Mobile payment apps like Apple Pay and Venmo have grown exponentially since launch. Users will find solace in their ease of use and exceptional security. Despite the power behind such names, the original and most used mobile payments app was developed by a business model well-removed from the tech giants in Silicon Valley.
The Breakout App
Starbucks has a compelling story to tell about how your life will be better when you tap and pay, instead of pulling out a card or even cash. The free Starbucks mobile-pay app allows you to order on your way, and then just walk in and pick it up without standing in line behind a dozen people.
As of October 2018, their mobile payments app had more active users than Apple Pay or any Android app. The app was introduced to 16 stores in 2009, and now one in five Starbucks orders in the U.S. is sent and paid via mobile. That’s 5 million orders a month, an increase of 32% in a year, according to BusinessInsider.com.
In 2016, the mobile payment app sector expanded beyond Starbucks for one main reason: Merchants were forced to upgrade the credit card payment processing devices they used in order to enable more secure EMV technology, and many of the new devices are ready for tap-and-pay use. That means that tap-and-pay is now available, or soon will be, at most retailers that accept major credit or debit cards.
Four Popular Mobile Payment Services
Three of the four most widely used mobile payment services are Apple Pay, Android Pay, Samsung Pay and PayPal. PayPal acquired the widely used app Venmo in 2012, and in the first quarter of 2018 handled over $12 billion in transactions.
All but PayPal are a default choice depending on which phone you have, and they work much the same. You download the free app, upload the numbers of all of your major credit and debit cards and “tap to pay” with your phone at any retailer who accepts that service.
PayPal works the same way, and with the same card reader, if the merchant has signed up to accept PayPal payments. (PayPal is not as widely available in brick-and-mortar stores). It has a couple of features that its big rivals currently lack, including the option of connecting to a bank account, and the ability to send and receive virtual money person-to-person. As of 2018, Apply Pay also allows person-to-person transfers while using the service.
Due to the ease of taking or cloning phone data, there remains one big question remains in consumers’ minds: How secure is mobile payment?
It seems that the big players have spent a lot of time and effort making sure that mobile payments are more secure than using a physical card. First of all, a merchant will never see your credit card number or the authorization code from the back of your card or even your name. And, when you make a purchase, instead of your credit card number being used, a one-time encrypted number is generated – a token – to authorize the purchase. It expires shortly afterward.
Even if your phone is lost or stolen, there are layers of protection. Mobile wallets are behind a lock screen, requiring a PIN number or fingerprint authentication to use. So access is restricted. What’s more, your credit or debit card numbers are not stored on the phone. Finally, there are features that the companies urge you to activate in case you lose your phone: Android Pay users, for instance, are warned to turn on the Android Device Manager so that the phone can be located if it’s lost or stolen, and locked remotely if needed. For Apple Pay, the Find My iPhone feature lets you suspend the mobile wallet remotely.
Slow Adoption in Western Culture
The American attitude is in sharp contrast to that of Chinese consumers, who have embraced cash-free living. In 2015, almost 358 million Chinese consumers used mobile payments, an increase of nearly two-thirds in a year, according to a government report. They use their mobile phones to pay for taxis and meal delivery, in Walmart stores and at mom-and-pop market stands. Alipay, owned by Alibaba, is the dominant Chinese service. (For more, see Will Apple Crack China's Mobile Payments Market?)
In China and in other developing nations, where many have never used a traditional bank, many newly minted consumers are avoiding banks and substituting a mobile payment service. Alipay users can deposit their money in a money market account that pays the investor higher interest than traditional bank savings accounts.