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Mobile Payments: Industry Overview

The Blue Water Team

Mobile payments, payments made by way of a mobile device such as a smartphone or a tablet, are revolutionizing the payment industry. As a result, mobile payments, and their related technologies, present exciting opportunities to investors and others who wish to get involved in the field. Prime Index looks at the mobile payments field as a whole in this article. 

Mobile payments are relatively recent. Some of earliest adopters in the United States included PayPal, Google (Google Wallet), and Apple.

Today, the mobile payments landscape is a diverse one and increasingly includes mobile device manufacturers, technology companies, and others who see the opportunities for growing, and profiting from, the field. 

Mobile payment technology is also ever changing. Currently, mobile payments can take the form of:

  • Digital wallets that store banking information and are accessed by means of a mobile app
  • SMS payments, by which payments are made via text message
  • Direct operator billing, whereby consumers add purchases through their mobile service providers to their monthly bill
  • Internet payments, also known as wireless application protocol (WAP) payments are payments made over a browser, such as through PayPal or on an e-commerce site
  • Mobile banking, which is the completion of banking tasks via an app on a mobile device

In order to facilitate mobile payments, and communication, between the two parties in the transaction, a number of technologies are utilized. These include the following:

  • Near Field Communication, whereby a mobile device is placed near an NFC device for reading of the relevant payment information 
  • Sound Wave-Based Payments, whereby encrypted data is embedded in sound waves for transmission without use of the Internet
  • Magnetic Secure Transmission, whereby magnetic signals carry payment information to card readers in an especially secure format
  • Quick Response Code which consists of a barcode that is readable by digital devices

As mobile payment technology advances, numerous players across industries are participating in the field, including the following:

  • Banks and Financial Institutions
  • Mobile Operators
  • Smartphone Manufacturers
  • Technology Companies

The way in which each of these players support mobile payments depends upon the model of mobile payments they are using. Here is a look at the most common models:

  • Bank-Centric
  • Collaborative
  • Independent Service Provider
  • Operator-Centric

Mobile payments has penetrated many geographic areas, including many emerging markets, where mobile payments help to mitigate a lack of formal banking institutions. As smartphone usage expands (to about 6 billion users this year), mobile payments should expand as well, particularly among millennials and Gen Zers.

Mobile payments are proving disruptive to traditional banking institutions, thanks to their affordability, convenience, ease of use, and security. As regulatory activity further reduces risk, encourages transparency and innovation, and fosters competition, mobile payments may continue to disrupt the role financial institutions play in financial transactions. 

The field of mobile payments is expected to continue growing, at a CAGR of more than 30 percent until 2023. In the future, mobile payments could lead to the following:

  • Reduced use of physical debit and credit cards
  • Increase in wearable payment devices
  • Increased payment with biometrics, such as fingerprints
  • Growth of blockchain technologies and their integration with mobile payments

Check out our fintech and blockchain investing ideas.