Mobile Payments: A Guide to How They Work

Whether purchasing a cup of coffee, splitting a dinner bill with friends, or shopping for new hiking shoes online, you’re probably used to pulling out your phone to make the payment. More people than ever are using their smartphones and digital wallets to quickly make payments and make online shopping easier than ever.

For businesses, mobile payments offer a simplified approach to transactions, reducing checkout times, minimizing cash handling, and improving customer satisfaction. Whether through tap-to-pay technology, peer-to-peer transfers, or in-app purchases, these innovations allow your company to engage customers with greater ease while improving operational efficiency. Read on to learn more about how these mobile payments work and why implementing them with your online payment software could be a beneficial approach for your company and customers.

A mobile payment is any financial transaction made using a smartphone, tablet, or wearable device instead of cash, credit cards, or physical checks. These payments can be made in-person, online, or between individuals and are a fast and convenient alternative to traditional payment methods. With mobile payments, consumers can complete purchases with just a tap, scan, or click — usually with near field communication (NFC), QR codes, or mobile wallets.

Compared to traditional payment methods, mobile payments offer greater speed, security, and convenience. Unlike cash transactions, they eliminate the need for physical currency and reduce wait times at checkout — and unlike credit and debit card payments, they often incorporate biometric authentication (fingerprint or facial recognition) for added security.

Mobile payments use secure digital technology to enable fast, seamless transactions, whether in a physical store or online. These payments work by securely transferring payment information between a customer’s mobile device and a payment system, often using encryption and tokenization to protect sensitive data. By eliminating the need for physical cash or cards, mobile payments offer a more convenient and secure way to complete transactions.

There are two main ways mobile payments are used, and below is how each one works.

For in-person transactions, mobile payments usually use contactless technology to facilitate quick and secure checkouts. There are three primary methods used in-store:

• Near field communication (NFC): Used in contactless payments, NFC allows devices to communicate wirelessly over short distances. This technology powers services like Apple Pay, Google Pay, and Samsung Pay and lets users tap their phones or smartwatches at payment terminals.
• QR Codes: Quick response (QR) codes are widely used for mobile payments, especially in apps like Venmo, PayPal, and WeChat Pay. Users simply scan a QR code to transfer funds or complete a purchase.
• Mobile wallets: Digital wallets store payment information securely on mobile devices and allow users to make payments in stores, online, and even within apps. Popular examples include Apple Pay, Google Pay, and PayPal.

In these transactions, point-of-sale (POS) systems process the payments through contactless terminals — which authenticate the transaction, apply encryption for security, and complete the payment in seconds. Businesses equipped with modern POS systems can accept a wide range of mobile payment options, improving the ecommerce customer experience and checkout speed.

Mobile payments make ecommerce and app-based transactions easier for consumers and let them shop from their devices without entering card details for every purchase.

Key features of in-app and online payment methods for mobile devices include:

• Stored payment information: Mobile wallets and payment platforms allow users to save credit card or bank details securely letting them pay with one click during checkout on an app and website.
• Subscription & auto-pay features: Many services, including streaming platforms and ride-sharing apps, integrate mobile payments to make recurring transactions effortlessly.
• Biometric authentication: Websites or apps might also use fingerprint scanning and facial recognition to add an extra layer of security — and to make sure only authorized users can purchase.

Mobile payments come in various forms, each designed to meet your customers’ or business’s needs. Here’s a look at six of the most common types of mobile payments and how they are used.

Mobile wallets securely store credit card, debit card, and bank account details within a smartphone or wearable device, such as an Apple Watch. The mobile wallet lets users tap their device to the payment terminal to complete a purchase without requiring them to carry physical cards. Leading mobile wallets include:

• Apple Pay (iOS)
• Google Pay (Android)
• Samsung Pay (Samsung devices)

These wallets use NFC technology and can be used for online, in-app, or in-person purchases.

Mobile commerce (mCommerce) refers to shopping and completing transactions via mobile websites or ecommerce apps. More and more businesses are creating mobile-friendly shopping experiences with websites designed to look good and perform well on a small screen. Most mCommerce sites let users save their information for future purchases as well. Creating a great mobile shopping experience can help your business stand out from competitors and appeal to a wider range of customers.

A mobile point of sale (mPOS) system lets you use a phone or tablet as a payment terminal using a portable card reader or payment app. This technology allows businesses to accept card payments anywhere, and it’s a great fit for small businesses, pop-up shops, food trucks, delivery services, and retailers looking to stand out. mPOS solutions like Square or Clover can help businesses operate efficiently without investing in bulky POS hardware.

Peer-to-peer (P2P) mobile payments let users send money directly to others through apps such as Venmo, PayPal or Zelle. These services allow people to split bills, repay friends, or make personal transactions without needing cash or checks. Many P2P apps link directly to bank accounts or debit cards to make the payments instant and low-cost.

SMS-based payments allow customers to make purchases or donations via text message. These payments are often billed directly to the user’s mobile carrier account or deducted from a linked payment method. SMS payments are widely used for charitable donations, digital purchases for something like app credits, and transit and parking payments. Although SMS payments are not as widely used as mobile wallets or NFC, they’re a simple option for quick transactions — particularly in areas with limited banking access.

NFC payments are contactless transactions that rely on short-range wireless technology to securely exchange payment data between a mobile device and a payment terminal. This method powers services like Apple Pay, Google Pay, and Samsung Pay. They can be used in retail stores for quick checkouts, public transit systems for tap-to-ride tickets, and restaurants that want contactless payments. NFC payments are encrypted and often require biometric authentication, which makes them one of the most secure and widely accepted mobile payment methods available.

Mobile payments are quickly becoming the preferred transaction method for many customers and businesses. Adding mobile payments to your business strategy can help you speed up transactions and create a better experience for your customers. Below are three major advantages of mobile transactions for businesses in a wide variety of industries.

One of the biggest advantages of mobile payments is their ease of use. Your customers won’t have to carry cash, credit cards, or even wallets — a smartphone or wearable device is all it takes to complete a transaction. On the business side, mobile payments make it easier for your customers to purchase goods. Customers can simply tap, scan, or click to pay, and you can eliminate the hassle of counting cash, swiping cards, or entering PINs. This creates a smoother customer experience and can even encourage repeat purchases.

Whether you run a retail store, a restaurant, or an online ecommerce site, mobile payments drastically cut transaction times, saving you hassle and creating a great experience for your customers. Implementing NFC, one-click checkout, and stored payment information can make your business more efficient and minimize abandoned carts.

Mobile payments offer improved security features that make them safer than traditional payment methods. Key security technologies that make mobile payments safer include:

• Tokenization: Instead of sharing actual credit card numbers, mobile payment systems generate unique, one-time-use tokens for each transaction, which can keep sensitive data protected.
• Encryption: Payment data is encrypted before transmission, and that can prevent hackers from accessing personal and financial information.
• Biometric authentication: Mobile payments often require fingerprint scanning, facial recognition, or passcodes. Having that extra layer of security can reduce the risk of unauthorized transactions.

Compared to traditional card payments, where stolen card numbers can be easily misused, mobile payments make fraud much more difficult.

The adoption of mobile payments isn’t a trend — it’s a strategic way to keep your business competitive. As more consumers embrace mobile transactions for their speed, convenience, and security, businesses that integrate mobile payment options can see higher sales, improved customer satisfaction, and increased operational efficiency. Offering mobile payments as part of your online payment solution can help you meet your diverse customer preferences.

To get started with mobile payments, try Salesforce Commerce Cloud. This tool can help you set up payment options and POS solutions to make ecommerce simple for your customers to purchase anytime, anywhere.

Get started with Salesforce Commerce Cloud.