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The Mobile Wallet: An Emerging Credit Card Processing Method for Merchants

You may have never heard of the term “mobile wallet” before, but if you are involved in business credit card processing, pay attention. This is the wave of the future. Mobile wallets will be one of several ways to process payment no matter where you are for years to come, and for a business that doesn’t stay in an office, it can make closing the sale that much simpler.

Mobile payment options

Wireless terminals, SMS payments, and mobile wallets are all ways to process payments without being connected to a phone line. Each one works a little differently.

* Wireless terminals are the most used mobile payment options at the moment. They use WiFi connections or cell phone signals to process credit card payments in the traditional way. Another option is a smartphone adapter that allows merchants to use their Blackberry or iPhone to do the same. Except for smartphone apps, there is nothing particularly new with this technology.

* SMS payments imply a relationship between a particular merchant and the cellular service provider. You can set up such arrangements for the merchant to initiate contact or the buyer to initiate contact, but the end result is that when the buyer sends a specific text message to a particular number, the merchant receives payment. The most common use right now is for small ticket items such as cell phone ringtones, games, or charitable donations. However, with a 50% transaction fee, it’s hard to understand why anyone would bother at this point.

* Mobile wallets are not here yet. The technology is still in development, but it is very promising. Almost everyone has a mobile phone and by providing secure software that will allow people to simply “swipe” their phones in some way to pay for purchases, the entire credit card payment process could be shortened.

So what is robbery?

There are several characteristics that any mobile wallet must have for it to be successful. First, you must allow the buyer to select which card they want to use for which purchase. Then it should work with any phone the buyer already has. It should allow the use of checking accounts, without requiring the buyer to establish new lines of credit. The security must be extensive so that if a person loses their phone, their credit card information is not at risk and finally a mobile wallet must work as fast as a normal credit card to replace it.

All of these functions may seem simple enough, save for the security issue, but they actually require a great deal of programming, planning, and work.

The missing parts of the puzzle

For all of the above items to be addressed, three things must happen. It will be necessary to write software that allows phones to communicate with credit card terminals, a relatively simple matter.

More complex is the need for merchant-based hardware and software to change so that they can interact with customer software. The problem here is that different terminals use different formats, many of which are proprietary. For a pervasive mobile wallet concept to work, all credit card processing will have to run on the same system.

More worrying is finding a way to link customers’ credit cards to their phones and their banks. The problem here is that the current regulations do not allow “intermediaries” in the payment process. What that means is that there is no provision for the payment to be transferred from the customer’s bank to the phone company and then to the merchant’s account. It will take some significant changes to make it possible for the money to be transferred directly, and that is likely to be the longest delay.

When will it all happen?

The best estimates span five to ten years into the future. Regulatory hurdles take time to overcome and there’s always that nasty little bit of security that will keep people from getting on board when mobile wallet programs finally appear. The best case scenario would involve third-party payment organizations introducing the technology, as they are not held back by the red tape inherent in the credit card industry.

It is inevitable that some kind of mobile wallet will appear in the near future. When you do, business credit card processing will change dramatically.