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How Pay-By-Cell Will Transform Your Business

February 17, 2010 at 11:33 PM 3 comments

My i Phone

by Paul Diamond

Cell phones are becoming not only virtual credit cards, but also mobile credit card processing terminals. In Japan and Sweden consumers have long been using cell phones to make purchases. The United States has been slow to adopt the technology, but currently has four forms of mobile phone transactions in use, and these may become widely adopted soon. The four models for cell-phone transactions are:

• Swipe your phone: Customers can securely swipe their cell phone and use it just like a credit card, making for a quicker transaction. One provider, BlingNation, is spreading this technology via community banks, which provide local merchants with a phone-swipe terminal and checking-account customers with a small adhesive tag that sticks to the back of their phone. Swipe the tag over the terminal to make a purchase. The transactions are processed directly by a local bank which results in lower fees than merchants normally pay for credit card transactions.

• Accept payments with your phone: You can now buy a small card reader made by SqaureUp that hooks to your iPhone, Android or Blackberry. When a customer wants to buy something from you, they simply swipe their credit card through this gadget connected to your phone, then they sign their name on your phone, and the transaction is complete. It’s a good solution for retail businesses that want to sell items off-location and for consultants, one-person businesses, or artisans that want to accept payment by credit card but either couldn’t get a merchant account or didn’t want one because of the fees. With this service you don’t need a merchant account and there are no contracts or monthly fees. The cost per transaction hasn’t been disclosed yet. This service, which aims to be available in Q2 2010, is brought to you by the people who invented Twitter–expect it to be highly disruptive to traditional merchant accounts.

• Enter your phone number online: Customers shopping online can enter their cell phone number—then reply to a text message—the check out and pay. The customer then pays the charge on their monthly cell phone bill. Using a cell phone number is a lot quicker and easier than entering credit card and address info online, and it appeals to younger people and those who may not have a credit card. What the rub? The transaction fee is painful—as a merchant you must give 35-50 percent of the sale price to the mobile carrier that processes the transaction. These fees may drop in time.

• Transfer money via cell phone: Transferring cash via text messages is simple when both the sender and recipient register for a free account with a provider such as Obopay.com. Sending money only costs 25 to 50 cents per transaction, and the money can go directly from and to bank accounts. For small business owners it’s an easy, inexpensive way to send or collect payment overseas. Wave goodbye to the fees, long forms and bank visits associated with wiring money.

These nascent mobile commerce platforms will likely battle it out in VHS-vs-Betamax style, while most of us will be on the sidelines with a wait-and-see attitude. Forward-thinking companies should dive in now, even if they risk adopting a platform that goes the way of Betamax.

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