Understanding Mobile Payment Models

The payments industry has evolved drastically, with electronic payments via the Automated Clearing House replacing old-fashioned paper-based payments, such as checks. Now a number of service providers have launched new platforms that allow businesses to accept payments via customers’ cell phones and other mobile devices.

Depending on the payment model being used, businesses receiving mobile payments may be able to track credit and debit card purchases received in real time and reconcile these payments against their merchant account. They may receive instant notification once transactions are complete and an e-invoice to assist in tracking and reconciliation, and customers may automatically receive an e-receipt.

There are several different mobile payment models currently in use. One of the most common is mobile web payments using Wireless Application Protocol, or WAP, in which customers make mobile payments using Web pages displayed on or applications downloaded to their mobile phones. There are three different payment mechanisms that can be used:

• Direct operator billing: The mobile phone provider includes charges on the customer’s mobile phone bill, collects the payment, and remits it to the business. A direct connection and integration between the business and the provider’s billing platform is required.
• Credit card: Customers enter their card details into the Web page or app on their mobile phone just like they would on a PC, and the business is paid just like it would be via an online credit card transaction.
• Online wallet: This Web service allows consumers to store and control their online shopping information, such as logins, passwords, shipping addresses, and credit card details, in one central place. Online wallets can be created at sites such as PayPal, Amazon Payments, and Google Checkout. The payment mechanism can be a credit or debit card or a proprietary payment system offered by the website.

Near Field Communication is another popular mobile payment model that’s used primarily in retail stores at the physical point of sale. The customer uses a special mobile phone equipped with a smartcard, waving the phone near a reader module at the point of sale. The payment amount is deducted from a prepaid account at the merchant (similar to store-branded debit cards but without the plastic) or charged to the customer’s mobile phone bill, bank account, or credit or debit card.

A third model, short message service, or SMS, text-based payments, enables customers to send payment requests via a text message to a special telephone number, with the charge applied to their phone bills or mobile wallets. It follows the direct operator billing payment mechanism.

Text-based payments are most commonly used for low-dollar purchases of digital goods such as music, ringtones, wallpaper, and games. They can also be used for the purchase of e-tickets to concerts and movies. The customer would receive a barcode on his or her mobile phone that can be scanned for admission to the event.

Don Sadler is a freelance writer and editor specializing in business and finance.