More and more businesses are accepting payments made by consumers using their smartphones and tablets—and the movement is gaining huge momentum. For example, eBay CEO John J. Donahoe attributes his company’s surprising turnaround performance in part to the fact that mobile payments are becoming a favorite consumer platform for commerce.
Figures from Donohoe’s company bear out his assertion: eBay’s mobile apps have been downloaded more than 100 million times worldwide, and eBay sellers are now posting two million items a week from their smartphones. Moreover, last quarter, over 800,000 new users made their first eBay purchase from a smartphone!
“The major pitfalls of mobile payment solutions are well known,” says Marc Gardner, CEO of payment processing company PayAnywhere. Such pitfalls include “lack of customer service availability, high transaction rates, flimsy reader attachments prone to breaking frequently and security concerns, which are becoming increasingly important.”
Mobile payment fraud becoming rampant
Indeed, studies show that mobile purchases are rife with fraud, which means you that accepting smartphone and iPad payments could cost you money as well as make money for you.
For example, researchers for the LexisNexis September, 2012 study “The True Cost of Fraud” say “merchants are facing an emerging frontier of fraud in global and mobile markets.”
“Merchants have high expectations for the emerging mobile payments channel as a way to increase revenue and acquire customers,” the study says. “Acceptance of mobile payment is showing significant early growth, increasing by half over that in last year’s study.”
Not surprisingly, the LexisNexis “fraud multiplier,” which calculates the true cost of fraud shouldered by merchants, has also increased this year: Merchants now incur $2.7 in costs for each $1.00 of fraud.
The fraud multiplier is also dramatically higher for mobile-accepting merchants, even though a shockingly low 2 percent of merchants cited a greater need for security as a major concern in the impact of mobile evolution in their overall business strategy.
Another study from Juniper Research found there are risks to consumers as well as merchants: Android malware is up more than 3,325 percent, and 92 percent of the top iPhone apps have been compromised, indicating that the mobile environment is potentially more dangerous than the classic PC environment.
“As the convenience of smartphones fuels the surging popularity of mobile banking apps, it’s clear that the average user may not understand the risks involved, and is not taking the security steps needed to protect their mobile devices,” said Dan Stickel, CEO of Metaforic. “Unless mobile apps are immunized against unwanted modifications, both users and banks face potentially staggering financial risks. It’s just a matter of time until a major breach occurs.”
The pros of accepting mobile transactions
Nonetheless, Chuck Davidson, who was responsible for bringing the Starbucks Mobile Card to market, points out that accepting mobile payments can offer some distinct advantages as well.
“Mobile is where your customers are,” says Davidson. “It provides another channel for merchants to provide value and service, and increased engagement with customers.”
However, Davidson cautions that merchants need to consider the operational impact of mobile payments. “Do not introduce anything that slows down the line or unduly increases the training burden of your operators and be mindful of hardware requirements if applicable,” he cautions. “Do not underestimate the role of design in your product … design with the early majority in mind, not the early adopter.”
Also on the plus side, a recent article in Forbes noted that “smartphones and many tablets are location aware,” which can be very important feature for mobile merchants who may travel across city, county and state boundaries with different sales tax rates, which can be automatically determined using GPS.
Beyond that, consumers who use smartphones and tablets as point of sale devices enable merchants to capture the location of every transaction, providing merchants with business analytics that better target the locations where they sell their goods or services.
And, accepting mobile payments let business owners make money anywhere—at flea markets, shopping malls, conventions, lunch meetings, which frees them from brick and mortar constraints.
How accepting mobile payments works
Smartphone/tablet credit card processing is physically easier than ordinary credit card processing. The hardware uses a small swiping mechanism that plugs directly into the phone to process credit card payments.
Each mobile transaction carries a small fee, but installing software is free-and the ability to provide immediate service could spell the difference between making a sale and not making one.
Security steps merchants should take
Mike English, executive director of product development for Heartland Payment Systems, says that using an encrypting card reader, specifically one that uses Advanced Encryption Standard (AES)—the most secure encryption available—is essential.
“By scrambling cardholder data the moment the card is swiped, an encrypting reader ensures sensitive data is never stored on a phone or tablet or vulnerable to interception by cybercriminals while in transit,” says English. “This is the highest standard available today and businesses shouldn’t settle for less to protect their customers’ account information, and ultimately their business.”
Finally, Barry Sloane, CEO of Newtek, which processes more than $4 Billion in e-commerce transactions through its mobile payment services for small businesses by providing POS equipment and services to more than 100,000 small businesses, advises merchants to always use address Verification (AVS) and the Card Verification Value (CVV2) when accepting mobile payments.
“As always, if the order from the customer seems too good to be true, it probably is,” Sloane says.
By Julie Crawshaw