SMS payments are a means of paying for goods, services or products via a text message sent from a mobile phone.
They work like standard SMS or Short Messaging Service. With the SMS payment system purchasers send a text message to pay for an item or service. This text message is sent to mobile payment providers. The provider clears the transaction between the purchaser and the vendor. The cost of the purchase is added to the monthly phone bill or deducted from a pre-paid balance by the mobile phone operator. By using SMS payments, mobile phone users can securely, quickly and safely pay merchants, buy goods or services, real or virtual, as well as make deposits or send remittances.
Many businesses are looking at harnessing the power of SMS payments to make life easier for their customers. Using SMS payments people can already buy Coca Cola in Europe, postage stamps or books in Denmark, burgers in Finland, and travel tickets in Tokyo, Paris and Rome.
SMS payments are now also regularly being used by charities as a quick and easy way to get people to donate. (See our sections “Who Uses SMS Payments? and “SMS Payments and Charities”.)
Advantages of SMS Payment Systems
For the Customer
It is quick and easy to use.
The purchaser doesn’t have to enter in their credit card or bank details, or even have a bank account.
They don’t need to remember any passwords or user names as with payment sites like PayPal.
It is more secure as no personal details or account details are released.
For the Business, Charity or Service Provider
They have instant access to billions of mobile phones equipped with SMS facilities worldwide.
They have access to millions of customers who don’t have a bank account or credit card and thus were prevented from buying their goods or services before. They now have access to a whole new set of customers.
They can build upon customer loyalty via SMS marketing message, discounts and coupons.
They don’t need to verify customers’ identities or worry about chasing payments or cards being denied.
All the billing is handled by the mobile phone operator.
It is easy and quite often costs nothing to set up.
The main advantages of the SMS payment system for both customer and business users are that it is quick, easy and safe and SMS payments or text payments are, for those reasons, becoming one of the fastest growing payment methods in the world.
SMS Payments Are Growing
In fact, a report by I.E. Market Research suggests that the value of mobile payment transactions will double to almost $300 billion in 2012 and be worth almost $1,200 billion in 2014. Another report by Gartner suggests that SMS Payments will represent most of these transactions particularly in Africa, India and Latin America.
Whilst there are other payment options available the mobile wallet such as NFC or Near Field Communication payment options and payment via web applications, the simple fact that even the most basic mobile phone is capable of sending and receiving text messages means that SMS payments are seen by many in the industry to be a major player in future mobile payments.