SMS Payment: What Is It and How Does It Work

The global open rate for SMS text messages is at about 90%, which makes these types of payments an increasingly popular way of collecting payments.

You might be familiar with charities sending you SMSs, which you then donate to.

But what is the case in the business landscape?

In this blog post, we take a look at SMS payments in-depth and answer some important questions.

What Is an SMS Payment?

An SMS (Short Message Service) payment, briefly explained, is when a customer makes a purchase for a certain product or service and pays for it via an SMS that’s sent to their phone.

The mobile service provider or mobile payment provider deducts the relevant fees by adding them to the customer’s monthly bill, or debiting their prepaid mobile account.

When it comes to SMS payments, a lot of individuals and companies question the safety and security of this process. However, they’re considered reliable, given that SMS data is encrypted to protect sensitive information. 

Moreover, most SMS payment providers explore additional layers of security via two-factor authentication. 

How Does SMS Payment Work?

We already noted that when collecting payments via SMS message, the payment is usually added to the customer’s phone bill or taken from a prepaid balance.

But how exactly does this process work? SMS payments work in several different ways, depending on the SMS payment system that the business has put in place. 

On some occasions, the business might send an SMS text message to the customer’s mobile phone number asking them to visit a third-party website. However, there are methods that require no additional data or activity outside of the Short Messaging Service.

Here are a few different scenarios.

The SMS payment provider directs customers to a website where the payment processing will take place. Once the customer clicks the provided link to the website, they’re usually asked to provide payment information like name, address, card details and other sensitive data. 

Next, they’ll be forwarded a unique code or specific word they’ll need to send to a provided text number to confirm the payment. 

On the other hand, there are other payment situations, where customers are sent SMS messages requesting payment verification. They can either confirm the transaction in the SMS message, which will trigger an approval being sent to the SMS payment processing provider. 

Alternatively, the shopper can submit a mobile phone number on a payment processing website. The SMS payment provider will then provide a short code via text that can be used to gain access to the purchased service or content. 

And how does the business collect payments from SMS payment messages?

When using text payments, shoppers are charged a premium fee for the messaging. These expenses are normally accumulated on their mobile devices, in their mobile phone account or monthly bills. 

As each bill is paid, the mobile operator forwards the charge to the SMS provider, who deducts their fee and then transfers the payment to the business. 

There’s a way for companies to shorten this process by sending their own in-text payment links to the shopper. Once the user clicks on the link, they’ll be sent to an online invoice which is handled by a payment gateway. 

Which Industries Are Sms Payments Suitable For?

Although not ideal for all industries, SMS payments are great for repeat purchases, items which are sold with a relatively low value, for food and beverages such as pizza and coffee as well as deliveries.

They’re also perfect for businesses whose revenue depends on recurring payments, or if merchants target a repeat customer base.

Overall, the following industries can benefit from SMS payments:

• Retail;
• Restaurants;
• Delivery services;
• Public transport systems;
• Healthcare and medical services;
• Subscription-based businesses; 
• Charities;
• Entertainment and event organisers; 
• Utilities.

In summary, these types of payments are trending in spaces, where convenience, speed, and simplicity are top priorities.

What Are Their Advantages?

The popularity of SMS payments around the world is no coincidence. It stems from the fact that these payments offer a vast range of benefits that make their adoption a lucrative option.

Below, we look at some of the core benefits of SMS payments. 

Unlock New Channels

Merchants are exposed to the possibility of accepting payments from billions of mobile phones around the world, which are capable of texting.

Furthermore, there’s also the option to make sales to the unbanked population, representing a whole new segment of clients.

Secure Payment Method

SMS payments, as noted above, are considered safe and secure, both for businesses and for end consumers.

Their security stems from the fact that no personal or account details are saved or stored. 

But that’s not all. For the consumer, they won’t need to enter their card or bank details, or even have a bank account. They also won’t need to remember passwords and login details.

Support Multiple Payment Options

By relying on SMS payments, businesses can expand the variety of payment methods they accept.

They can encourage shoppers to use convenient and guaranteed options like digital wallet payments, including Google Pay and Apple Pay. 

Reduce Friction

SMS payments can significantly reduce friction in the payment process by offering a quick, mobile-friendly payment option. 

Unlike card payments, which require customer data each time, SMS payments enable instant payments straight from a mobile device, simplifying the process and eliminating unnecessary steps. 

When a customer opts to pay via SMS, they can authorise both current and future payments with a simple confirmation, making the journey smoother and more efficient. 

Accessible and efficient

By using SMS payments, merchants are able to build on customer loyalty by offering discounts and coupons through their SMS marketing campaigns.

In addition, all the billing is handled by the mobile phone operator, and it’s often quite affordable to set up. On top of that, when compared to card payments, SMS solutions are a preferable way to collect payments as processing fees are lower. 

Challenges of Accepting SMS Payments

Although there are many advantages of using SMS payments, there are also a set of challenges that are worth addressing.

Here are the main disadvantages worth knowing about. These can affect both customers and businesses.

Costs

As a business, putting in place SMS payment systems means accumulating additional expenses. These can come in the form of a monthly fee, a transaction fee, or a set percentage amount. 

Make sure that you research the fees associated with the SMS payment providers you’re considering.

Unwelcome Disturbance

For a lot of customers, receiving a text message for payment will come as a disturbance during work hours or leisure activities.

Despite the fact that users must opt in for them to be able to receive a text message from a business, they often feel that this messaging is intrusive. 

Should You Add an Sms Payment Option to Your Business?

Whether or not SMS payments are the right type of payment option for your business will ultimately depend on a variety of factors. It is worth assessing if they are a good fit to your existing systems or your target audience.

In general, SMS payments are a valuable solution that can help companies boost convenience, achieve higher levels of customer satisfaction, and collect payments efficiently. 

However, not every business needs SMS payments. Research whether your customers and target audience actively use their mobile devices and whether a mobile-friendly payment solution would be appreciated by them. 

Outgrowths of SMS Payments

A branch of SMS payments includes the introduction of PayLinks and Payment Requests, which are payments sent to a customer through an SMS.

Although sharing these links and requests with customers can be done via a short text message, there are options to also send them via email or via social media channels such as Facebook, Instagram, WhatsApp, Viber and others. 

Let’s take a look at these two payment types in more detail.

myPOS PayLinks

Want to send your customers an invoice or an offer on a new product all while getting paid without a website or online shop? It’s easy!

You can generate a myPOS PayLink and send it to your customers through a variety of channels. Furthermore, PayLinks can be sent multiple times to multiple customers at the same time.

myPOS Payment Request

The myPOS Payment Request is another value-added online payment functionality, which enables merchants to accept payments.

Simply create the Payment Request from your myPOS account, and send it via SMS or email.

These are one-time personalised Payment Requests, and you can also enjoy payment tracking and monitoring at the same time.

Conclusion

The use of SMSs as a payment method is likely to increase and grow in the future, with more and more businesses taking up this attractive payment offering.

If you’re not ready for SMS payments yet, opt for myPOS’ online payment solutions instead.

They’ll help you reach more customers while ensuring you don’t miss out on any sales.