As of 2023, 85.82% of the world’s population is estimated to own a smartphone. In the UK alone, more than 55.3 million people actively use smartphones to connect to and browse the internet, schedule their calendars, and perform many other daily tasks, including making mobile payments.
In fact, by the end of 2020, more than 17.3 million UK users had registered or activated a mobile payment provider on their smartphones. The convenience of mobile payments is one of the most revolutionary features of the modern era. Since almost any payment can now be made with your smartphone, you no longer have to worry about whether you have your wallet or bank card when you go out.
But how and when did this technology arrive? Join us as we look into the history of mobile phone payments and trace how they were developed into what they are today.
Early Beginnings
The concept of using mobile phones to make payments is nothing new. It was first theorized in the early 1990s, but it wasn’t until the end of the decade that any meaningful progress in implementing the idea actually took place.
One of the first recorded instances of an individual using a mobile device to make a payment occurred in Finland in 1997. At the time, beverage behemoth Coca-Cola launched several vending machines that allowed customers to pay using their cell phones.
By sending a text message (or SMS) to a unique number linked to the machine, customers could authorize a payment that would, in turn, tell the machine to vend the particular drink they had ordered. The system was incredibly primitive but set the precedent that it was possible to pay using mobile devices.
In the same year, Merita Bank (also located in Finland) launched what is widely recognized as the first form of mobile banking. Customers wishing to do transactions could send the payment information to the bank via SMS, which was then processed according to their wishes.
After this, things in the industry slowed for a few years, with the only real innovation coming from Japan via a service called i-mode. This internet-based service allowed users to make purchases using their cell phones. Rather than paying in real-time, however, the purchase cost was added to the consumer’s bill at the month’s end.
Largescale Development
By the start of the 2000s, cell phones had become more commonplace, and there was more interest in using them to make payments. The first big step forward in developing mobile payments came in 2002 in Kenya.
Launched by Safaricom and Vodafone, a new mobile payment platform went live to provide facilitation of microtransactions in rural areas. The platform, titled M-Pesa, allowed users to transfer money to other users directly via their phones. The service has since been launched in multiple African countries.
A year later, a group of European mobile operators (Orange, Telefonica, Vodafone, and T-Mobile) banded together to launch a platform similar to Japan’s i-mode. However, rather than just allowing small purchases, the group, known as the Mobile Payment Services Association (later branded SimPay), wanted to create a pan-European platform for charging purchases to a cell phone bill.
However, lacking support from banking institutions, SimPay folded in 2005 after a very short time and little meaningful development. As a result, little occurred in the evolution of mobile payments between then and 2007.
In 2007, however, PayPal—already one of the most prominent names in processing payments—launched PayPal Mobile in the US and the UK. Using the advantages that came with the advent of smartphones in the same year, the service allowed consumers to use mobile phones as a payment method when making purchases.
The Birth of Modern Mobile Payments
By 2011, mobile payments were available in various forms but were still relatively limited. Mobile banking had, at this point, also evolved but was likewise unable to offer the full range of features it is known for today.
One of the most significant turning points in mobile phone payments occurred that year when Google Wallet launched in the US. Allowing the integration of physical or virtual debit or credit cards into the wallet, it then used a device’s Near Field Communication (or NFC) capabilities to facilitate mobile payments.
This technology meant that consumers no longer had to type their card information in when making a purchase, weren’t required to add the cost of something to their monthly phone bill, and could use their device as a substitute for physical cards at retailers that supported NFC payments.
Three years later, this same technology was adopted by Apple in its popular iPhone. However, Apple was able to add another level of security to mobile payments (something consumers are actively worried about) by enabling biometric authentication on its devices. Initially, this service was only available in the US.
Continuing the fight to claim market share from Apple, Samsung launched its own version of this tech a year later—rolling out only to South Korean and US users. Taking it a step further than Apple, however, Samsung Pay, as it was called, supported NFC and MST (magnetic secure transmission). The inclusion of MST allowed users to use their device to pay at terminals that didn’t yet support NFC.
By 2016, Google had rebranded their popular wallet as Google Pay and began a mass rollout—launching in the UK before moving into other territories. A year later, popular GPS and smartwatch manufacturer Garmin also launched Garmin Pay, which allowed users to make payments using their smartwatch linked to their mobile phone.
Future of Mobile Phone Payments
Mobile phone payments have significantly increased since the launch of services like Google Pay, Apple Pay, and the many other variants available internationally (including younger variants like WhatsApp Pay and Facebook Pay).
While these services seem to have reached their peak in terms of convenience, security, privacy of user data, and range of features, there is little doubt that as mobile phone technology continues to evolve, these payment options will, too. What this means for consumers are more straightforward ways to pay and more security as these options phase out the need to carry any form of cash or bank card.
Header image credit: Troy Squillaci via Pexels
