The Revolution of Mobile Payments

  • Identity Verification

Square revolutionized payment processing for the little guys and many in the industry have followed suit. Groupon now wants to get in the game and reportedly will compete on price. At the core of this smartphone-based payment revolution is the core idea of a simple, flexible and inexpensive means for small businesses to take credit card payments. Use the device on your hip, add a small attachment, have your customer sign and violayou now except credit cards. Traditionally obtaining a merchant account was the most difficult part, but somehow these players have figured out how to mitigate the risk. As a small-businessguy whos had to figure out a way to take credit card payments or lose a large client, the process can be daunting without this type of streamlined process (thanks Google!).

One of the core beliefs behind this service is to make accepting the card as painless as possible for the merchant and the customer, keeping the process as unobtrusive as possible. Its a model thats worked for the most coveted tech companies in the world, but could it backfire on mobile payments? UniBul put together a great analysis that merchants pay for as much as 41% of fraudulent transactions, while 59% come from the POS. Merchants taking mobile payments are using the same old fraud prevention techniques: check the signature (rarely) and verify adrivers license (rarely, if ever). But as weve seen all too often, the human element in a face-to-face transaction is dubious at best. People dont like confrontation so they run the card and smile.

Two scenarios come to mind for mobile payments: the farmers market and the flea market. On any givenSaturdaymy family may drop $100 total over various booths at our local farmers market. Rarely are the transactions over $20 and most merchants take cards. The risk for the merchant is low (although farming isnt exactly a high-margin business). In contrast, Ive seen transactions at flea markets for antiques go for over $5,000. The mobile payment use is the same, but the risk is much higher. What we dont see is an integrated, anti-fraud measure offered to merchants by the mobile payments industry. In either scenario a stolen wallet would provide all thats needed to commit fraud. Verifying the customers identity is cheap and easy, especially with the tool at hand. Since the customer is signing thereceipton the device, why not integrate out-of-wallet questions to stump any would be scam-artists? The cost of the verification is a fraction of the merchant transaction cost, and in essence, is an insurance policy against a large loss. Let the merchant decide when and if they want to verify the cardholder. Youre essentially removing the human element and taking the confrontation out of the clerks hands, while mitigating risk.

[Contributed by Jeff Davis, President & CEO]