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Pay phones: Mobile payments wake up and smell the coffee

Marc Magliozzi, partner in wood-fired pizzeria Dozzino in Hoboken, New Jersey, spent a lot of time building out the look of his restaurant. The last thing he wanted was an ugly, hulking POS terminal sitting on the counter. Instead, he went ‘Square,' a point-of-sale and payment processing system for the iPad that also accepts payments made by a smartphone. "The reason I started using it was for the aesthetics and the functionality of being able to close tabs at people's tables," says Magliozzi. 

Mobile payments have been high on the list of "next big things" in technology for quite awhile, but it’s only recently the market has started to heat up. Mobile payments promise convenience and speed for consumers, while lowering costs and generating more customer data for businesses.

Some day in the not-so-distant future, customers may completely leave their credit and debit cards at home and rely on their smartphones for purchases.

Pay with Square is one such mobile payment program. Mirroring the slow adoption of mobile payments across the country, it took awhile for Dozzino's patrons to get into Pay with Square. "I don't know if it scared people or if they didn't understand it. We maybe had three a week," says Magliozzi. Things have since picked up to the point where he sees about one mobile phone payment a day. "I'm noticing it way more now. I think it's because they (Square) signed with Starbucks," he says.

The massive coffee chain is using Square to process its credit and debit card transactions starting this fall. Having a big name throw its weight behind Square has put both the payment company and the mobile wallet concept into a much brighter spotlight.

Also hitting the news recently was the announcement of the formation of MCX (Merchant Customer Exchange), a group formed by such heavy hitters as Darden Restaurants, Target, Walmart and 7-Eleven with the specific intent to develop a mobile commerce platform. The initiative is still very young, with few details available other than that the development of a mobile application is under way.

Jeremy Mullman, spokesperson for MCX, sees the wide reach of the MCX merchants as critical to establishing an industry-leading mobile payments platform. "The market is very, very young at this point. It is extremely fragmented," says Mullman. "It would be better if there was a true standard. The scale these merchants have makes that possible."

Though big chains are behind MCX, Mullman says it will also be designed to work for independents and small chains. "Smaller merchants, whether they're retailers or restaurants, are a huge focus for MCX. The goal here is for ubiquitous acceptance," he says.

Meanwhile, LevelUp, an upstart with Google Ventures backing, is already making inroads with restaurants.

LevelUp lets customers pay using a smartphone app. It is accepted at more than 3,000 locations; the company is pushing hard for restaurant business. Customers using the smartphone payment option get the advantages of faster service and special offers, discounts and free food rewards tailored for them through the loyalty programs.

"The majority of our merchants choose to implement the loyalty program," says LevelUp COO Michael Hagan. The restaurants can track purchasing trends in detail and encourage repeat customers with LevelUp's tools.

The hardware to accept LevelUp payments is free for restaurants. There are also no payment processing fees, but LevelUp takes a 40 percent cut when customers redeem credit generated by customer acquisition or loyalty campaigns. "Moving money should not cost you money," says Hagan. "People will happily pay commissions because it's performing."

The idea is that reducing transaction costs will be a huge motivator for restaurants to adopt mobile payments.

While the term "mobile wallet" has become a popular rallying cry for the growth of mobile payments in the U.S., Hagan isn't keen on the phrase. "LevelUp is focused on creating a tool the merchant can use rather than just swapping the credit cards for a phone,"  he says.

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