Mobile Payment

According to a study conducted by the German market research institute “GfK” on retail payment trends in 2021, payment habits have clearly shifted toward contactless payment. There has also been a significant rise in people paying using their mobile phone. A fifth of the respondents already use their smartphone or smartwatch to pay at the cash register, both for hygienic reasons and also because they can keep close tabs on their mobile payments.

How does mobile payment work?

Like with debit or credit cards, contactless payment via a smartphone or other mobile device is made possible in a matter of seconds via NFC technology. NFC stands for “near-field communication”, a radio standard that enables wireless data transmission between two NFC-compatible devices, e.g. a smartphone and a payment terminal, but only if they are no more than 3 to 4 cm apart from each other. An audible or visual signal indicates successful data transmission. The transaction is verified by entering the smartphone’s unlock code via fingerprint or facial recognition. In addition, the smartphone user must have downloaded an app before they can proceed with the payment process at the cash register. The app is where their virtual bank card is stored. Many banks offer their own payment apps for this, but other providers, such as Apple and Google, also have their own dedicated app. The amount due is simply directly debited from the associated account.

Mobile payment and data protection

While mobile payment is one of the most common payment methods in brick-and-mortar retail in many countries, German consumers are often still hesitant to use it. One of the typical concerns centers around insufficient data protection. The fear is that the apps could reveal an individual’s buying habits – already a problem in online shopping – and thus be used for tailored advertising. There is also the big worry that account details or PINs could be accessed illegally.

The fact is, though, that providers of mobile payment solutions are also bound by the legal stipulations of the GDPR (General Data Protection Regulation). In actuality, unlike a physical card payment, no card details are even transferred to the retailer during a smartphone payment transaction. Neither Google nor Apple receives them either, because the bank card details are stored in encrypted form.

Instead, “tokens” are stored as a sort of virtual card number in the app. These tokens are linked to a mobile device, such as a smartphone, meaning that the card details are not visible on the smartphone.

However, users should always make sure that their smartphone’s software is up to date. Also, if they lose their smartphone, it is important to take immediate action by blocking their cards and accounts. It is advisable to regularly check all account transactions as well. Another way of ensuring optimum protection is by only activating the Bluetooth, Wi-Fi, and NFC capabilities when actually needed.

The advantages and disadvantages of mobile payment

The advantages of mobile payment transactions include the following:

• It is much more hygienic than paying with cash or a physical card.
• Mobile payment is largely barrier-free and thus ideal for blind people.
• Counterfeit money isn’t an issue.
• Opportunistic thefts are practically impossible.
• Transactions can be easily retraced.
• Multi-factor authentication is ensured via PIN, fingerprint, or facial recognition.

Although these advantages make everyday in-store payments more convenient and pleasant, there are also some disadvantages:

• Mobile payment hasn’t caught on yet in many places (for example, bakeries and kiosks), meaning that you still have to carry your purse or wallet with you just in case.
• If your smartphone runs out of battery, you can’t use it to make payments anymore.
• You can’t make anonymous payments.
• You are more inclined to spend.
• Because of the verification process, payment takes longer than with a card.