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Future Of Mobile Payments

Whenever I am about to pay for anything, my hand automatically reaches out for my left pocket (where I always keep my wallet). Lately, I have realized that this muscle memory is so prominent that I sometimes have to think for a second and then reach out for my right pocket and get my phone out, and pay through my phone.

I sincerely believe that in ten years from now, most of us in the middle income bracket and above will reach out for our phones every time we want to make a transaction. I say ten years only, because it will still take some time for everyone to adapt to pay via a smartphone. Trends suggest that by 2020 itself, 70% of all the world’s phones will be smartphones.

With players like PayTM, Mobikwik and others entering into the retail space, we shall most probably see this happen very soon. However, the debate remains about the convenience of these transactions.

Paying with your phone or swiping a card or handing over cash?

Let’s look at a typical card transaction. The merchant needs to swipe your card on an EDC machine, enter the amount and hand it over to you so that you can enter your PIN. If it is simply cash, then it is only the time taken to render change. Both these scenarios roughly take not more than 30 seconds in all.

Similarly, with a Mobile Wallet, it is either the customer entering the amount he or she has to pay or the merchant sending the amount to the customer’s mobile phone. How does the merchant do that? Well, simply by sending a payment request via an interface to the customer’s mobile phone. Either the customer authenticates the payment by entering a pin or an OTP is given to the merchant. Now, you may think why complicate a simple transaction by all these steps. The answer is, it is safer. Also, with the amount of cashbacks and discounts available to the end users, it is definitely worthwhile.

However, the future of mobile payments is going to use contactless technology such as  NFC. Apple Pay and Google Wallet have already deployed this. However, both have been only moderately successful. Why has this not picked up yet? The primary reason is that not too many merchants are accepting these payments. There are several reasons for that, but the main reason is the hardware cost.

To give you a merchant’s perspective. Say, you own a supermarket. Your goal is to make more sales and worry about profits. Firstly, every time you accept a card payment, you are paying anywhere between 0.5% to 2% as a transaction fee to the bank. However, it is better than the risk of keeping a lot of cash in the premises. Again, many of the banks charge a rental on the EDC machine. Now with the NFC terminal, the hardware cost is $200. For you, as a supermarket guy, you are not yet at a risk of losing a customer just because you do not accept mobile payments. This is because the customer is almost always carrying his card.

A Mumbai based start-up is using a patent pending technology to solve this hardware problem. Quikwallet is using simple NFC tags, which cost less than $1 to eliminate this bulky and expensive hardware. The customer simply has to tap his phone on this tag and is immediately able to get a bill on his phone.

As a user, the merchant will ask you to tap the NFC tag in front of you when it is your turn to pay. By tapping your phone on the tag you will immediately get a bill on your phone and all you need to do is enter your four digit pin and you’re done. Not only is this much quicker, it is also the most convenient method to pay, since you have the history of all your payments in your app which also shows you a list of merchants around you.

Hence, if you had to buy grocery and also get your car fixed, you would know exactly where there is a grocery shop with a nearby mechanic. It also allows merchants to showcase their offers and allow customers to avail these and create a loyalty platform. No longer do you have to worry about carrying change or splitting the bill, among friends. How about earning credit points when you recommend a brand/merchant to a friend? Our shopping experience will change in the near future with the help of mobile payments. Whichever company is successful in making mobile payments more user-friendly and convenient, will emerge as the winner.