Mobile Payment: Definition, Types, Advantages (2023)


As a small business owner, you naturally strive to meet customers where they are, whether that’s by offering the right goods or offering convenient payment options. Processing mobile payments is quite easy for a merchant, but it requires some upfront effort. This includes investing in a point-of-sale system that can handle contactless payments and digital wallet transactions.

What is mobile payment?

Mobile payment is the process of paying for goods and services using a mobile device such as a smartphone or tablet. This can include payments in stores, online or via peer-to-peer (P2P) transfers.

These devices can run mobile wallet apps or mobile peer-to-peer payment apps. Or they might allow transactions via SMS.

Popular mobile wallet apps include Apple Pay and Google Pay. Popular peer-to-peer mobile payment apps include Venmo, PayPal, CashApp, andzelle.

How does mobile payment work in stationary retail?

In stationary retail, customers often use mobile wallets to make mobile payments. You tap a smartphone, smartwatch or tablet on a smartwatch or tablet on a point-of-sale terminal (POS). In order to accept mobile payments, your POS system must have Near Field Communication (NFC) radio technology, which enables it to receive payment information from the device.

From then on, the terminals function in a similar way to handling inserted chip cards. You send and receive a series of encrypted messages to a financial institution, releasing the funds so that a payment can be made.

Only smartwatches or tablets at payment terminals with NFC radios can accept Tap-to-Pay transactions. (These terminals have a wireless payment icon that looks like a series of semicircles.) The terminals are all-in-one devices that also double as card readers for credit cards, debit cards, and gift cards.

Some merchants may accept other types of mobile payments for in-person transactions. For example, a seller could accept payments through a peer-to-peer payment app like PayPal or Venmo.

5 types of mobile payments

Mobile payments come in five main forms. While each has its own unique set of features, all allow for near-instantaneous money transfers from one account to another.

1. Mobile wallet

Mobile wallet services include apps like Google Pay, Apple Pay, and Samsung Pay. These services run on computers, smartphones, tablets and smartwatches and are linked to a customer’s credit card, debit card or bank account. Once a person sets up their mobile wallet account, they can use these devices much like a credit card. In a brick-and-mortar store, they can use their device to connect a smartwatch or tablet to a payment terminal equipped with an NFC radio. Online, they can use their mobile wallet account on many merchant checkout pages by selecting a mobile wallet icon (e.g. Apple Pay) from the checkout options.

2. Mobile peer-to-peer

Running on platforms like Zelle, PayPal, Venmo, and CashApp, this type of transaction allows individuals to transfer money to other people through a mobile app or website. Some of these services – most notably PayPal – are enjoying widespread acceptance among small retailers. That means you can pay a business owner with PayPal instead of using a credit card.

3. SMS payments

SMS payments allow people to make payments by sending an SMS to a specific phone number. Americans, who mostly own smartphones, rarely make SMS payments. However, SMS payments are widespread and trusted in parts of the developing world.

4. Mobile eCommerce

Also called m-commerce, this category describes any type of transaction that one conducts on a mobile device. When a buyer makes a purchase through their mobile device browser or through a merchant’s proprietary app, that qualifies as a mobile e-commerce payment.

5. Mobile point of sale

In a mobile point-of-sale (mPOS) arrangement, a retailer uses their mobile device as a smartwatch or tablet at a payment terminal.

Shopify offers an excellent mPOS called POS Go that allows you to free yourself from the checkout and close sales on the ground or curbside.

Customers can insert a credit card into the chip reader, swipe it, or tap their card or mobile device to the reader for an NFC transaction. At this point, your point-of-sale software takes care of submitting the payment details to financial institutions and transferring the money to your account.

Learn more about POS systems

Benefits of mobile payment

As a small business owner, you reap many benefits by accepting mobile payments. They include:

  • Convenience. Mobile payments remove a barrier to completing a customer purchase. Customers can conveniently pay by phone or credit card at a point of sale, or complete online transactions through their payment apps.
  • Speed. Financial institutions process mobile payments in a snap. This makes mobile checkout just as fast as a credit card transaction – if not faster.
  • Popularity. More and more customers are spending more money on mobile payments. In 2021, consumers spent worldwide $1.786 billion via mobile payment. Financial analysts assume that this value will more than triple within the next five years.
  • Security. Mobile payments are among the safest forms of commerce. That’s because they’re performed on mobile devices, which typically require authentication, typically in the form of a fingerprint, facial recognition, or passcode. The devices also encrypt their transmissions, giving thieves very little chance of intercepting customer data.

Disadvantages of mobile payment

While mobile payments offer merchants and consumers many advantages, they also come with some disadvantages.

  • Transaction Limits for Peer-to-Peer Transactions. Many mobile wallet providers limit their users’ in-person transactions, which means merchants who want to receive payments through an app like Venmo may not be able to make sales above a certain dollar amount. This limit helps protect all parties from theft and fraud. However, mobile wallets do not add purchase limits for retail purchases at tap-to-pay terminals. Retail shoppers who link a credit card to their mobile wallet app are not subject to app-imposed purchase restrictions when shopping in-store.
  • Dedicated smartwatch or tablet at a payment terminal required for mobile wallet transactions. Merchants need a modern smartwatch or tablet at a payment terminal to accept tap-to-pay transactions in a brick-and-mortar store — an expense not all small businesses can afford.

Final Thoughts

As more and more purchases shift to mobile platforms, payment systems will undergo a similar transformation. Customers, always looking for convenience and flexibility, are increasingly opting for mobile payments – especially considering the high level of security they offer.

Dealers will also benefit from this. Some mobile payment apps like Venmo and Square charge merchants fees that are very similar to credit card fees. Other apps like Apple Pay don’t charge merchants at all. As a result, business owners can benefit from the convenience and security of mobile payments without having to accept greater financial losses than usual. Small business owners who enable their business to accept mobile payments are likely to reap the benefits that come with it.

Frequently asked questions about mobile payments

What is mobile payment and how does it work?

Mobile payment is a contactless payment method with a mobile device such as a mobile phone, smart watch or tablet. Mobile payments are typically processed through a digital wallet or mobile app and can be linked to bank accounts, credit cards, debit cards, and other payment methods. The checkout process typically involves scanning a QR code or touching a mobile device to an NFC reader to securely initiate the payment.

What are the three types of mobile payment?

  • NFC (Near Field Communication) payments: These payments are made by touching a credit card or mobile device at a point-of-sale (POS) terminal. Examples include Apple Pay, Google Pay and Samsung Pay.
  • Direct billing via the cell phone provider: With this payment method, customers can charge their purchases to their cell phone bill.
  • Mobile wallets: These are digital wallets that store payment information and allow payments to be made at participating stores through an app or website. Examples include PayPal, Venmo, and Cash App.

How do you use mobile payment?

Mobile payments can be used to buy goods and services in person or online. On site, a customer can pay with a mobile wallet app or mobile payment service on their smartphone by scanning a QR code or by touching their phone to an NFC-enabled smartwatch or tablet at a payment terminal. Online payments can be made by entering your payment information into a website or app. You can also use mobile payments to send money to friends and family or to pay bills.


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