Will That be Credit Card, Debit Card or Cell Phone?

The recent launch of Apple Pay, featuring the use of smart phones for paying at the cash register rather than credit or debit cards., has drawn attention to this method of payment.

It’s not the first such system. Google launched their Google Wallet two years ago, Paypal has had a mobile payment system in place for som time, and there are numerous other less prominent systems.

Anything Apple does, it does with flair and panache and is bound to draw attention. However, since mobile payments using phones have been around for years, and haven’t broken into the mainstream, there is a question of whether Apple can break through the barriers that seem to have plagued the technology.

There are several barriers, a major one being the extent to which merchants support it. Mobile systems using cell phones use a technology called Near Field Communications (NFC) and while NFC capable terminals are growing in usage, they still are not ubiquitous. And not all are capable of processing cell phone payments.

So there is an investment required by merchants and understandably they are reluctant to jump in unless they see a reasonable prospect of a positive return on their investment.

On the other hand, interestingly enough, NFC terminals are spreading in usage not because of the prospect of using phones for payments but because credit and debit cards that use the technology are becoming more common. And people prefer that to the old swipe/insert techniques.

Another barrier to the use of phones for payments is the availability of phones that support the service. In the case of iPhones, only iPhone 6 supports the use of Apple Pay. Most users are still on iPhone 5 or lower, and it will take some time before they move up.

Phones do offer up an advantage in security, especially with Apple Pay. Most traditional payment systems require the use of passwords or four digit pin numbers, an authentication system that is proven to be less than fully effective. Biometrics are much better, and Apple Pay uses fingerprints to authorize purchases. So you don’t have to remember a number and nobody can copy your fingerprint. At least it’s very difficult to get it right.

Credit card fraud has become such an enormous problem that some serious efforts to improve security are needed.

The smart phone systems still make use of credit and debit cards but that happens in the background, under the protection of another layer of security.

There is an intuitive appeal to using phones to pay for goods. But there are also intuitive fears associated with the idea. For example, what if you lose your phone? People worry about that, but they also worry about losing their wallet. Another concern is that the phones depend on battery power and if the power runs out, there is no way to buy anything, unless one resorts to one of the more traditional systems, which could always be kept in reserve as a backup. And with the systems other than ApplePay, cell phone service is required in order to make a payment, and that may be problematic in some cases.

So the use of phones for payment is not likely to become the sole method of payment one would rely on any time soon.

To further complicate the positioning of phones in the payment space, the movement of debit and credit cards into using NFC and even in some cases biometric authentication, neutralizes some of the apparent advantages of using phones. Cards are light and compact and easy to carry around, and will likely remain a serious competitor to phones for the foreseeable future.