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Pros and Cons of Mobile Payments

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMay 20222 min read

Mobile payments can be convenient, fast and secure. They can, however, be expensive and still vulnerable to issues with technology. In particular, if there are any issues with the host phone, mobile payments will be unable to work at all. Furthermore, the mobile payments industry is still engaging in disruptive “format wars”.

The background to mobile payments

Contactless payments were introduced to the UK in 2007. Mobile payments are essentially the successors of that concept. From a consumer perspective, the key selling point is the fact that they eliminate the need to carry a purse or wallet.

From a merchant’s perspective, the key selling point is the fact that all businesses want to make it as easy as possible for customers to pay. From the perspective of the companies backing mobile payments, there are two key reasons for entering this market.

Firstly, there is the money they can earn from the payments. Secondly, there is the opportunity to gather valuable data on each customer’s spending patterns. This data can then be used to inform other business decisions.

The benefits of mobile payments

Both customers and merchants just want to speed through the payments process. Mobile payments can be the fastest payment methods around. People generally carry them somewhere they’re easy to reach quickly. Most of the time they then just need to tap them against the screen to complete the payment.

The disadvantages of mobile payments

Mobile payments may be the way of the future although that isn’t guaranteed. Right now, however, there are still some major drawbacks with them. Businesses should take these into consideration before deciding whether or not mobile payments are right for them.

Mobile payments are relatively high-tech

By definition, mobile payments depend on mobile phones. If anything happens to the host phone, then at best, the payment app may be rendered useless. At worst, it may be compromised. In principle, that shouldn’t happen because people should have a suitable level of security on their phone. In practice, that isn’t always the case.

Currently, only premium phones have biometrics. What’s more, some users may not want to use them or may be unable to use them. For example, people may not want to have to remove gloves to use fingerprint readers. People can use other security precautions such as PINs but again they may not want to. Even if they do, these can be compromised.

From a merchant’s perspective, accepting mobile payments means investing in terminals capable of handling mobile payments. Merchants should consider the cost/benefit of this carefully before deciding whether or not the investment is worthwhile.

Format wars

Whether or not a mobile phone has the necessary hardware to make mobile payments is determined by its manufacturer. If it does, the customer can choose to use any mobile payment app supported by that hardware. In principle, this shouldn’t be a huge issue. If the terminal can support the hardware it can probably support the associated software.

In practice, however, the more challenging issue is that each mobile payment app will have its own set of terms and conditions. In particular, it will have its own rules around consumer protection. The more mobile payment types a merchant accepts, the more sets of rules they will have to understand and comply with.

Cost

In addition to the cost of getting suitable terminals, merchants should look carefully at the transaction fees. One key point to note is that mobile payment systems tend to piggyback onto existing payment networks. In other words, a customer may pay using a mobile payment app but the money will be drawn from either a bank account or a payment card.

As a result, merchants should expect fees for taking mobile payments to be higher than fees for taking straightforward direct debits or standard payment card transactions.

We can help

If you’re interested in finding out more about the advantages and disadvantages of mobile payments, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.