Someday your phone — or smartwatch — could very well replace your wallet. The promise of convenience is certainly there. Instead of digging to find the right credit or debit card, all you would need to do is tap your device to a retail terminal to pay for lunch, those new jeans or your next prescription. Apple, Samsung and Google all want in on the action, and have rolled out their own solutions.
There's certainly a lot of money to be made. According to Gartner, the global market for mobile payments will be worth $720 billion in transactions by 2017 — up from about $235 billion in 2014. On the other hand, consumers aren't exactly chomping at the bit to ditch their leather right now. A recent poll conducted by CreditCards.com found that only 17 percent of respondents would pay for items using a smartphone "always" or "most of the time." This is definitely an ecosystem in flux, partly because there are so many players offering so many different solutions – and so many questions about compatibility and security.
Apple Pay seems to have the most momentum so far. In fact, the company claims that $2 out of every $3 spent using contactless payments (using Visa, MasterCard and American Express) has been with Apple Pay since October. But there's plenty of competition, too, not to mention a flurry of mobile payment acquisitions as of late. In February, Google bought Softcard (formerly ISIS) and Samsung acquired LoopPay (now Samsung Pay), and PayPal scooped up Paydiant in March.
Confused about what stores accept what mobile wallets using what technology? So is everyone in the industry, since no one knows how this new mobile wallet world will shake out. Use this guide to help sort out the competing mobile wallet options and decide what’s best for you.
What It Is: Apple Pay is a proprietary iOS-based mobile payment system that uses your phone to make payments on NFC-enabled credit card terminals at the point-of-sale (POS).
How It Works: Enter or scan your credit card information into Apple's Passbook app on an iPhone 6/6s or 6/6s Plus. In a store that accepts Apple Pay, you wave or tap your iPhone over or on an NFC-enabled POS terminal when indicated by the clerk to initiate payment, then approve the payment via fingerprint on the iPhone. With an Apple Watch, you just wave your Watch over the NFC-enabled terminal. Apple Pay will also work on mobile commerce sites and commerce apps accessed via iOS 8.x devices.
Participating Financial Institutions: More than 2,500 banks and credit card issuers (and growing), including Visa, MasterCard, American Express, Bank of America, Barclays, Capital One, Chase, Citi, PNC, TD Bank, U.S. Bank, Wells Fargo.
Where Does It Work (or where will it work): More than 700,000 retail locations, including such prominent chains as Duane Reade, Foot Locker, Panera Bread, Sephora and Whole Foods. Apple Pay also supports more than four dozen apps and online stores, select Marriott International hotels (this summer) and a growing number of Coca-Cola vending machines.
Devices Supported: On iPhone 6/6s, 6/6s Plus and Apple Watch for in-store use, iPad Air 2, iPad Pro and iPad Mini 3/4 for online purchases.
Pros/Cons: The number of retailer locations supporting Apple Pay is growing fast, up from 220,000 in October to 700,000 in early March. The Apple Watch will open up Apple Pay to a much larger group of shoppers since it will work when paired with the older iPhone 5, 5C and 5S. However, only the iPhone 6 and 6 Plus work with Apple Pay without the Watch.
Like most mobile payment schemes, Apple Pay transactions are tokenized. Instead of the usual credit card numbers, Apple Pay generates a distinct Device Account Number, and each vendor is assigned its own distinct token service number. A unique dynamic security code is generated for each transaction — no traceable credit card numbers are stored by the retailer or by Apple.
But Apple Pay faces three hurdles. First, NFC terminals represent only an estimated 10 percent of all point-of-sale payment terminals, and NFC-enabled terminals cost a retailer $500 or more. This NFC compatibility requirement naturally limits Apple Pay's retail reach. Second, controversy has been stirred up by reports of credit card fraud involving Apple Pay. The problem stems from banks being lax in authorizing credit cards scanned into an iPhone. Crooks steal credit cards or buy stolen card information online, enter the cards into their own iPhones, then persuade bank calling-center personnel to authorize the cards. Since Apple Pay retail transactions don't require secondary IDs, crooks have had a field day; ironically, Apple's own stores have been the site of 80 percent of the fraudulent transactions, according to the Wall Street Journal.
Most observers note these are just mobile-payment teething pains, and that banks are likely to start adding more complex verification before a credit card is accepted as valid in a smartphone for mobile payments.
Third, Apple Pay isn't being accepted by three major retailers, Walmart, Target and Best Buy, which are committed to the competing CurrentC mobile-payment scheme from the Merchant Customer Exchange (MCX) group. Apple also has yet to integrate loyalty cards into its system.
What It Is: Samsung's answer to Apple Pay, Samsung Pay uses the LoopPay mobile-payment platform to allow for mobile payments at just about any point-of-sale system.
How It Works: Credit cards are entered into the Samsung Pay app in a method similar to Apple Pay/Passport. At retail, you swipe up from the Galaxy S6's bezel to access the Samsung Pay app, choose the desired debit or credit card, tap the phone to the NFC point-of-sale terminal, then authenticate the transaction via the Galaxy S6's fingerprint sensor.
In addition to NFC tap-and-pay, however, Samsung Pay will also work on standard magnetic-stripe point-of-sale retail terminals, thanks to LoopPay's Magnetic Secure Transmission (MST) technology. You first open the Samsung Pay app, select the debit or credit card you want to use, then hold your phone against the point-of-sale terminal where you would normally slide your card; the transaction then continues as if you had slid a card through.
Participating Financial Institutions: Visa, MasterCard, American Express, Bank of America, Citi, JPMorgan Chase, U.S. Bank
Where Does It Work (or where will it work): More than 30 million retail locations worldwide equipped with an NFC or a magnetic stripe point-of-sale terminal. The service launched in the U.S. on Sep. 8, and is also available in South Korea. Verizon has started sending out updates to enable Samsung Pay in its Galaxy S6, S6 Edge, S6 Edge Plus and Note 5 devices.
Devices Supported: Samsung Galaxy S6; Galaxy S6 Edge; Galaxy S6 Edge Plus and Galaxy Note 5.
Pros/Cons: Providing compatibility with any standard magnetic stripe terminal, Samsung Pay will be more broadly accepted than Apple Pay. But Samsung Pay will only work on the Samsung Galaxy S6-series devices as well as the Galaxy Note 5, at least at first.
While Samsung Pay uses secure tokenization for NFC transactions, magnetic stripe, or magstripe, transactions use standard credit card numbers stored in an industry-standard encrypted format (PCI-DSS). Also, initial reports indicate magstripe reading will be tricky – the Galaxy S6 or Note 5 will likely have to be positioned in a particular position above the stripe reader to be read.
What It Is: An NFC/fingerprint system similar to Apple Pay that stores your credit card info to let you make quick payments at supported point-of-sale systems as well as within certain apps.
How It Works: Your Android Pay credit card information is stored on your device and accessed by store-specific apps. It will use the same token-based system to protect user data during transactions. When you want to buy something in a supported story, simply tap your device to pay.
Participating Financial Institutions: American Express, Discover, MasterCard, Visa and Capital One.
Where Does It Work (or where will it work): Google says that Android Pay will soon work at more than 700,000 store locations, as well as within more than 1,000 Android apps. Capital One has activated the tap-to-pay functionality in its Android app, so shoppers can pay directly from their bank account instead of having to enter a credit card or routing number into a third-party program.
The current roster of confirmed retailers/apps is as follows:
In-store: Aeropostale, American Eagle, Best Buy, Bloomingdales, Coca-Cola, GameStop, Jamba Juice, JetBlue, Macy's, McDonald's, Office Depot/Office Max, Panera, Pepsi, Petco, Sports Authority, Staples, Subway, Toys R Us, Walgreens, Whole Foods.
In-app: B&H, Chipotle, Domino's, Dunkin Donuts, Eat24, Etsy, Eventbrite, Groupon, Grubhub, Hotel Tonight, JackThreads, Livingsocial, Lyft, Newegg, OpenTable, Priceline, Seamless, Spring, Uber, Wish.
Devices Supported: Presumably all Android devices with NFC.
Pros/Cons: Android Pay's ability to work across any Android device gives it a big advantage over both Apple Pay and Samsung Pay, both of which are currently limited to the iPhone 6 and Samsung Galaxy S6, respectively. The platform already has confirmed support for a host of major retailers, and looks to be as instant and seamless as Apple's mobile payment solution.
What It Is: CurrentC is the branded app from the Merchant Customer Exchange (MCX), a network formed and owned by a conglomeration of disparate retailers. CurrentC can apply qualifying offers, coupons, retailer rewards, loyalty programs and membership accounts to purchases, plus it gives you the option of paying via your checking account. The program will be piloted in Columbus, Ohio, but might not see a wider release until at least next year, MCX CEO Brian Mooney told Re/code.
How It Works: The system uses a generated QR code, read by a code reader at the retail point-of-sale, to create a tokenized transaction; the system could incorporate NFC or even Smart Bluetooth at some point.
Participating Financial Institutions: CurrentC/MCX doesn't link to credit card networks, so no banking associations are necessary. (It was created to bypass the MasterCard/Visa duopoly.) However, MCX-member mobile wallet developer Paydiant was recently bought by PayPal, which presumably would let PayPal offer its own branded CurrentC-based wallet.
Where Does It Work: MCX's network is expected to include 110,000 retail locationsand a host of gas station chains: 7-Eleven, 76, Baskin Robbins, Banana Republic, Bed Bath & Beyond, Best Buy, Conoco, CVS, Dunkin' Donuts, ExxonMobil, The Gap, Kohl's, Kmart, Lowe's, Old Navy, Phillips 66, Sears, Sam's Club, Shell, Target and Walmart. MCX has reportedly required exclusivity from its merchants — if a merchant is part of the MCX network, it can't accept Apple Pay. But some member merchants, such as the Meijer grocery chain, have decided to flout these exclusivity rules, and Target allows Apple Pay in its mobile app, if not its retail locations.
Devices Supported: iOS and Android smartphones via downloaded app.
Pros/Cons: By using QR codes, CurrentC presumably can be accepted by any member merchant with laser code readers at the checkout counter. Since the system avoids the credit card system, no swipe fees are applied, which means some merchants, such as gas stations, can provide "pay by CurrentC" discounts.