity for profit (in this case from stolen funds), there will be a host of people interested in attacking the security of mobile payment for personal gain. Common methods of mobile pay security threats include phishing scams, hackers accessing phones via public wi-fi networks, human error, or chip manipulation¹. In some cases hackers have been able to breach the secure code of terminals and re-create the technology, allowing them to create false terminals which interact with NFC chips and receive the unique codes from the secure element¹. This in turn gives them free reign to manipulate data or access funds through the chip³.

While mobile pay may be safe enough for some, and woefully insecure for others, the reality we are seeing is that it is not a fad. Mobile pay is here to stay and growing fast. Consumers should be aware of the risks they face when using it and, hopefully, in the years to come these risks can be significantly reduced to protect all users. 

Footnotes

1 Rampton, John. (Oct 4, 2016). Your Security Concerns About Using Mobile Payment are Valid. Entrepreneur. Retrieved From https://www.entrepreneur.com/article/282722

2 Profis, Sharon. (Sept 9, 2016). Everything You Need to Know About NFC and Mobile Payments. Cnet. Retrieved From https://www.cnet.com/how-to/how-nfc-works-and-mobile-payments/

3 Mukerji, Dipesh. (Nov 18, 2014). How secure are mobile payments? Kony.  Retrieved From http://www.kony.com/resources/blog/how-secure-are-mobile-payments

Android Pay

In today’s blog we will discuss the final, and possibly most threatening, platform for mobile pay. Developed by Google for use on any Android powered smart phone, Android Pay functions similarly to the way Apple Pay does for iOS devices. Utilizing NFC chips embedded in phones to facilitate communication between the phone and terminals, payments can be processed in seconds and consumer time can be saved¹. 

In many ways, however, Android Pay presents a whole new set of advantages and difficulties for consumers, businesses, and banks. The most glaring difference between Android and Apple Pay is the absence of transaction fees on the Android platform². Google has elected not to charge any form of transactional fee to banks looking to have their cards usable on the service or businesses looking to accept the payment method². Instead, the platform earns money through small ads displayed on the operating system². This is obviously a massive boost for businesses trying to cut costs, however for banks it represents a clear conflict. They will be happy to please customers by being available on the service (as almost every major bank is¹), but the lack of fees gives Android Pay a distinct advantage over even their own mobile payment services. This applies pressure to other mobile pay services, Apple Pay included, to drop their transaction fees². 

Another key advantage Android Pay has in the market is their substantial network domination. They represent the largest worldwide share of the smartphone market, as nearly 25% of all smart phones operate on the Android OS³. This offers them a massive advantage, as their network gives them the ability to reach out to a massive customer base to adopt the service. As we mentioned in our previous blogs, studies show that consumers value ease and convenience above all else, and for 25% of all smart phone users Android Pay has automatically become the most convenient, one-stop shop for their mobile pay needs. Even more damning news for other platforms, recent research papers which set out to evaluate mobile operating systems have predicted that Android will further capitalize on its market share to become the dominant global leader in the mobile industry⁴. If they can leverage the advantage that their network size affords them, they can also dominate the mobile pay market. 

Finally, and most importantly, Android Pay leads the market in terms of customer satisfaction. A survey conducted by First Annapolis Consulting found that 61% of Android Pay users were very satisfied with the service, more support than was shown for any other platform⁵. Despite only being released in 2015, and having no distinct technological advantage over other mobile pay platforms, Android Pay is quickly levying their substantial network size to become a market leader in mobile payment. 

Footnotes 

1 Betters, Elyse. (2016, Feb 8). Android Pay Explained: How it works and where it’s supported. Pocketlint. Retrieved From http://www.pocket-lint.com/news/135017-android-pay-explained-how-it-works-and-where-it-s-supported

2 Mamiit, Aaron. (2015, June 8). Google’s Android Pay Will Not Charge Transaction Fees: Now What, Apple Pay? Tech Times. Retrieved From http://www.techtimes.com/articles/58654/20150608/googles-android-pay-will-not-charge-transaction-fees-now-what-apple-pay.htm

3 Jones, Chuck. (2016, Feb 21). Apple’s iPhone: Market Share Vs. Profits. Forbes. Retrieved From http://www.forbes.com/sites/chuckjones/2016/02/21/apples-iphone-market-share-vs-profits/#8ea81db46f86

4 Gandhewar, Nisarg & Sheikh, Rahila. (2010). Google Android: An emerging software platform for mobile devices. International Journal on Computer Science and Engineering, 1 (1), 12-17. Retrieved From http://www.enggjournals.com/ijcse/doc/003-IJCSESP24.pdf

5 Boden, Rian. (2016, Sept 5). US Study reveals increased use and awareness of Apple Pay, Android Pay and Samsung Pay. NFC World. Retrieved From https://www.nfcworld.com/2016/09/05/347010/us-study-reveals-increased-use-and-awareness-of-apple-pay-android-pay-and-samsung-pay/

Apple Pay

Banks and alternative platforms are not the only methods of getting your mobile pay fix in today’s market. In this blog, we are going to explore one of the newest, yet fastest growing mobile pay platforms around: Apple Pay. 

Apple Pay was launched in 2016, with rollout coming to various markets slowly throughout the year¹. It essentially functions as a one stop shop for all your mobile payment needs on any Apple device. You can load your debit or credit cards from any bank in North America into your ‘Apple Wallet’ and pay directly from there¹. After that, making payments is as simple as tap and go, as the Apple Pay software utilizes the same techniques as other mobile pay apps (NFC chips as mentioned in previous blogs). Apple charges a fee to banks looking to have their cards registered on the service, which varies from 10-15 cents per $100 spent, depending on the country you live in². It also offers customers high security and confidentiality, as Apple has stated they record no transaction information on their servers and the payments require the consumer to provide their fingerprint for processing².

You might find yourself asking why banks would be interested in allowing their cards to be used via Apple Pay, since there is such a hefty fee taken which cuts into their revenue. However, when you look at consumer behaviour it is clear why no bank would want to be left behind. The convenience of having all of your bank cards loaded into one mobile wallet (as opposed to spread across different applications) cannot be overstated in the mind of the consumer². Banks are desperate to hold on to their client base and any advantage another bank offers must quickly be mitigated, which has led to all banks signing up for the service². Additionally, in Canada alone 44% of the smartphone market belongs to Apple and 85% of all stores are equipped to accept Apple Pay². We discussed in our previous blog how important convenience was in the mind of consumers, which makes Apple Pay compatibility essential for major banks. No institution wants to be left in the dust, only offering non-optimal mobile pay solutions for their customers. Globally, Apple Pay may not pose as much of a threat to bank specific mobile pay apps. Apple only controls 15.4% of the global smartphone market, a far cry from their domestic market control³. However, any loss of customers due to payment services cannot be overlooked. Apple has managed to leverage their large network of users into an effective competitive advantage in the market.

Apple Pay is an interesting example of how competitive the mobile payment market can be. By offering a service that envelopes what individual banks offer, Apple has managed to entice consumers to adopt their payment platform. Now a hardware/software company is a major player in a market based on commerce. Technology has paved the way for non-traditional companies to compete in totally new market spaces by effectively utilizing their network advantages and Apple is capitalizing on that opportunity. 

Footnotes

1 Betters, Elyse. (2016, April 4). Apple Pay explained: What it is and how does it work? Pocket-lint. Retrieved From http://www.pocket-lint.com/news/130870-apple-pay-explained-what-is-it-and-how-does-it-work

2 Behar, Rose. (2016, May 13). What Apple Pay means for mobile payment in Canada. Mobilesyrup. Retrieved From http://mobilesyrup.com/2016/05/13/what-apple-pay-means-for-mobile-payments-in-canada/

3 Jones, Chuck. (2016, Feb 21). Apple’s iPhone: Market Share Vs. Profit. Forbes. Retrieved From http://www.forbes.com/sites/chuckjones/2016/02/21/apples-iphone-market-share-vs-profits/#61f9c70b46f8

Banks, Networking, and Mobility

Now that we’ve explored some of the non-traditional payment platforms that increased convenience and mobility, as well as their effects on business and banking, we can begin to look at how banks are handling mobile payment methods. While online banking options have been available since nearly the advent of the internet, only recently have banks truly entered the market of mobile payment¹.

In early 2014, Visa and MasterCard began supporting cloud based mobile payments, which allowed banks to truly enter the market space¹. By being able to link their already established debit and credit cards to phones, users could conveniently and quickly make mobile payments just like they used to with their cards, except the card is now obsolete. Multiple banks have their own variations of the technology, from ChasePay to ScotiaBank Mobile Wallet², which are all targeted towards capturing the transactions that consumers were previously turning to alternative platforms for. This technological link between bank accounts and payment methods is helping to recapture the lost revenue from increased mobile payment options. 

While this mobile pay technology is complex, the logistics can be briefly explained. The technology utilizes near field communication (NFC) to allow phones to communicate with terminals, exchange information, and process the payment¹. Essentially it functions like the ‘tap and pay’ ability of traditional bank cards. NFC chips are embedded in nearly every smart phone today, creating a large network of mobile pay ready phones. 

However, the road to competition is paved with difficulties for traditional banks to overcome. For starters, services like PayPal have a large first-mover advantage which has led to their services being accepted universally and offering much more flexible payment options than traditional banks². The convenience brought by wide acceptance of services like PayPal has been studied to be the most important factor for first adopters of mobile payment³. They have been found to value convenience and ease of use over all other factors³. Additionally, the 2016 North America Digital Payments Survey found that more users trust services like PayPal to handle their mobile payments, as opposed to traditional banks⁴. Supporting research has found that the number one factor affecting this difference in consumer trust is the quality of the payment method⁵. Clearly, the options being offered by banks are still found to be lacking in the eyes of consumers, which is a problem banks must address as they carve out their space in the mobile payment market. 

Banks do have competitive potential in the fight for mobile payment transactions. The biggest advantage banks have is their ability to compete on transaction fees². While services like PayPal offer free exchanges between individuals, businesses must still pay fees to use the technology. However, banks like Chase have begun partnering with card service companies (like Visa) to undercut these transaction fees in the interest of maintain customer relations and carving out a large piece of the transaction pie². While this may seem to go against the card and transaction fees they have been known to charge (and which we discussed in earlier blogs), this change is a direct result of the advancement and competition of the mobile payment market². By forcing banks to adapt or lose significant revenue, mobile payment platforms have proven to be a disruptive innovation that can’t be taken for granted. 

Footnotes

1 Hernandez, Will. (2016, July 22). How will banks address mobile wallets? Mobile Payments Today. Retrieved From https://www.mobilepaymentstoday.com/articles/how-will-banks-address-mobile-wallets/

2 Back, Aaron. (2016, July 8). In Mobile Payment Wars, Big Banks Strike Back. The Wall Street Journal. Retrieved From https://www.wsj.com/articles/in-mobile-payments-war-big-banks-strike-back-1467998735

3 Kim, Changsu. (2010). An empirical examination of factors influencing the intention to use mobile payment [Abstract]. Computer In Human Behaviour, 26 (3), 310-322.

4 Harris, Rebecca. (2016, October 25). Mobile Payment Awareness Grows, But Not Usage (Survey). MarketingMag. Retrieved From http://www.marketingmag.ca/consumer/mobile-payment-awareness-grows-but-not-usage-survey-185751

5 Zhou, Tao. (2013). An empirical examination of continuance intention of mobile payment services [Abstract]. Decision Support Systems, 54 (2), 1085-1091. 

Bitcoin – Currency of the Future?

PayPal, which we discussed previously, is not the only threat to traditional banks in the mobile pay and currency market. Bitcoin, launched in 2009, presents a whole new way for people to make exchanges and payments. It may not operate in the way traditional banks and currency does but it still is having a profound impact on payment and business. 

Bitcoin operates as a peer-to-peer computer network made up of the machines of users¹. The network of interconnected machines is used to monitor and record every transaction that occurs, as well as allow for the creation of new bitcoins (which is limited to around 21 million)¹. Users who allow their computers to be apart of the network which keeps bitcoin running are rewarded with the creation of new bitcoins, creating a whole new currency system with no governing authority that distributes money¹. Instead a computer algorithm does the work of distribution and management¹.

Payment using bitcoin is no where near as complex as the network and technology that supports the currency. Two users must simply have bitcoin wallets on their computer or phone and they can exchange value². You can use any other currency to purchase bitcoin, then you send a message to another user identifying the bitcoin you want to send as well as a private key for the transaction². The transaction is then processed and added to the ledger by the large array of computers doing the work and the transaction is complete¹. No transaction fees, total anonymity, and no lags in processing. The advantages bitcoin offers consumers are vast in an era of preferred safety, speed, and mobility.

Bitcoin, however, is not a perfect system. Since it is so unregulated it displays extreme volatility in value. This presents a clear problem for consumers or businesses which regularly perform transactions³. Also, the anonymity of bitcoin has made it a haven for black-market deals or drug dealers, as users who performed the transactions are nearly impossible to find and indentify⁴. Finally, while the system is relatively secure it is not impenetrable and has proven to be vulnerable to cyberattacks resulting in a loss of wealth³. 

Despite these flaws, bitcoin represents a new form of innovation that, much like PayPal, forces markets to further adapt to mobile pay. Businesses looking to attract customers must start accepting bitcoin and the risk that comes with its volatility to stay competitive, while banks must add new capabilities to compete with the convenience and mobility. No longer do clients need to worry about exchange rates (since bitcoin is universal), waiting for cheques to clear, or disclosing information to those they are paying. Payment takes seconds at the touch of a button and your ‘wallet’ is totally mobile wherever you go. While a survey conducted by ING International found that only 24% of Europeans agreed payment methods like bitcoin would be the standard in the future⁵, the services they offer cannot be overlooked in both the business and banking world. This can easily be viewed as another step towards the adoption of increasingly convenient and mobile forms of payment. 

Footnotes

1 Standgae, Tom. (2013, April 11). How does Bitcoin work? The Economist. Retrieved From http://www.economist.com/bitcoinexplained

2 Broughton, Philip. (2016, May 26). Bitcoin is just the beginning. The Wall Street Journal. Retrieved From https://www.wsj.com/articles/bitcoin-is-just-the-beginning-1464302194

3 Casey, Michael & Vigna, Paul. (2015, Jan 23). Bitcoin and the digital currency revolution. The Wall Street Journal. Retrieved From https://www.wsj.com/articles/the-revolutionary-power-of-digital-currency-1422035061

4 Harrigan, Martin & Reid, Fergal. (2012). An analysis of anonymity in the bitcoin system [Abstract]. Security and Privacy in Social Networks, 1, 197-223. 

5 ING International Survey. (2013). Financial Empowerment in the Digital Age. Retrieved From https://www.ing.com/Newsroom/All-news/NW/Cash-no-longer-king-Mobile-banking-still-rising.htm

PayPal – A Disruptive Innovation

In the previous blog, we discussed how banks have been able to attract consumers to mobile forms of payment as a means of generating revenue, often at the slight expense of business profit. However, banks are not necessarily safe in the evolving market of mobile and networked forms of payment. PayPal, a fast growing Consumer-to-Consumer (C2C) model of payment¹, poses a threat to bank revenue.

Founded in the U.S.A. in 1998, PayPal accounts currently hold roughly thirteen billion dollars in wealth, which would make them the 21st largest bank in North America². PayPal functions as a means for consumers to transfer money between each other or pay businesses. Consumers can place money in their PayPal accounts, either in 1 of 66, 000 partner stores or via an account transfer, to make online purchases or buy from businesses that accept the payment method². There are no transaction limits and personal transactions (between two private consumers) are free, while business transactions still face a roughly 2% fee². This presents a distinct problem for traditional banks as they miss out on transaction fees. 

While PayPal does not operate in many of the areas a bank does, since they don’t offer interest on accounts, loans, checks or other services², they do present a disruptive innovation to traditional banks incumbent services. By offering an extremely convenient, fast, and cheap method of payment they have been able to take transactional business away from banks. A survey conducted by International Post Corporation found that, in 2016, 42% of Europeans preferred PayPal as their method of online payment, more than any other service³. They cited increased security (due to anonymity) and convenience as their reasons³. This presents a massive disruption for traditional business banks in the mobile pay market. 

PayPal offers mobile phone applications, mobile wallet services, and one click payment options, all of which put it in direct competition with mobile pay options offered by banks (some of which we will discuss in later blogs). While at first glance this may not seem too worrisome for institutional banks, any competition in areas of customer convenience and transactions is a serious threat to their business model and cannot be taken lightly. With the growing popularity of online shopping¹ and mobile pay, banks could not sit idly by while these services and revenues were taken from them. In many ways PayPal, and similar services, can be seen as the disruptive innovation that made the advancement of card methods and mobile pay a necessity for banks. By utilizing the connectivity of the internet and networks, PayPal innovated in a way that forced businesses and banks to adapt to the new era of convenience demanded by consumers. 

Footnotes 

1 Gonzalez, Andres. (2004). PayPal: The legal status of C2C payment systems. Computer Law & Security Review, 20 (4). Retrieved From http://www.sciencedirect.com/science/article/pii/S0267364904000512 

2 Demos, Telis. (2016, June 1). PayPal Isn’t a Bank, but it May Be the New Face of Banking. The Wall Street Journal. Retrieved From https://www.wsj.com/articles/as-banking-evolves-fintech-emerges-from-the-branch-1464806411

3 Kats, Rimma. (2017, January 14). Cross-Border Shoppers Worldwide Favor PayPal. eMarketer. Retrieved From https://www.emarketer.com/Article/Cross-Border-Shoppers-Worldwide-Favor-PayPal/1015225

The Card Dependence

While it may be overlooked today, credit cards and debit cards are truly the first step into a wider world of mobile payment. No longer does a consumer need to go to the bank for his daily spending needs. Instead all their funds are accessible due to a tiny piece of plastic they can keep in their pocket. Instead of fumbling with change or large amounts of cash, consumers can simply swipe, insert, or tap to make their payment.

Early cards were not so mobile. The very first credit cards had to be manually recorded and copied, so a payment form could be sent away. This saved you the convenience of having to use cash but didn’t save you significant time. However, with the advent of magnetic strips for swiping or near field communication (NFC) chips for contactless purchases¹, the use of debit and credit cards became the first foray into a convenient version of mobile pay. All your banking information could be encoded into a card and complex computer networking techniques can process payment between cards and terminals, allowing consumers to be on their way in no time at all. 

However, as with all business transactions, there must be a trade off. Banks and card companies (like Visa or MasterCard) supply these highly sophisticated cards in exchange for a cut of sales. With the advent of card fees, ranging from transaction limits (for consumers) or a percentage of the transaction revenue, businesses and consumers must consider this additional loss when payment occurs². Often times businesses will pay this fee, so as not to deter customers from shopping with them. One might suggest that businesses simply refuse to accept these cards (as chains like Walmart have threatened in the past), however research suggests that paying the transaction fees hurts their profit far less than turning away customers who want to pay with cards. In 2012, in the U.S.A. alone, debit and credit cards were used for 73.2 billion transactions² and a 2015 survey by GfK, a market research company, found that a whopping 70% of Canadian transactions were done by card³. Losing customers over a payment method is bad for business, both in a profit sense and a customer relation sense but this impact to business profit from a new method of payment is something firms must consider in a world where convenient payment is necessary to attract customers.

While card payment may not be mobile payment in its true form, such as phone payment or online currency, it is an important first step to see how businesses must weigh consumer convenience and profitability. This swing towards convenience is here to stay, with consumers not even being deterred of card usage by reports of fraud and poor security according to market research⁴. Businesses must consider even these first developments in payment methods and adapt to it if they plan to stay competitive in the minds of consumers.

Footnotes
1 Mojtahedi, Negar. (2015, October 23). Tap and Pay Cards: They’re fast and convenient but are they secure?. Global News. Retrieved From http://globalnews.ca/news/2295763/tap-and-pay-cards-its-fast-and-convenient-but-is-it-more-secure/
2 Martin, Allison. (2015, March 1). Should Consumers Mostly Use Credit or Debit Cards? The Wall Street Journal. Retrieved From https://www.wsj.com/articles/should-consumers-mostly-use-credit-or-debit-cards-1425271054
3 La Rose, Lauren. (2016, February 03). More Canadians choosing credit cards, mobile payments over cash , study says. The Globe and Mail. Retrieved From http://www.theglobeandmail.com/report-on-business/economy/more-canadians-choosing-credit-cards-mobile-payments-over-cash-study-says/article28545469/
4 Kosse, Anneke. (2011). Do Newspaper Articles on Card Fraud Affect Debit Card Usage?. Working Paper Series, 1389, 3-21. Retrieved From https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1389.pdf?7f526cc700701fe84b39a3ab7c3121a7

A Brief Look at the History of Payment

In this blog we will look to examine the effect that mobile pay options, such as PayPal or Apple Pay, has had on the business market. However, before we get into the implications of mobile pay, it is important to examine and understand the strong relationship between business and payment, since the two are, obviously, connected deeply.

As long as humans have been exchanging goods, payment has been taking place. This may not have always meant an exchange of money, as early transactions relied on bartering¹, but exchange and transfer in some form has been integral to the growth of humanity. Bartering began because humans found they had varying needs, and could not satisfy all of those needs by themselves¹. Instead of missing out on goods they desired, they exchanged what they could do for goods or services others could provide. However, the problem of perfectly quantifying how much a good or skill is worth when bartering quickly made the development of more advanced forms of exchange a necessity.

The first known coins, or currency in general, date to 600 BC and were found in modern day Turkey¹. This clearly represents a big step for payment, as a standard currency allows people to store value by selling and trading goods and they are no longer dependent upon their ability to barter their own skills. Now, people could specialize in services or production and instead of bartering with others, they could collect payment for their work and use it wherever they pleased. This key evolution in methods of payment is what allowed business to flourish and become a reality. Individuals or groups of people could now work together towards common goals or objectives and share the wealth (now easily transferrable as coin) using it for whatever they wished—making businesses a viable option.

The next step for payment was bank notes (or bills) which first appeared in Europe in 1661 AD¹, as well as the growth of banks and financial institutions. As times went on the advent of cheques, credit cards (first introduced in 1946¹), debit cards, online currency, and mobile pay has further altered the sophistication of payment methods.

Understanding the strong connection between payment and business is integral to understanding this blog and realizing why mobile pay is not a trivial matter in the business sector. Without the use of currencies and payments, businesses would not be able to function the way they do. Payment is typically defined as an exchange of funds for a good or service, while mobile payment is defined as the transfer of funds for a good or service, where the mobile phone or networked device is involved in both the initiation and confirmation of payment². Any changes in the method of payment, either making it easier, faster, or more secure, is sure to have an impact in the business world and we will explore the impact mobile payment options have had on business in the coming posts.  

Footnotes

1 Burn-Callander, Rebecca. (2014, Oct 20). The History of Money: From Barter to Bitcoin. The Telegraph. Retrieved From http://www.telegraph.co.uk/finance/businessclub/money/11174013/The-history-of-money-from-barter-to-bitcoin.html

2 Dennehy, Dennis, & Sammon David. (2015). Trends in Mobile Payments Research: A literature Review. Journal of Innovation Management, 3(1), 49-61. Retrieved From http://www.open-jim.org/article/viewFile/71/72