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Types of Mobile Payments : MoMa Trends: Mobile Payments

Blog: MoMa Trends: Mobile Payments

Types of Mobile Payments

abril 4, 2016 12:15 pm

Let’s start from the beginning! Before we proceed to analyse the best mobile payment practices of the market, I’d like to do an introduction to the different types of mPayments with its corresponding uses and advantages. And you’ll have to forgive me because the post came out so long! I promise to keep it shorter in my future articles.

1. Premium SMS based transactional payments

SMS payment means using text messages to pay for products or services.

To pay, the customer can simply send an SMS message. In return a code or password is sent to them, enabling access to the premium content. The mobile phone carrier will then add the cost to the user’s normal monthly bill or deduct it from the prepaid balance.

SMS payments are easy and convenient way to handle micropayments. They offer many benefits for content and service providers, such as website owners or app developers.


  • Instant access to billions of mobile phone users globally.

  • No need to make separate contracts or verify customers’ identity.

  • Customers do not need credit cards or bank accounts.

  • Billing is handled by the mobile phone carrier.


The ease of the system comes, unfortunately, with some drawbacks.

  • Low payout rates – operators also see high costs in running and supporting transactional payments which results in payout rates to the merchant being as low as 30%. Usually around 50%.

  • Prices cannot be set freely, but developers have to choose from so called price points that are offered by the SMS payment provider.

  • Poor reliability – transactional premium SMS payments can easily fail as messages get lost.

  • Slow speed – sending messages can be slow and it can take hours for a merchant to get receipt of payment. Consumers do not want to be kept waiting more than a few seconds.

  • Security – The SMS/USSD encryption ends in the radio interface, then the message is a plaintext.

  • High cost – There are many high costs associated with setting up this method of payment.

2. Direct Mobile Billing

The consumer uses the mobile billing option during checkout at an e-commerce site to make a payment. After two-factor authentication involving a PIN and One-Time-Password, the consumer’s mobile account is charged for the purchase.


  • Security – Two-factor authentication and a risk management engine prevents fraud.

  • Convenience – No pre-registration and no new mobile software is required.

  • Easy – It is just another option during the checkout process.

  • Fast – Most transactions are completed in less than 10 seconds.

  • Proven – 70% of all digital content purchased online in some parts of Asia uses the Direct Mobile Billing method.


  • The most significant limitation is the type and value of goods that can be purchased.

3. Mobile web payments (WAP)

The consumer uses web pages displayed or additional applications downloaded and installed on the mobile phone to make a payment. It uses WAP (Wireless Application Protocol) as underlying technology and thus inherits all the advantages and disadvantages of WAP. 


  • Follow-on sales where the mobile web payment can lead back to a store or to other goods the consumer may like. These pages have a url and can be bookmarked making it easy to re-visit or share.

  • High customer satisfaction from quick and predictable payments

  • Ease of use from a familiar set of online payment pages


Unless the mobile account is directly charged through a mobile network operator, the use of a credit/debit card or pre-registration at online payment solution such as PayPal is still required just as in a desktop environment.

3.1. Direct operator billing

Direct operator billing, also known as mobile content billing, WAP billing, and carrier billing, requires integration with the mobile network operator.


  • Mobile network operators already have a billing relationship with consumers, the payment will be added to their bill.

  • Provides instantaneous payment.

  • Protects payment details and consumer identity.

  • Better conversion rates.

  • Reduced customer support costs for merchants.

  • Alternative monetisation option in countries where credit card usage is low.


  • One of the drawbacks is that the payout rate will often be much lower than with other mobile payments options. For example, payout rate with Paypal is around 92%, 84% with Credit Card and around 60% with Operator Billing

3.2 Online Wallets

Online companies like PayPal, Amazon Payments and Google Wallet also have mobile options. The process usually is registration, entering the phone number, receiving the PIN via SMS, entering the PIN, entering credit card information or other payment type to validate the payment. In subsequent payment only the PIN number is needed.


  • Lower Costs – Employing the use of online wallets removes the need for intermediaries,

  • Competitive Advantage – more convenient transaction processing method for customers, giving businesses that employ this technology a competitive edge in the market.

  • Modern – Traditional cash-only businesses, such as craft fairs and flea markets, can now accept debit and credit cards. This opens up an entirely new aspect to payment methods in large markets, introducing many business opportunities and greater potential revenue.

  • Convenience – Users are able to get through a purchase in mere seconds with a simple tap or scan of their mobile device. The experience of purchasing items becomes quicker and easier.


  • Investment – The initial monetary investment for building a functional digital wallet application is quite significant.

  • Support Technology – There are few supporting technologies to choose from at the moment, with NFC terminals and phone readers being the most prevalent.

  • System Outages – Information for digital wallets are stored in the cloud of business servers; therefore, the risk of a system malfunction or shut down is always present. As a result, businesses will not be able to process payments or they will become increasingly slow due to high traffic in the servers.

  • Security – Companies must ensure that their customers’ information is encrypted and well protected.

3.3. Credit Card

A simple mobile web payment system can also include a credit card payment flow allowing a consumer to enter their card details to make purchases.


  • Any entry of details on a mobile phone is known to reduce the success rate (conversion) of payments.


  • However, if the payment vendor can automatically and securely identify customers then card details can be recalled for future purchases turning credit card payments into simple single click-to-buy giving higher conversion rates for additional purchases.

4. QR code payments

QR Codes are square bar codes. QR, or “Quick Response” barcodes were designed to contain the meaningful info right in the bar code.

QR Codes can be of two main categories: The QR Code is presented on the mobile device of the person paying and scanned by a POS or another mobile device of the payee. Or the QR Code is presented by the payee, in a static or one time generated fashion and it’s scanned by the person executing the payment


  • Easy implementation – It’s relatively quick and inexpensive to implement.

  • Simplicity – relatively easy to use.

  • Reliability – Payment details, title and amount are automatically filled in – there are no mistakes.

  • Security Bank mobile apps offer the highest standards of security and safety.

  • Addressable Market – Since to NFC chip is required on the phone, the addressable market for this technology interface is quite large.


  • Security – Malicious QR codes can contain malware or Trojans.

5. Contactless Near Field Communication

Near Field Communication (NFC) is used mostly in paying for purchases made in physical stores or transportation services. A consumer using a special mobile phone equipped with a smartcard waves his/her phone near a reader module. Most transactions do not require authentication, but some require authentication using PIN, before the transaction can be completed. The payment could be deducted from a pre-paid account or charged to a mobile or bank account directly.


  • Convenience – Many consumers will “pay” for convenience because convenience is very important in today’s society.

  • Versatility – NFC can be well adapted for all kinds of situations ranging from bank cards to travel and movie passes, reward systems and even keys.

  • Safety – NFC enabled credit cards are much more secure than a credit card magnetic strip. Requires PIN. Retailers no longer have physical access to your credit card information


  • If companies do not agree to integrate NFC into their business, consumers will not be able to use the technology.

  • Security – Another major risk to NFC is computer hacking or phone hacking. It is estimated that most governments could take up to 10 years to finally warm up to Near Field Communication technology.

 6. Cloud Based Mobile Payment

The cloud based approach places the mobile payment provider in the middle of the transaction, which involves two separate steps. First, a cloud-linked payment method is selected and payment is authorised via NFC or an alternative method. During this step, the payment provider automatically covers the cost of the purchase with issuer-linked funds. Second, in a separate transaction, the payment provider charges the purchaser’s selected, cloud-linked account in a card-not-present environment to recoup its losses on the first transaction.


  • Open and flexible – Cloud-based mobile payments open multiple opportunities to deploy services to consumers using flexible business models.

  • Unlock issuer brand value – Issuers have direct control over branding and user experience.

  • No ecosystem dependency – Cloud-based mobile payments require fewer intermediaries, speeding time to market and giving issuers more control of the launch and project.

  • Security – By relying on approved vendors that provide completely secure environments and advanced tokenization methods, issuers can achieve high security levels for card data.

  • Visa and MasterCard endorsed – Cloud-based mobile payments have been endorsed by both major card associations. Standards, requirements and program approval processes are being defined to enable financial institutions to securely host digital cards in the cloud.


  • Security in smart phone memory –  In order for transactions to be performed at merchant POS systems, even without network coverage, the issuing bank must provision digital card details to the phone’s memory. Details such as a card holder’s name and account number must be stored in unsecure phone memory.

  • Security and Compliance – Digital Issuance vendors handle the same sensitive data as plastic issuer providers.

  • Risk and fraud management – Using mobile devices and cloud to perform transactions creates both challenges and opportunities for issuers on risk management.

  • App and user experience – Consumers want the choice to pay using a bank app, a merchant app, or other favourite app. This expectation by consumers requires a management platform to enforce configuration and business rules.

7. Audio Signal Mobile Payments (NSDT)

The audio channel of the cell phone is another wireless interface that is used to make mobile payments. Several companies have created technology to use the acoustic features of cell phones to support mobile payments and other applications that are not chip-based. The technologies Near sound data transfer (NSDT), Data Over Voice and NFC 2.0 produce audio signatures that the microphone of the cell phone can pick up to enable electronic transactions.


  • Secure – It uses the phone audio channel to transmit secure information

  • Efficient – It provides an excellent level of efficiency and reliability even in a noisy environment

  • No extra hardware is required like in NFC so it becomes less expensive


  • More noisy environment can create a problem in data transfer


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Ainara Gonzalez Abaitua
Master in Digital Marketing
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