The evolution of mobile payments
Technologies are breaking by leaps and bounds forward, manage to evolve and bring convenience and reliability to our lives. Just the other day , a wonderful article “The evolution of the mobile payment” was published on Techcrunch , which I decided to share with Habr’s readers.
It is predicted that the number of mobile phone users by the end of 2016 will amount to 4.8 billion people. Recent studies have shown that about 39% of users in the US in 2015 made at least one payment using mobile payment systems. For comparison: in 2014, this figure was 14%, and by the end of 2017 it is expected that it will reach 70%. Such explosive growth and the availability of potential for even greater growth give reason to believe that this industry is waiting for rapid development. In order to understand to what heights this industry can take off, it is necessary to recall the history of the development of mobile payments and how it evolved.
Throughout its history, mankind has always relied on all sorts of payment systems to pay for goods and services. It all started with a barter system: cattle, cereals. Then, banknotes were used - shells, pieces of hollowed-out leather, gold, metal coins, paper notes, the US dollar, payment cards, credit cards, and, finally, electronic payments. All these transformations were directed along one vector - increasing usability and versatility. These preferences began to take shape at the beginning of the 20th century, when payment cards appeared.
Payment cards were first mentioned by Edward Bellamy in 1887 in his famous utopian novel, “Looking Back,” but became a reality only in 1921; their first users were Western Union customers. Soon, many department stores, service stations and hotels also began to offer their customers payment cards to save those from unnecessary visits to the bank.
After the release of the Diners Club card in 1958, the credit card industry began to resemble what we have today. The first credit card issued by a third-party bank was the BankAmericard card, and this happened in 1958. This card turned into Visa in 1977. Then came the videotex system (late 1970s - early 1980s); Internet banking (1994); WAP mobile payment system (1997), and a modern influx of applications for mobile payments.
Here's how the development of mobile payment technologies took place in the late 20th - early 21st century:
1983 : David Chom, an American cryptography specialist, begins work on creating electronic money and invents a “discouraging formula that is a continuation of the open-source cryptographic algorithm RSA, which is still used in web encryption. ” This is the very beginning of cryptocurrencies.
1994 : Despite the fact that this fact is disputed, some believe that the first online purchase - pizza with pepperoni and mushrooms Pizza Hut - occurred this year.
1998 : Founded by PayPal.
2003 : Worldwide, 95 million people made purchases using their mobile phones.
2007: IPhone and Droid operating systems have entered the market.
2008 : Bitcoin invented.
2011 : Entering the Google Wallet Market.
2014 : Launch of Apple Pay. A year later, Android Pay and Samsung Pay came out.
2020 : 90% of smartphone owners are expected to use mobile payments. There are estimates according to which by 2017 the volume of sales made using mobile payment systems will amount to $ 60 billion.
There are three types of mobile payments. The first is when the buyer visits the website, adds the goods to the basket, places an order and receives his purchase with a check. There are also contactless payments - when transaction information is stored on the device, and to complete it, you need to maintain a PIN code. And finally, mobile wallets, which are able to replace the traditional wallet and store all the information on payments made.
Within each of the described types of mobile payments, there are various variations. For example, in the case of a mobile application, when purchasing from a certain provider, payment is made on the user's device, as, for example, in the case of the Starbucks application. In the case of the seller’s payment terminal, payment data is not saved. Online payment services, such as PayPal, use the user's device when purchasing goods. Mobile client-to-client funds transfer services, such as Venmo, also use a user’s device to make bank transfers. Do you think the volumes are not large? Venmo only reported more than $ 1 billion in transfers in January 2016.
And do not think that mobile payments will be limited to smartphones and tablets.
Bluetooth Low Energy Consumption (BLE) technology allows you to make calculations, both using the device of the buyer and the seller. In the latter case, the data is stored on a special mobile payment account. An example is the PayPal and iBeacon beacon. Well, finally, there is wireless high-frequency communication (NFC) technology - everything also happens here on the user's device; data is stored on a mobile device and used to purchase goods. This technology is used by Apple Pay, Android Pay and Samsung Pay mobile wallets. A typical example of a startup's development is this scheme: SMS service - a mobile application - a contactless payment system.
BLE and NFC technologies are used to organize communication between beacons and NFC tags with customer devices. In the case of BLE, it is possible to maintain long-term communication, which can be used on large areas, and customers can receive notifications and coupons. NFC is activated by the buyer and is more suitable just for one-on-one communication.
With the entry into the game of an increasing number of large brands, the mobile payment market is undergoing significant changes. Merchants use the latest technology and adapt their applications to ensure the most comfortable mobile payments.
For example, Google recently introduced the new Hands Free app. It uses both Bluetooth and Wi-Fi to work, and the feature is that the phone can be left out of your pocket. Google also works with a facial identification system.
Giants of the banking sector do not stand aside: JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and US Bancorp have created a clearXchange payment system that allows customers to instantly transfer funds between accounts of various banks using a mobile phone.
Google’s experiments are not exceptional; ensuring the maximum convenience and security of payments is the main trend in the mobile payment industry. As for the pay option, Apple, Android and Samsung are nothing more than the tip of the iceberg. More and more information technology companies are developing their own mobile payment platforms. Wearable electronics manufacturers are next in line. Do not think that mobile payments will be limited to smartphones and tablets; Soon you can pay for your purchase using, for example, Jawbone UP4, bPay band and Lyle & Scott bPay jacket.
Retailers such as Wal-Mart Stores Inc. also do not want to stay away and are developing their own products that support mobile payments. For example, this applies to the use of geolocation data for sending coupons and special offers. Bloomberg Technology writes: “The eMarketer consulting company predicts an increase in the turnover of transactions made by connecting a mobile phone to a payment terminal in the store to the level of $ 210 billion, compared with $ 8.7 billion in 2015.”
Retailers and banks are going to compete seriously with Apple Pay and Android Pay; For consumers and business, this, first of all, means greater variability in making mobile payments and bank transfers. Another interesting trend is the growth in the volume of mobile payments using cryptocurrency and chain of transaction blocks. The technology behind Bitcoin has recently become one of the most talked about topics. In fact, it is expected that tokenization will make a real revolution in the financial industry.
Companies such as Movile have already seen the potential of using Bitcoin for payments in online gaming services, as well as an alternative currency for mobile payments in emerging economies such as Brazil. Perhaps the greatest potential lies in the technology of electronic money. Many consider transaction blockchain chains to be the technology on the basis of which “a new generation of transactional applications will be built that will provide the required level of responsiveness while maintaining a high level of reliability and transparency” - an ideal combination of characteristics for the growing popularity of mobile payments, both among mobile phone users and for business.
Social networks and messengers also join the fun. You can make purchases directly from mobile applications of social networks, for example, Facebook and use WhatsApp as a channel for commercial activities. Using big data tools, sellers will be able to send coupons to the target audience, arrange promotions and make flash sales, and even place pre-orders.
Standards can be set so that it leads to global standardization. Currently, there is no global standard for mobile payments, but there is an initiative (supported by the author of this article) to create a single standard that would contain the same set of standards for all countries. Such a move can change the rules of the game and help the development of payment technologies in general, and mobile payments in particular, around the world. With companies like Venmo processing mobile transfers with a client-client scheme of more than $ 1 billion a month, and thousands of companies like Square processing billions in the form of mobile payments, the mobile payment industry promises to be the fastest growing sector.
There is enough space on the market for everyone, but before everything works out, there are still many issues to deal with, including security issues. Despite this, the convenience and speed of transactions continues to attract more and more people, so the forecast for 90% of users who made a mobile payment by 2020 does not seem incredible.
It is predicted that the number of mobile phone users by the end of 2016 will amount to 4.8 billion people. Recent studies have shown that about 39% of users in the US in 2015 made at least one payment using mobile payment systems. For comparison: in 2014, this figure was 14%, and by the end of 2017 it is expected that it will reach 70%. Such explosive growth and the availability of potential for even greater growth give reason to believe that this industry is waiting for rapid development. In order to understand to what heights this industry can take off, it is necessary to recall the history of the development of mobile payments and how it evolved.
A brief history of mobile payments
Throughout its history, mankind has always relied on all sorts of payment systems to pay for goods and services. It all started with a barter system: cattle, cereals. Then, banknotes were used - shells, pieces of hollowed-out leather, gold, metal coins, paper notes, the US dollar, payment cards, credit cards, and, finally, electronic payments. All these transformations were directed along one vector - increasing usability and versatility. These preferences began to take shape at the beginning of the 20th century, when payment cards appeared.
Payment cards were first mentioned by Edward Bellamy in 1887 in his famous utopian novel, “Looking Back,” but became a reality only in 1921; their first users were Western Union customers. Soon, many department stores, service stations and hotels also began to offer their customers payment cards to save those from unnecessary visits to the bank.
After the release of the Diners Club card in 1958, the credit card industry began to resemble what we have today. The first credit card issued by a third-party bank was the BankAmericard card, and this happened in 1958. This card turned into Visa in 1977. Then came the videotex system (late 1970s - early 1980s); Internet banking (1994); WAP mobile payment system (1997), and a modern influx of applications for mobile payments.
Here's how the development of mobile payment technologies took place in the late 20th - early 21st century:
1983 : David Chom, an American cryptography specialist, begins work on creating electronic money and invents a “discouraging formula that is a continuation of the open-source cryptographic algorithm RSA, which is still used in web encryption. ” This is the very beginning of cryptocurrencies.
1994 : Despite the fact that this fact is disputed, some believe that the first online purchase - pizza with pepperoni and mushrooms Pizza Hut - occurred this year.
1998 : Founded by PayPal.
2003 : Worldwide, 95 million people made purchases using their mobile phones.
2007: IPhone and Droid operating systems have entered the market.
2008 : Bitcoin invented.
2011 : Entering the Google Wallet Market.
2014 : Launch of Apple Pay. A year later, Android Pay and Samsung Pay came out.
2020 : 90% of smartphone owners are expected to use mobile payments. There are estimates according to which by 2017 the volume of sales made using mobile payment systems will amount to $ 60 billion.
Types of Mobile Payments
There are three types of mobile payments. The first is when the buyer visits the website, adds the goods to the basket, places an order and receives his purchase with a check. There are also contactless payments - when transaction information is stored on the device, and to complete it, you need to maintain a PIN code. And finally, mobile wallets, which are able to replace the traditional wallet and store all the information on payments made.
Within each of the described types of mobile payments, there are various variations. For example, in the case of a mobile application, when purchasing from a certain provider, payment is made on the user's device, as, for example, in the case of the Starbucks application. In the case of the seller’s payment terminal, payment data is not saved. Online payment services, such as PayPal, use the user's device when purchasing goods. Mobile client-to-client funds transfer services, such as Venmo, also use a user’s device to make bank transfers. Do you think the volumes are not large? Venmo only reported more than $ 1 billion in transfers in January 2016.
And do not think that mobile payments will be limited to smartphones and tablets.
Bluetooth Low Energy Consumption (BLE) technology allows you to make calculations, both using the device of the buyer and the seller. In the latter case, the data is stored on a special mobile payment account. An example is the PayPal and iBeacon beacon. Well, finally, there is wireless high-frequency communication (NFC) technology - everything also happens here on the user's device; data is stored on a mobile device and used to purchase goods. This technology is used by Apple Pay, Android Pay and Samsung Pay mobile wallets. A typical example of a startup's development is this scheme: SMS service - a mobile application - a contactless payment system.
BLE and NFC technologies are used to organize communication between beacons and NFC tags with customer devices. In the case of BLE, it is possible to maintain long-term communication, which can be used on large areas, and customers can receive notifications and coupons. NFC is activated by the buyer and is more suitable just for one-on-one communication.
Changes in the mobile payment market
With the entry into the game of an increasing number of large brands, the mobile payment market is undergoing significant changes. Merchants use the latest technology and adapt their applications to ensure the most comfortable mobile payments.
For example, Google recently introduced the new Hands Free app. It uses both Bluetooth and Wi-Fi to work, and the feature is that the phone can be left out of your pocket. Google also works with a facial identification system.
Giants of the banking sector do not stand aside: JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and US Bancorp have created a clearXchange payment system that allows customers to instantly transfer funds between accounts of various banks using a mobile phone.
Google’s experiments are not exceptional; ensuring the maximum convenience and security of payments is the main trend in the mobile payment industry. As for the pay option, Apple, Android and Samsung are nothing more than the tip of the iceberg. More and more information technology companies are developing their own mobile payment platforms. Wearable electronics manufacturers are next in line. Do not think that mobile payments will be limited to smartphones and tablets; Soon you can pay for your purchase using, for example, Jawbone UP4, bPay band and Lyle & Scott bPay jacket.
There is enough space in the market for everyone
Retailers such as Wal-Mart Stores Inc. also do not want to stay away and are developing their own products that support mobile payments. For example, this applies to the use of geolocation data for sending coupons and special offers. Bloomberg Technology writes: “The eMarketer consulting company predicts an increase in the turnover of transactions made by connecting a mobile phone to a payment terminal in the store to the level of $ 210 billion, compared with $ 8.7 billion in 2015.”
Retailers and banks are going to compete seriously with Apple Pay and Android Pay; For consumers and business, this, first of all, means greater variability in making mobile payments and bank transfers. Another interesting trend is the growth in the volume of mobile payments using cryptocurrency and chain of transaction blocks. The technology behind Bitcoin has recently become one of the most talked about topics. In fact, it is expected that tokenization will make a real revolution in the financial industry.
Companies such as Movile have already seen the potential of using Bitcoin for payments in online gaming services, as well as an alternative currency for mobile payments in emerging economies such as Brazil. Perhaps the greatest potential lies in the technology of electronic money. Many consider transaction blockchain chains to be the technology on the basis of which “a new generation of transactional applications will be built that will provide the required level of responsiveness while maintaining a high level of reliability and transparency” - an ideal combination of characteristics for the growing popularity of mobile payments, both among mobile phone users and for business.
Social networks and messengers also join the fun. You can make purchases directly from mobile applications of social networks, for example, Facebook and use WhatsApp as a channel for commercial activities. Using big data tools, sellers will be able to send coupons to the target audience, arrange promotions and make flash sales, and even place pre-orders.
Standards can be set so that it leads to global standardization. Currently, there is no global standard for mobile payments, but there is an initiative (supported by the author of this article) to create a single standard that would contain the same set of standards for all countries. Such a move can change the rules of the game and help the development of payment technologies in general, and mobile payments in particular, around the world. With companies like Venmo processing mobile transfers with a client-client scheme of more than $ 1 billion a month, and thousands of companies like Square processing billions in the form of mobile payments, the mobile payment industry promises to be the fastest growing sector.
There is enough space on the market for everyone, but before everything works out, there are still many issues to deal with, including security issues. Despite this, the convenience and speed of transactions continues to attract more and more people, so the forecast for 90% of users who made a mobile payment by 2020 does not seem incredible.