woman looking at her phone while drinking coffee

Credit and debit cards started a revolution. You no longer have to carry around a checkbook or roll into the appliance store with hundreds of dollars in cash in order to pay for that new washer. Still, they aren’t without their problems.

We’ve become so used to handing our card to the server at a restaurant and having them bring it back. This gives them ample opportunity to take your card into the back and steal your information if they want to. In other situations, the machines may be compromised in order to give up your card numbers.

I have every confidence that most employees are honest. Still, why take the risk?

The new chip and pin technology makes things a little better. You need the card and your pin number in order to make a transaction go through. Things aren’t totally perfect when they can watch you type it in, though.

New technology has made it possible to eliminate the credit card from the transaction altogether by taking advantage of something many of us would never let leave our hands: the modern smartphone.

In addition to paying merchants, you can also pay your friends using a variety of services.

A Modern Store Experience

Let’s start with a brief overview of how this works before we go any further Although there are three major players in the mobile payment space, they all work pretty much the same way from a user experience standpoint.

Let’s say Joe brings his purchases to the counter. When they’ve been rung up and it comes time to pay, he whips out his phone, selects the credit card he wants to use from his virtual wallet and taps the phone against the terminal to pay, verifying payment with a pin number or his fingerprint.

How Secure Is This?

The short answer is very. Let’s start with the actual transaction mechanics. In order to communicate between phones and registers, Apple and Google both use near field communication (NFC). With Samsung supports both NFC and something known as magnetic secure transmission (MST), which allows your phone to send a signal that emulates the swiping of a physical credit card so that it’s supported by the greatest number of cash registers.

Both technologies require the phone to be within an inch or two of the terminal, which helps prevent accidental transactions.

What does the merchant see at the time of the transaction? Not your credit card number.

In the case of Apple and Samsung, your card number is stored either in a secure place on the phone that’s only used for payments or securely in the cloud on a server where they’re processed with payment providers. Tokenization creates a unique identifier for each specific transaction so no one ever sees your card number.

Google’s Android Pay handles things a little differently. Your credit card info is stored in the cloud, but instead of using tokens, you have a virtual card number that the merchant sees. In order to make sure things are secure, Google sends confirmation to the user that includes the amount you paid as well as the merchant’s name and number.

There is a fourth option that works no matter what phone you have, but it’s a little less common. Some stores allow you to scan a QR code to use your PayPal account to pay for your purchase. If you use the service PayPal, you can pay at some stores by having them scan a QR code.

The Drawbacks

There are some drawbacks to this technology, mostly revolving around compatibility. Apple Pay only works on the iPhone 6 and up. Android Pay only works on Android phones that have KitKat 4.4 or higher. Additionally, the phone has to support NFC. Samsung Pay only works with the Galaxy Note 5, Galaxy S6 and later.

Each of these is only supported by certain banks, but more are being added all the time. Retailers are also slowly rolling out new point-of-sale terminals to take advantage of the new technology, but by no means is it everywhere.

Pay Your Friends

Paying with your phone at a retail store may just be getting started, but paying your friends on the go has picked up a lot of momentum. Let’s look at a few of your options in this area.

Venmo

While the following all do something similar, there’s one feature that’s pretty cool that Venmo provides.

The iOS and Android app has a social sharing feature that lets people see whom you paid and what the memo line was. It’s optional and certainly not for every transaction, but I could see it being useful among a group of friends.

I have a long and glorious history of never winning fantasy sports – I’m pretty much in it for the fun and camaraderie. Let’s say I want to pay Sean my dues. My memo line to Sean and the league might say something about sacrificial money. Not only could this be a site for witty banter, but it would be a good place to keep track of those who have paid and encourage timeliness through peer pressure.

Let’s Get Social

Did you know you can send money through Facebook and Gmail by clicking the $ icon within messages? Enter the amount you want to send, and if your friend has a debit card connected to Google Wallet or Facebook, they can receive the money. There’s no transaction fee.

PayPal and Square Cash

You can pay someone via PayPal using their mobile phone number or email address. If they don’t have an account already, they can create one to receive the money. It’s free if you tie your bank account to PayPal.

Square Cash allows people to send money via their debit card at no cost. Businesses can also sign up for an account and pay a 2.75% fee per transaction.

Bitcoin

An interesting concept, Bitcoin is completely digital money. That means if you convert your money to Bitcoin on one of its digital exchanges, the money can be used across borders no matter what country you’re in, without any extra conversion.

As a practical matter, this hasn’t seen much mainstream acceptance. However, a guest on our recent podcast thinks that the encryption behind it could play a role in what’s next for financial technology.

What apps and systems do you use for mobile payments? Let us know in the comments.

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This Post Has 4 Comments

    1. Hi Michael:

      It’s not something we’ve added at this point. Part of the problem with BitCoin and others like it as I’m sure you know is that it’s very volatile at this point. That said, we’re always looking at options to serve our clients and enabling payments in the way they prefer. If something changes, we’ll let you know.

      Thanks,
      Kevin

    1. Hi Niels, while we don’t offer that as an option right now, I’ll be sure to pass your feedback along to the proper team members. Thanks!

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