Mobile Payments: The Future of Cashless Transactions

Has the good old wallet become obsolete? You can easily get the impression if you take a closer look while shopping.

More and more people no longer rummage around for their wallets, but simply pull out their smartphones. They briefly hold it up to the reader at the checkout and off they go with their purchase.

What happened? You paid with your mobile phone. It’s quick and just as secure as contactless payment by card. What is also important in times of the coronavirus pandemic: is that contactless payment is much more hygienic than handling cash.

In the meantime, more and more shops are also following the trend. They equip their tills with the necessary technology for contactless payment. This works with a bank card or even with a smartphone.

Since we almost always have this at hand these days, it may become the most common form of payment. If we not only use our cell phones to pay for coffee at Starbucks but also for the new cupboard at Ikea, our wallets can probably stay at home in the future.

Pay with your mobile phone: fast and contactless

At the supermarket checkout: hastily stow the last products in the shopping trolley, then quickly find your wallet. Well, that’s it for fast. Of course, it’s at the bottom, buried under the drinking bottle, reading matter for on-the-go and the child’s comforter. The good news is that you can safely save yourself the junk. NFC makes it possible.

Thanks to the technology, you can pay contactless and cashless with your mobile phone. This only takes a few seconds. For small amounts, payment usually works without entering a PIN or signature. For amounts over 25 euros, you will be asked to enter your PIN at the checkout terminal.

But that is done quickly, as with the Giro card. What do you have to do to use your smartphone as a means of payment? You have to set up your cell phone once for mobile payment.

The advantages of mobile payment

• The advantages of mobile payment are obvious: if you leave your wallet in your pocket and use your smartphone instead, you’ll be past the checkout faster.
• This is not only worthwhile for customers, but also for retailers who invest in the appropriate NFC technology.
• Customers don’t stand in line as long and sellers can serve more of them in the same amount of time.
  It’s uncomplicated. All you have to do to complete the payment is hold your smartphone up to the checkout terminal. For higher amounts, the PIN must be entered. But even that is done quickly.
• Contactless payment with a mobile phone is also more hygienic than reaching into your wallet. Nothing is passed back and forth. In addition, the change coins no longer weigh down on your wallet.
• Going without cash has another advantage. You save yourself the frequent trips to the bank.
• If you opt for mobile payment, you will enjoy another advantage. You keep an eye on your expenses on your mobile phone. An app provides the corresponding list. So you know exactly when you’re going over your budget.

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Paying with your mobile phone: how does it work?

Most people prefer to pay in cash. But gradually they break away from the habit they have grown fond of. More and more are opting for the convenient way of paying with their mobile phone.

However, some people still shy away. The process seems too complicated.

Finally, the NFC chip needs to be activated and it needs to set up a wallet app. But that’s it. No reason to do so without a convenient payment method.

Another aspect is the issue of security, which may prevent one or the other from switching to mobile payment. However, the procedure is considered to be as secure as contactless payment by card, as reported by the consumer advice center.

Those who pay with their credit card use the same technology. Data is exchanged via NFC over a distance of just a few centimeters. The technology also works with the currently most secure encryption.

In addition, banks and app providers have installed additional protection for paying with a mobile phone. The PIN is usually requested for contributions over 25 euros. In addition, they set a limit on how often you can pay smaller sums in quick succession with the hand without additional approval.

The requirements for contactless payment with a smartphone

Before you can get started, three requirements must be met. You can then easily pay with your cell phone in many shops. You can see which shops accept the contactless payment method at the checkout terminal. If it shows the NFC technology wave symbol, you can pay there with your smartphone. The wave icon resembles a WiFi icon laid on its side.

1. The number one requirement for mobile payment is a mobile phone equipped with an NFC chip for wireless data exchange. Most of the younger models, even in the entry-level and mid-range, have the standard. Apple has equipped its smartphones with the NFC chip since the iPhone 6. For Android phones, a look at the settings helps. If NFC is listed under the Wireless & Networks menu item, the technology is also on board.
2. Second, you need a payment service. Payment information such as credit card or checking account is stored in the wallet app. Prepaid cards also work. The most common US services are Apple Pay and Google Pay. Samsung smartphone owners can use Samsung Pay. But some banks also offer wallet apps for contactless payments with cell phones.
3. Last but not least, a store’s checkout needs an NFC-enabled terminal. The first stores in the US set up the service back in 2015. Since then it has steadily increased. You can tell whether you can pay contactless by the wave symbol on the checkout terminal.

The technology behind paying with a mobile phone

So what exactly is NFC? The abbreviation stands for Near Field Communication. The standard is used for data exchange over short distances. The smartphone or NFC-enabled bank card may be no more than four centimeters away from the checkout terminal. Otherwise, the transfer will not work.

The two devices exchange payment data wirelessly. The transmission speed is 424 kilobytes per second. Theoretically, data can also be transferred from one cell phone to another via NFC.

However, since the standard is significantly slower than Bluetooth, it is only suitable for small amounts of data such as contacts. The technology is overwhelmed with pictures or videos.

If you pay cashless with your mobile phone, it transmits the necessary information directly from the server of the payment service provider. Your credit card number will not be used. It is replaced by a term derived from it – the so-called token. The token is a placeholder in plain text for, for example, the credit card number.

The NFC chip draws the energy for transmission from the electromagnetic field generated by the reader. Now the two devices can communicate with each other.

However, this only works in one direction at a time. The reader at the checkout, therefore, requests information. Your cell phone then answers the request. This is of course much faster than it takes to describe the process.

And this is how paying by smartphone works

Contactless payment with your cell phone is very easy. Once you have activated the NFC standard in your smartphone and installed and set up a wallet app from the app store, you are ready to go. Incidentally, the technology in the iPhone is already switched on at the factory.

If you are now at the supermarket checkout and would like to pay cashless, you simply hold your smartphone in front of the reader. The mobile phone and the POS terminal automatically exchange payment information. Done. Almost.

As a rule, for amounts over 25 euros, you will be asked to confirm your purchase with a PIN, fingerprint scan, or face recognition. The amount will be debited from the account or credit card you have stored in the wallet app. There is no quicker or easier way to pay.

The mobile payment providers: is it even possible without NFC?

Which app should it be? First of all, it depends on the operating system of your smartphone. The two top dogs for paying by mobile phone are Apple Pay for iOS and Google Pay for Android.

As a user of a Samsung smartphone, you can even choose between Google’s payment service and Samsung Pay.

Google Pay

To use Google Pay, you need an NFC-enabled Android smartphone. The operating system must not be older than version 5.0 (Lollipop). When setting up, you link Google Pay to your credit card or your PayPal account. If there is no bank account stored in your PayPal account, the payment service will set up a digital Mastercard so that you can make contactless payments with your cell phone via Google Pay.

Apple Pay

Ever since the iPhone 6, Apple has been equipping its smartphones with an NFC chip. However, the Apple Pay payment service has only been established in the market since the end of 2018. If you set up Apple Pay, this also includes a credit card that you link to the payment service. If you also want to make contactless payments with your AppleWatch, you must also store the corresponding credit card on this device.

Samsung Pay

As the owner of a Samsung smartphone, you can use Samsung Pay for mobile payments. The app requires at least Android 8 or higher as the operating system. When setting up, you link Samsung Pay to your checking account. A virtual VISA card is used as a means of payment. The Samsung app allows you to finance purchases in installments. Learn more now!

But there are also other payment services. Among other things, some banks have developed their apps for mobile payment. These include the Sparkasse, the Volks- und Raiffeisenbank, the Postbank, and the Deutsche Bank. The apps are available to customers in Google’s Play Store. If you use a Samsung cell phone, you can also use the Korean manufacturer’s NFC service.

It also works without an NFC chip. For example, you can use the Payback app to make contactless payments with your cell phone. To do this, the app generates a QR code that is scanned at the checkout terminal. However, there is one small catch: Payback Pay only works with partners of the points collection system. But the list is now quite long. As with the NFC apps, a means of payment must first be stored. The app then creates a new code for each payment transaction.

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Privacy and mobile payments

One thing is clear: Anyone who decides to pay with their mobile phone does not remain anonymous. In any case, you share your purchasing behavior with the provider of the app.

The consumer center points out that other companies could also find out about your payment transactions. That depends on whether you use the service of a bank, a payment service provider, or a retail company.

For example, analysis companies can create user profiles from your shopping behavior. These, in turn, are used to place personalized advertising. Your bank’s apps are less interested in evaluating your consumer behavior. However, this cannot be ruled out with certainty, according to the conclusion of the consumer advice center.

Paying with a mobile phone: the conclusion

Mobile payment with a mobile phone is fast, uncomplicated, and simply practical. The tedious search for the right change is a thing of the past. In addition, your bank card stays safe in your wallet. Paying contactless is just as secure as regular card payments, where you put your card in the reader.

According to Focus, banks and credit card companies refer to this. It is also more hygienic if you pay contactless with your cell phone.

All you need for mobile payment is a smartphone with an NFC chip and a payment service such as Apple Pay, Google Pay, or mobile payment.

Most mobile phones, even entry-level models, are now equipped with a chip for data exchange via NFC. Then the right cash register that supports the technology is still missing. There are a good half a million of them. And every day, more retailers are equipping their POS systems with the NFC standard.

If you decide to pay by mobile phone, you can also keep an eye on your expenses. The apps of the payment services list your costs. This makes it even easier for you to keep an eye on your budget.