Mobile Commerce

What you need to know:

Mobile commerce provides a tremendous opportunity to improve not just payments for businesses and consumers, but overall engagement between merchants and their customers.


What financial products can go in the wallet or be stored in an account (i.e., an online account the customer has with a specific retailer)?

Credit cards, debit cards, prepaid cards, gift cards, and checking account numbers (ACH) can be stored on various apps, mobile wallets, or online retail accounts. The products generally contain the same data they do in a plastic environment.

What types of mobile wallets are there?

  • Retail-Specific Mobile Apps (e.g., Starbucks, Dunkin Donuts, Uber, Parkmobile etc.)
  • Other Downloadable Payments Apps (e.g., Capital One Wallet, PayPal, etc.)
  • Wallets associated with the Phone Hardware ( Apple PayProprietary technology used by Apple devices to pay for goods and services in brick and mortar locations, in-app purchases, as well as in the e-commerce environment., Samsung PayProprietary technology used by Samsung devices to pay for goods and services in brick and mortar locations, in-app purchases, as well as in the e-commerce environment., Google PayProprietary technology used by Android devices to pay for goods and services in brick and mortar locations, in-app purchases, as well as in the e-commerce environment.)

How secure are mobile transactions?

It varies based on the type of transaction. Mobile transactions are only as secure as the provisioning process to add a payment instrument into the app or wallet. However, there is much greater potential to improve security on smartphone transactions than in the plastic card world because of the availability of better technology on the devices, including opt-in geo-location-based features, as well as better know your customer data points (i.e., IP addresses) that are used in e-Commerce transactions.

Additionally, tokenization is quite prominent in third-party and hardware wallets, all but
eliminating the risk involved with primary account number (PAN) storage.

What ways can I transact from a mobile device?

A mobile wallet can contain multiple ways in which you can interact with merchants and pay for products. Mobile apps, like Starbucks, mostly utilize closed-looped gift cards which interact through QR or bar code readers. Wallets like Apple Pay and Google Pay mostly utilize NFC technology for in-store payments. These wallets and others like PayPal also perform web-based or in-app purchases where a customer can shop on the Internet from their phone or tablet.

“There are potentially tremendous cost efficiencies to be gained in the migration to mobile commerce where there is better technology and better security available for payments.”

What technology can be used?

Near Field Communication (NFC)Technology that is utilized by Apple Pay and Android Pay for payment transactions at point of sale locations in brick and mortar merchants. It relies on proximity of the device to the payment terminal.
NFC is a technology that is utilized on mobile platforms (e.g. Google Pay, Apple Pay, etc.) and can be used at point-of-sale (POS) terminals inside brick-and-mortar stores. It’s a tap-and-go technology that requires consumers to put their phone near a POS machine.

Quick Response Codes (QR Codes)
QR Codes are two-dimensional machine-readable codes usually consisting of a matrix of black and white squares. They contain data that can be read and displayed by a smartphone. Users link the app with their bank account or load a certain amount of money onto the app. Merchants scan the user’s personal QR code from the app and enter the payment amount. Additionally, merchants can provide receipts that contain a QR code and smartphones can scan and pay through this technology.

Bluetooth Low Energy Technology (BLE)Similar to NFC or QR codes, BLE radio technology facilitates contactless data transfer. BLE provides location-based services that are communicated to a merchant’s POS.
Similar to NFC or QR codes, Bluetooth low energy (BLE) radio technology facilitates contactless data transfer, BLE provides location-based services that are communicated to a merchant’s point of sale. On mobile, BLE offers a virtual card stored on a handset which is connected through BLE to the POS terminal at a merchant which in turn is connected to a payment network.

Magnetic Secure Transmission (MST)
MST is a technology that emits a magnetic signal that mimics the magnetic strip on a traditional payment card. MST sends a magnetic signal from your device to the payment terminal’s card reader when the smartphone is held up to the POS. MST technology is utilized by Samsung Pay.

App or Web-based transaction
Similar to purchases a customer can make from an Internet browser on their home computer, a customer can initiate a mobile commerce transaction from their smartphone through the Internet web browser or through many different mobile apps.

Why are merchants hesitant to deploy certain mobile wallet acceptance technologies?

A current rule that restricts merchants – and may ultimately harm consumers – is the concept of Honor All CardsA global card brad/payment card network rule that may requires merchants that accept one of its payment products, such as a Bank of America Visa credit card, to accept all of it’s brands’ credit products from all issuers.. A global card brand/payment card network may require merchants who accept one of its payment products, such as a Bank of America Visa credit card, to accept all of its different credit card products from all issuers.

Global card brands have applied Honor All Cards to a digital environment in an effort to create an Honor All Wallets policy so that if a retailer accepts the plastic cards of one of those brands, they in turn, have to accept all digital, mobile, or even fob products by the same brand no matter how it is loaded or stored.

So, if a retailer decides to accept one NFC-based wallet, and they turn on NFC wallet acceptance in their store, they may inherently end up accepting all NFC-based wallets due to card brand policies and lack of technology to distinguish between different wallets, such as Apple Pay and Google Pay.

This ‘Honor All Wallets’ rule causes multiple issues that ultimately affect consumers. By requiring merchants to accept all devices, this rule effectively forces them to disregard many of the most important aspects of pricing, technology, security, and data management, which are four of the most important issues affecting consumers.

How does the cost of a mobile payment differ from a card payment?

There are potentially tremendous cost efficiencies to be gained in the migration to mobile commerce where there is better technology and better security available for payments. However, there is also potential for the current high costs of card acceptance to be carried over into mobile commerce – with potentially new fees from new system participants. Currently, the cost of mobile payments follows the traditional cost structure in the market implemented through the payments networks as either card present (NFC) or card not present (QR code, browser-based, or in-app on the mobile device) versus a specific cost structure for mobile.

What are mobile payments?

According to the U.S. Federal Reserve Consumer and Mobile Financial Services Report, mobile payments are defined as “purchases, bill payments, charitable donations, payments to another person, or any other payments made using a mobile phone. You can do this either by accessing a web page through the web browser on your mobile device, by sending a text message (SMS), or by using a downloadable app on your mobile device. The amount of the payment may be applied to your phone bill (for example, Red Cross text message donation), charged to your credit card, deducted from a prepaid card, or withdrawn directly from your bank account.”

Is a mobile payment the same thing as mobile banking?

No. The Federal Reserve Report defines mobile banking as “using a mobile phone to access your bank or credit union account. This can be done either by accessing your bank or credit union’s web page through the web browser on your mobile phone, via text messaging, or by using an app downloaded to your mobile phone.”

How many consumers are using mobile banking compared to mobile payments?

The use of mobile banking is on the rise. According to the Federal Reserve Report, as of 2021, 43.5% of survey respondents use mobile apps as their primary method of access to their bank accounts, and is now the most prevalent primary method in the U.S.

According to a survey done by Forbes, 53% of people use digital wallets more than traditional payment methods in 2023, where 64% of respondents said they use digital wallets at least as much as traditional payment methods. This trend upward will likely continue as well, as 78% of Gen Z respondents admitted they would stop shopping at merchants who no longer accepted digital wallets.

How are people using mobile banking?

According to the Federal Reserve Report, the three most common mobile banking activities among mobile banking users are:
1) checking account balances or recent transactions (94%);
2) transferring money between accounts (58%); and
3) receiving an alert (e.g., a text message, push notification, or e-mail) from their bank (56%).

How are people using mobile payments?


Who is primarily making mobile payments?

Younger consumers are more likely to make mobile payments. According to the Forbes Report, in 2023, 91% of Gen Z consumers responded they make digital wallets their primary method of paying while shopping. This doesn’t preclude older shoppers, however, as 59% of millennials and 50% of Gen X consumers also made digital wallets their primary method of paying while shopping.

How are mobile payments funded? How does it work?

Mobile payments are most commonly funded using debit cards (56%), credit cards (48%), directly from a bank account (36%), or from an account at a nonfinancial institution such as PayPal (16%).

The type of payment used to fund the mobile purchase is important because each one carries different implications regarding the consumer protections afforded on the transaction. Payment sources are covered by different consumer regulations and regulatory agencies. Each payment source also has very different acceptance costs and fraud loss liability parameters for merchant businesses.

Why do people say they don’t use mobile payments?

The Forbes Survey also indicates that the two most common reasons for not using a digital wallet are difficulty controlling spending and security concerns. The second point is solely an issue with consumer sentiment, however, as digital wallets are oftentimes safer than physical card payments.

“Among those who said they do not use mobile payments, 79% reported they cannot control their spending as well and 71% cited security concerns”

What is the biggest security concern with using mobile payments?

Consumers appear to be cognizant of the need to protect their personal information that is stored on, and transmitted with, their phones. According to the Forbes Report, consumers are somewhat split on their assessment of the security of mobile payments. Thirty-six percent of respondents said that mobile payments are safer than traditional payment methods, and an additional 23 percent said they were just as safe. Thirty percent, however, said they were not as safe.

How else are consumers using mobile phones for retail?

Consumers appear to be open to greater use of their phones as a tool to get the best prices in their shopping activities. According to the Federal Reserve Report, 23% expressed an interest in using their mobile phones to compare prices while shopping; 25% indicated that they would like to receive and manage discount offers and coupons; and 22% would like to receive location-based offers. Mobile phone users also expressed an interest in using their phones to store gift cards or track loyalty/reward points and manage their personal finances.

Many consumers who use their smartphone to comparison shop reported that they altered their decisions as a result. For those consumers surveyed, 69% who have comparison shopped in a store reported that they changed where they made a purchase after comparing prices, and 79% reported that they changed what they purchased as a result of reading product reviews on their smartphone while at a retail store.

Should users be concerned with the security of mobile banking?

While security and protecting the privacy of personal information continues to be an important concern, user can take steps to safeguard against the potential risks.

According to the Federal Reserve Report, the majority of smartphone users reported taking various actions to reduce harm in case of a security incident. The most common actions were installing updates (84%), password-protecting the phone (70%), and customizing privacy settings (58%).

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