With more than 123 million smartphone users in the United States alone (as of November 2012, according to comScore), and shopping via mobile devices growing by double digits, being able to accept credit cards via a mobile device sounds like a no-brainer. But how does it actually improvie your business? To find out, CIO.com queried mobile payment solution providers Square, PayAnywhere, PayPal and Bank of America about security, fees and which type of business stands to benefit most from deploying a mobile payment solution.
What type of business should consider using a mobile payment solution (i.e., card readers for smartphones and tablets)? Put another way, what type of business stands to benefit most from using mobile payments?
Tracy Metzger, CIO, PayAnywhere: Any business that performs a service or sells a good to people in locations other than retail stores should seriously look at mobile point of sale (mPOS) technologies like mobile credit card readers. mPOS technologies bring the cash register directly to the location where commerce needs to be transacted so that a transaction can be conveniently completed where the customer is, and not handled later in a back office.
These technologies also give businesses that have never accepted a credit card for payment the opportunity to easily and affordably begin doing so, without having to purchase or lease expensive equipment or sign up for long-term contracts. The question is which mPOS technology is right for your business, as some of these services are better suited for very small merchant operations, like garage sales, while others are designed for larger enterprises with many people in the field who need to complete transactions.
Mobile Payment Solution Benefits
What are some of the main benefits of using card readers/mobile payments?
Anuj Nayar, Senior Director of Communications, PayPal: With a mobile payment solution like PayPal Here, businesses without existing POS systems can immediately begin accepting nearly any type of payment -- cash, credit cards, checks, and, of course, PayPal. Merchants also pay lower fees (2.7 percent for swiped and PayPal transactions) and have access to their money almost instantly through their PayPal account and debit card.
Faryl Ury, Spokesperson, Square: One, easy credit card acceptance: A business can get up and running with Square quickly, easily and cheaply. For someone like a cab driver or jewelry maker who has never been able to accept credit cards before, Square opens up a whole new way to get paid and increase sales. Two, analytics: Traditionally, many companies, large and small, have had no way to track important sales information. Square's free analytics give our customers greater insight into their numbers so they can make better business decisions. And finally three, better relationships with customers: With Square Wallet, customers can discover local businesses, pay with their name, participate in loyalty programs, and even send gift cards. This allows businesses to develop better relationships with their clients because people spend less time focused on paying, and more time getting to know neighborhood businesses.
Mobile Payment Solution Security and Compliance Concerns
What about security? Don't smartphones pose a security risk?
Metzger: Arguably smartphones pose a potential security risk. They use open operating systems designed to allow software developers an easy platform to rapidly deploy useful applications to a wide range of end users. This openness can certainly expose risk to privacy and data security. However, certain technologies are helpful in reducing the potential risk, such as point to point encryption (P2PE) and tokenizing the card numbers stored within the mobile application.
The card issuing brands and PCI council have released a number of guidelines for developing payment applications that provide developers with a good framework for securing payment related applications, but the continued absence of mandated standards still allow circumvention of these guidelines.
While the industry has not demanded compliance, a few companies, such as PayAnywhere, are trying to be at the forefront of security and take the initiative on their own to have outside third parties validate compliance to these guidelines.
Tom Bell, CEO, Bank of America Merchant Services: Security and privacy are always the top priority. Merchants' customers have to trust that their payment information is being handled safely and securely. With Mobile Pay, data is encrypted within the card reader itself, and no data is stored either on the reader or a merchant's smartphone. We've also designed our reader with a wider card swipe path, to ensure the merchant isn't swiping a card three or four times to get a good swipe. And we've designed the reader so that it securely clamps to a user's phone, to make that swipe process easier.
Nayar: Security is a priority for PayPal. PayPal Here uses encryption to help protect card information as it swipes, this is all backed by PayPal's world-class security, risk and fraud management capabilities.
PayPal also never shares financial information with the merchant so that consumers can maintain their privacy. [Square is also PCI compliant.]
Mobile Payment Solution Integration, Fees and Pricing
What if you already have a merchant account/accept credit cards, albeit the old-fashioned way? Is integration an issue?
Metzger: Integration can be an issue if the solution is not developed by the existing POS provider or a registered partner depending on the degree of integration the merchant is looking for and the type of mobile usage they are planning on deploying. If the merchant is just looking for financial system integration, this lessens the integration effort and many of the localized mobile payment applications provide export data to interface with popular business finance systems.
Ury: For companies that already accept credit cards, there are major advantages. For one, the hardware and software are free. Another is low, simple, transparent pricing.
Bell: Our Mobile Pay product integrates with existing merchant accounts, and it can fit into a merchant's larger payment needs. If you lose power, for example, our readers would still allow a business to accept card payments. Since our Mobile Pay launch, we have gotten requests from a number of existing merchants to add our Mobile Pay readers to their existing services.
Nayar: PayPal Here is intended for sole proprietors and small businesses that don't have an existing POS solution in place, allowing them to accept multiple forms of payment. That being said, PayPal also offers solutions at the POS for vendors with existing solutions that don't require merchants to rip and replace hardware or massive software upgrades. Through relationships with POS manufacturers such as VeriFone, Ingencio, Equinox and POS software providers like Erply, Leapset, ShopKeep and Vend, PayPal works seamlessly with a retailer's existing POS hardware. In 2013, PayPal will also be accepted at over 7 million merchant locations that accept Discover.
What are your fees -- and do you offer a volume price break? Also, what do you say to business owners or managers who balk at paying the fees?
Nayar: With PayPal Here there is one simple flat fee for accepting payments, competitively priced at 2.7 percent per transaction. The mobile app and card reader is free for both businesses and consumers, with no account setup or monthly fees.
Bell: For Mobile Pay on Demand, our service for small businesses, our service is a flat fee structure [2.7 percent per swipe]. For merchants with larger transaction volumes, we offer Mobile Pay Business, which is priced through negotiated rates like other products we offer to larger clients. We believe our fee structures are competitive with others throughout the industry.
Ury: Square's fees are both low and transparent [2.75 percent per swipe or $275 per month]. And our monthly pricing plan can bring fees down as low as 1.3 percent per swipe.
Metzger: For businesses that balk on payment credit processing fees [PayAnywhere charges 2.69 percent per swipe], it is widely known fact that businesses that don't accept credit cards lose up to 70 percent of purchases each year. Consumers prefer credit cards to cash for many reasons: they offer rewards, certain protections to the card holder and are generally easier for larger purchases. In addition, PayAnywhere merchants have told us they are increasing sales volume by 20 to 50 percent from before they accepted credit cards. Other industry organizations place the average percentage increase in sales significantly higher than 50 percent once a merchant adds credit cards as a payment option.
Mobile Payment Solution Large vs. Midsized vs. Small Businesses
Why should a midsized or larger business consider a mobile payments option?
Metzger: Mobile payments are not just for micro or small businesses. They are being utilized in all sized companies. The convenience to the consumer and ability to capture card data in a more simplified and inexpensive manner are driving these initiatives. Large service type business that have accepted credit cards manually for years can save anywhere from 1 to 3 percent of their processing costs by utilizing card reader mobile payment technologies.
But not all merchants' customers are consumers. Business-to-business merchants are also a good fit for mPOS systems. For example, a supplier to retailers such as a food and beverage distributor or office supply distributor can take orders and have them paid on the spot from their customers. Because so many companies are using credit cards for all their purchases, it makes sense for their vendors to be able to offer the most convenient way for them to place and pay for orders.
Nayar: As we saw in 2012 and especially during the recent holiday shopping season, consumers are increasingly making purchases via mobile. PayPal projected $10 billion in mobile payment volume in 2012 -- and that doesn't even include transactions made through mobile card readers. As the consumer demand for mobile continues to increase, all businesses should adapt and provide their consumers with convenient and secure mobile payment options.
Jennifer Lonoff Schiff is a contributor to CIO.com and runs a marketing communications firm focused on helping organizations better interact with their customers, employees and partners.