Mobile payments technology, like contactless NFC payments, explained

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The rise of mobile payments technology truly began in 2014 when Apple Pay hit the market. At the time, it was the only major mobile wallet out there.

But in the last few years, mobile wallets have flooded the market with offerings such as Samsung Pay, Chase Pay, Android Pay, Microsoft Wallet, Walmart Pay, and Kohl's Pay. Each of these offers unique benefits to the user and encourages customers to form shopping habits around them.

And so far, they seem to be succeeding. eMarketer estimates that US proximity mobile payment transactions will grow to $161.41 billion in 2021.

Below, we've outlined how mobile and contactless payments work and explained the different types of payments technology that are shaping the present and future.

What Are Contactless Payments and How Do They Work?

To understand how contactless payments work, let's take a hypothetical example. You have an iPhone, which allows you to take advantage of Apple Pay. You input your credit card information onto your phone, which stores it for later use.

Later on, you're shopping at a store that has mobile payment readers at the register. Rather than reach for your wallet, you take out your phone and hold it a few inches away from the point-of-sale (POS) terminal. This device then automatically reads the payment information stored on the smart chip embedded in your card and then processes the transaction.

Each chip connects to an antenna, and POS terminals emit a high frequency radio wave that facilitates communication between the reader and the phone. When the mobile device is in range, a wireless communication protocol links the terminal and the phone, which exchange information and conduct a secure transaction.

All of this occurs in fractions of a second.

Near-Field Communication (NFC) Payment Technology

Near-field communication, or NFC, technology works by bringing together two electronic devices, typically a mobile device such as a smartphone and a reader of some kind. NFC tech always involves one initiator that generates an RF field to power a passive target. In terms of payments technology, the reader would be the initiator and the smartphone (which contains the stored credit card information) would be the target.

The market potential for NFC payment technology is enormous, as merchants have actually been inadvertently rallying behind this type of contactless payment tech.

Some of the most popular NFC payment apps include:

• Google Pay
• Apple Pay
• Samsung Pay
• Square Wallet

Bluetooth Payment Technology

Bluetooth is a bit of a wild card in the payments industry. Mobile payments technology focuses quite a bit on NFC, and with good reason. But Bluetooth could be the true transformer in this area.

All the major mobile platform developers, such as Apple, Google, and Microsoft have supported Bluetooth for the last several years, but they shifted focus to NFC in the payments world as they released their mobile wallets (Apple Pay, Samsung Pay, etc.).

Bluetooth, however, could change the game. Mobile payments such as Apple Pay have been slow to catch on in certain areas, but Bluetooth likely would not have such problems, especially because it has some inherent advantages.

For starters, Bluetooth has a much longer range than NFC, as it can reach up to 50 meters compared to NFC's need to have the two devices centimeters away from each other. This longer range could reduce friction during the checkout process even more than NFC technology already does. On top of this, Bluetooth creates a truly hands-free experience because shoppers would not even need to take out their phones to tap them to a reader.

Furthermore, Bluetooth payment processing is almost always faster than NFC, even if it's by fractions of a second. And finally, NFC is limited to one-to-one interaction, as in one mobile device and one payments reader. But Bluetooth can facilitate multiple transactions at once from a single payments terminal, which would further speed up the checkout process.

More to Learn

Mobile payments technology will evolve in numerous ways in the coming years, but this is just one piece of the much larger and more complex payments ecosystem. In the Payments Ecosystem research report, Business Insider Intelligence examines the payments ecosystem today, its growth drivers, and where the industry is headed.

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