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The Beginner’s Guide to Mobile Payment Apps for Small Business Owners

Mobile payment apps enable small businesses, self-employed professionals, and businesses lacking a physical storefront to easily accept digital payments anywhere there’s a cellular network signal. With mobile payments, small businesses can sell their goods and services from almost any location—which helps them expand their reach, acquire more customers, and increase sales.

 

What is a mobile payment app?

 

Mobile payment apps let small businesses and their customers conduct financial transactions using smartphones, tablets, watches, and other mobile devices. Mobile payments usually work in one of two ways:

 

  • Customers pay for products and services with their smartphone or other mobile device.

  • Business owners use their own mobile device with a mobile payment app and a wireless card reader to accept customer credit card payments.

Mobile payment apps have grown in popularity because they’re:
 

  • Convenient and fast. Rather than using traditional, bulky point-of-sale (POS) equipment, business owners only need a mobile device, a cellular network signal, and an inexpensive card reader to accept these payments.
     

  • Fully digitized. Forget paper receipts and pens. Mobile payment apps send customers receipts by email or text and let them sign for purchases with their finger or a stylus.
     

  • Rather than hand you their credit card, customers can insert, swipe, or tap their card on a payment reader that’s either freestanding or attached to your smartphone.

Types of mobile payments

Several different types of mobile payments exist. Although each functions a bit differently, they all enable customers to immediately pay your business for any goods or services they purchase.
Mobile e-commerce. Any transaction that a customer makes on their mobile device is considered a mobile e-commerce payment, whether they’re shopping with a web browser, social media app, or your company’s own mobile app.
Mobile point of sale. In this type of mobile payment, businesses use a smartphone or tablet, a mobile payment app, and a small mobile card reader to accept payments. To facilitate these transactions, businesses must set up a merchant account with a mobile payment platform like Shopify, Square, or Stripe. To pay with a card reader, customers can either swipe, tap, or insert their payment card, depending on the card reader’s capabilities and the payment card’s features.
Mobile wallets. Many smartphones, watches, and tablets include a built-in digital wallet such as Apple Pay, Google Pay, or Samsung Pay. These mobile wallets allow people to store, manage, and use their payment information on their mobile device. They work by securely storing credit or debit card details, bank account information, and other payment methods. Customers can then use their mobile wallet to pay online or at physical checkouts equipped with a mobile reader that uses near-field communication (NFC) technology. This allows the reader to wirelessly receive the necessary payment information from customers’ mobile devices.
Quick response (QR) code. Some pay-by-phone apps allow customers to use their mobile device’s camera to scan a QR code—a unique matrix barcode—at a retail checkout or remote location like a parking garage to pay with their mobile device.
Mobile peer-to-peer. Platforms like PayPal, Venmo, and Zelle let customers send payment through the platform’s mobile app or website instead of using a credit card.
Short Messaging Service (SMS) payments. This type of payment lets businesses request payment from customers by sending them a text message containing a link to a secure payment page.

Benefits of using mobile payment apps

Mobile payment apps make financial transactions much easier for you and your customers. Besides the convenience and speed, accepting payments with a mobile app helps your business:
Increase customer satisfaction. Mobile apps provide customers with a fast, convenient, and secure way to make payments. Customers have come to expect being able to pay instantly no matter where the sale occurs—on your website, in your retail space, or even in the field after you’ve fixed, sold, or advised them on something. And happier customers lead to more sales and referrals.
Earn more revenue. Say goodbye to missing out on sales because customers didn’t bring cash or couldn’t find an ATM. Mobile payment apps let you accept credit card and digital payments anywhere with cellular service, including trade shows, restaurants, food trucks, farmers markets, festivals, pop-up events, and remote locations.
Boost cash flow. In addition to increasing sales in the field, most mobile payment apps will deposit funds into your account within three days. And, rather than invoicing customers and waiting for payment, service providers can accept payments from customers on the spot.
Reduce costs. The tools you’ll need to accept mobile payments—mainly a tablet or smartphone, a mobile card reader, and a payment app—are more affordable than traditional POS equipment like cash registers, credit card processors, and computers. And, the ability to send receipts digitally versus printing them on paper means you also save on ink and paper costs.
Improve access to essential data. Many mobile payment apps for businesses track and provide you with key details about your customers, including how they prefer to pay, how often they frequent your store or website, and how much money they spend per visit. Many of these apps will also monitor your inventory in real time so you know when it’s time to order more.
Easily manage loyalty and reward programs. By saving customer data, your mobile payment app makes it easier for you to manage these customer incentive programs. For example, your payment app could automatically send your customers coupons or reward points each time they make a purchase from you.
Enhance security. Mobile payment apps use security features like encryption, two-factor authentication, and tokenization to safeguard customer and business data during financial transactions.

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Features to look for when choosing mobile payment apps

Features vary from payment app to payment app. When choosing payment apps for business, consider how your top contenders rate in these areas:
Digital receipts. Many customers no longer want paper receipts and would rather sign for their purchase digitally (or not at all) and receive receipts by email or text. Plus, if you’re selling your goods and services outside of a traditional retail space, you may not even be able to print paper receipts.
Returns. Customers who aren’t satisfied with their purchases expect a swift, easy return or exchange process. Ensure the app you choose makes this process as simple as possible.
Analytics and reporting. A mobile payment app with built-in reporting will make it easier for you to track and analyze your business’s sales figures, customer data, and inventory levels.
Functions with other apps. Will the payment platforms you’re considering work with any other apps you rely on to run your business? For example, connecting a payment platform with your small business accounting software or customer relationship management (CRM) platform could simplify workflows for you and your employees.  
Card encryption. The security features of your payment platform should meet industry standards. In particular, your payment app should not store sensitive customer data. Instead, it should encrypt customer data the moment your card reader processes the payment information from a customer’s card.
Merchant fees. Each mobile payment platform charges merchants in a slightly different way. Fees—which can be charged monthly and per transaction—may vary depending on transaction type and, if a customer pays with a credit card, the type of card used. Before choosing a mobile payment platform, ensure that its pricing structure suits your sales volume and other business needs.
Payment speed. How quickly does the payment platform promise to deposit your sales proceeds into your bank account? Some payment platforms will transfer funds to your account instantly. Others may take one to three days to transfer funds to your account but will do so instantly for a fee. Your business cash flow and the merchant fees you’re willing to incur will dictate which options are best for you.
Customer service. How do other businesses using a payment app you’re considering rate its customer support? How easy is it to reach a service agent? How quickly and satisfactorily are issues resolved? You don’t want to lose valuable time chasing down help if you run into a problem with the app or card reader.

Potential drawbacks of using mobile payment apps

As with any technology, there are several drawbacks to accepting payments with a mobile app. Here are some of the most common pitfalls you may encounter:
Newer hardware required. If you want to accept payments from customer mobile wallets, you may need to invest in a newer smartphone, tablet, or POS terminal that supports such transactions.
Phone signal and battery dependent. If your phone network signal or internet connection is spotty, you may have trouble accepting mobile payments and miss out on potential sales. Likewise, if the battery on your mobile device dies halfway through a trade show and you don’t have an immediate way to recharge, you could be out of luck.
Limits on peer-to-peer payments. Some peer-to-peer payment apps restrict the amount of money that a user can spend during a specific transaction or time period. While this helps protect customers against fraudulent charges, it could restrict how much certain customers can purchase from you at a given time.
Security concerns. Mobile payment apps themselves are considered highly secure. But if you use a public network to connect your mobile device to the internet instead of using a private network or your own internet hotspot, you risk compromising the security of financial transactions made with your mobile device.
Late adopters. Some customers who are less comfortable with newer technologies may be slower to adopt digital wallets and other pay-by-phone apps, despite their widespread use. Instead, they may prefer to pay by traditional credit card methods or with cash.

Conclusion

Paying by mobile app has become so ubiquitous that tech-savvy customers now expect small businesses and service providers to offer this option.

The benefits of accepting mobile payments are myriad: Sales transactions are simple, fast, and secure—even when selling goods and services at trade shows, festivals, and other offsite events. Customers can pay without handing over a payment card or signing a receipt. Businesses can digitally send customers coupons, points, and other rewards at the time of each sale.

In short, everyone wins. Customers appreciate the convenience of making instantaneous, contactless payments. And business owners stand to gain more satisfied, loyal customers, and in turn, more sales.

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Business Insights and Ideas does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.

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