Outside Insights | September 2014 | By Guest Author

Defining Mobile Payment Systems

Not all mobile payment systems are made equal and not all may be right for small-scale quick-service restaurants.

Many vendors slap the phrase “mobile payment system” on their products hoping to increase their appeal, adding to misperceptions of what the technology entails. In reality, this broad term can encompass several different things, including open-loop mobile wallets like Google Wallet and closed-loop mobile wallets such as the app from Starbucks, as well as mobile payment acceptance solutions used by merchants.

Some vendors who talk about mobile payment systems imply that merchants, especially quick-service restaurants, need all three of those things. The fact is restaurant operators need only one, the mobile payment acceptance solution, but they should accommodate at least one of the others.

The two types of mobile wallets

In every payment transaction, there are two sides: the payer making the payment and the payee accepting the payment. Payers can use cash or debit/credit cards, of course, but if they choose to make a payment using their own mobile device they need either an open-loop mobile wallet or a closed-loop mobile wallet.

Examples of open-loop mobile wallets are Square Wallet, Google Wallet, and MasterPass. These applications store information on a consumer’s credit cards, typically multiple cards, and are designed to securely pay for individual transactions across multiple merchants, provided those merchants are equipped to accept mobile wallet payments. Most open-loop mobile wallets utilize a barcode or QR code model, though some rely on proprietary readers at registers or NFC technology.

According to a March 2014 Federal Reserve study, 17 percent of all smartphone users made a point-of-sale payment using their mobile phone in the past 12 months, up from 6 percent in 2012.

Closed-loop mobile wallets are merchant-specific—for instance, Starbucks offers a closed-loop mobile wallet, as do Dunkin Donuts, Cumberland Farms, and McDonald’s. These closed-loop wallets are often apps downloaded from the iOS or Android store and thus are what most people would consider a true mobile payment app. Consumers can load up their wallet with dollars by creating an account with the merchant and using credit cards, gift cards, PayPal, and the like, or attach them to a bank account. Quick-service operators may like closed-loop mobile wallets because they can track purchases and data and add services such as a loyalty program and rewards tracking. Consumers like them, too: According to a March 2014 Federal Reserve study, 17 percent of all smartphone users made a point-of-sale payment using their mobile phone in the past 12 months, up from 6 percent in 2012.

What quick-service restaurants need to accept mobile wallet payments

On the payee side, quick serves typically have either fixed terminals, mobile point of sale (mPOS) solutions enabling consumers to pay for items via a merchant-owned mobile device, or both. The latter is gaining in popularity, but much like some U.S. households are abandoning landlines in favor of mobile phones, many smaller quick serves are going right to mPOS. And with data showing that more than half of small businesses have no means of accepting credit cards at all, mPOS is an easy and affordable entry point for merchants to start running card-based transactions.

Early forms of mPOS solutions were narrow in scope, and involved a dongle that plugged into a smartphone or tablet. The vendor usually acted as a payment service provider and processed transactions, deducting a fee for each one. There were no tie-ins with a merchant’s payment infrastructure or other backend software such as inventory or loyalty programs.

Recently, more advanced mPOS solutions have emerged that not only process cards, but also offer a host of other capabilities, including the ability to:

  • Process additional payment types, such as NFC, chip and signature, and chip and PIN

  • Accept open-wallet systems such as Google Wallet

  • Accept merchant-specific, closed-loop mobile wallets, such as those for Starbucks and the like

mPOS has provided a huge boost to quick-service restaurants. The technology enables them to venture outside traditional brick-and-mortar locations, where they’re able to sell their products to a variety of new audiences in nontraditional settings. For example, mPOS enables them to offer food and beverages at sporting events, concerts, fairs, and more from within pop-up stores and kiosks—all while providing their customers the flexibility to pay with cash or cards. And operators can even accept card payments at the table within the restaurant, curbside for take out, or at the customer’s door when providing home delivery.

Serving up mPOS for mobile payment acceptance

On the fixed POS side, quick-service restaurants can leverage add-ons such as barcode scanners to accommodate closed-loop wallets provided they produce a barcode or QR code, like the Dunkin Donuts closed-loop wallet does. But mPOS solutions provide a unique level of flexibility, and software can be updated quickly and easily, allowing merchants to accept new forms of payment on the fly, not only their own closed-loop wallets, but open-loop wallets as well. As a result, early-adopter merchants are accepting both types of mobile wallets on their mPOS solutions.

Most quick-service restaurants are far more interested in closed-loop mobile wallets than open-loop because of the ancillary benefits that come with those closed systems, primarily purchase and data tracking and loyalty programs. Very few operators inquire about open-loop mobile wallet acceptance. Many have been hesitant to adopt this type of wallet because they want ownership over their entire merchant-consumer experience, while also maintaining control over how their customer data is collected and used, rather than enabling it to potentially be shared with competitors.

The goal: a mobile-to-mobile transaction

Either way, the convergence of mobile payment and mobile payment acceptance is interesting for quick-service restaurants because it enables a true mobile-to-mobile transaction—the consumer pays with a mobile device, and the restaurant accepts payment with one. This scenario frees both payer and payee from being tied to one location and enables much more flexible yet secure payment options, including kiosks, delivery, pop-up stores, and the like, on top of existing payment infrastructure. It also enables the 55 percent of merchants currently not accepting credit cards at all to do so without having to invest much in infrastructure.

Given the profile of the typical quick-service customer— young and mobile-enabled—mPOS and mobile wallets are highly relevant. It’s crucial that quick-service restaurants owners and managers keep on top of this trend in order to leverage the benefits of mobile payments: secure, seamless payment acceptance on the go.

Scott Holt is vice president of marketing at mPOS solutions provider ROAM, an Ingenico company. With 20 years of payments-industry experience, Holt also helped launch ZipZap, ExaDigm and Tranax Technologies.


I don't think it makes a lot of sense for each restaurant operator to have their own app. I eat at 100 different places every year and I go back to many of them. I'm not sure if I want to have even 5 restaurant apps on my phone (does anyone know someone who has 5 restaurant apps on their phone?). Starbucks is a an exception. I go to Starbucks at least once a day so the high frequency of visits makes it worth it for me to keep the app on my phone.Apple is aware of this user adoption challenge and they are brilliantly solving it by making PassBook the center of mobile payment transactions, digital cards (gift card, loyalty, membership), and coupons. Instead of launching a branded app, restaurants are better off if they launch a digital card on operating system digital wallets like iPhone PassBook and Google Wallet (it's the Android version of PassBook).Disclaimer: I am the president of Virtual Next, a company that focuses on bringing loyalty, coupons, and payment to mobile using iPhone PassBook and Google Wallet. We believe restaurants should not launch their own apps. Instead, they should just launch a digital card on user's existing mobile wallets.

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