The old dream of the “digital wallet” is coming true in a very particular mobile-led fashion.
Card readers have gained traction because they allow small merchants to transform smartphones or tablets into payment registers by attaching a plastic credit card reader into the device’s audio jack. The readers are complemented by merchant-side apps and credit card processing services. Building on their success, the leading providers of these readers, Square and PayPal, are working to popularise companion consumer-facing payment apps.
The main rival technology is called Near-field Communications (NFC). NFC solutions like “Google Wallet” allow people to pay for products at retail stores by simply waving or tapping an NFC-enabled phone at a register, but it requires that merchants adopt NFC-ready hardware, and that phones carry an NFC chip. The iPhone line, for example, has not adopted NFC.
In a recent report from BI Intelligence, we examine the specific reasons why card readers will beat out (NFC), explain the main types of mobile payments, analyse the state of the mobile payments race, look at how traditional banks, credit card companies, and card processors are responding to the mobile payments threat, and detail who is furthest along in developing the all-in-one solution for merchants and consumers.
Here’s a brief why card readers beat NFC in a head-to-head matchup:
- Market need: The card readers immediately addressed a niche market with a void — the 27 million or more small and local merchants that do not accept credit or debit cards. Think food trucks, and neighbourhood cafés and bakeries.
- Total market size day one: NFC requires phones that have an NFC chip, and only a subset of smartphones do. iPhones, for example, still don’t have NFC. Credit card reader-based solutions allow for instant access to anyone with a credit card.
- Cost: Here’s where card reader-based solutions shine. Players like Square and PayPal Here typically ship their systems for free. Their transaction fees are at least competitive with legacy systems. By contrast, NFC merchant-side units are expensive. That means heightened technology risk: Merchants will worry NFC will become obsolete.
- Consumer Experience: This could be a wash. Theoretically, NFC would be a smoother customer experience since all you have to do is wave your phone, instead of having to verify payment via an app or give the merchant your name or a credit card. But remember NFC isn’t available at all merchants or on Apple’s phones, and card readers give consumers the option of using the credit cards they’re already comfortable with.
In full, the special report:
- Explains the main types of mobile payments
- analyses the state of the mobile payments race,
- Examines the matchup between card readers and NFC
- Looks at how traditional banks, credit card companies, and card processors are responding to the mobile payments threat
- Details who is furthest along in developing the all-in-one solution for merchants and consumers
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