The Merchant’s Guide to Payment by Text

Payment by text is a relatively recent innovation that allows customers to authorise payment by text message from wherever they are. If you have a large base of mobile-savvy customers, understanding the ins and outs of text payments (also known as SMS payments) can help you decide whether payment by text is a good fit for your business and implement it in the best possible way.

How Payment by Text Works: Inbox-Only Text Payments and Linked URLs

There are two ways customers can pay by text message:

1. Inbox-only text payments
2. Payments via linked URL

The process for each begins and ends with a text message from a merchant, but the steps are a little different.

Inbox-Only Text Payments

1. The customer opts in to the company’s text payment service and stores their credit or debit card details securely in a password-protected user profile.
2. When payment is due, the merchant sends a text message to a customer. This message might contain:

• The customer’s current account balance
• The customer’s overdue account balance
• A payment reminder
• A payment notification

1. The customer responds to the text message using a term provided in the initial message, like “yes”, “pay now”, “confirm” or “representative” to speak with a customer service representative.
2. If the customer responded with an affirmation (pay now, etc.), the merchant runs the transaction through their payment gateway.
3. The merchant or payment processing application sends the customer a reply text confirming receipt.

Payments Via Linked URL

1. The customer opts in to the company’s text payment service.
2. When a payment is due, the merchant sends the customer a payment invoice via text message. This message includes a payment link.
3. If the customer’s mobile device is connected to the internet, the customer taps on the URL to open the payment form (this is a simplified checkout page).
4. The customer enters his or her card details.
5. The transaction is processed through the merchant’s chosen payment gateway.
6. The customer and merchant receive a reply text confirming receipt.

Pros and Cons of SMS Payment Solutions for Merchants and Customers

Text payments offer multiple benefits for merchants and customers, along with a few potential pitfalls.

Benefits of Text Payments for Merchants

• According to research from Gartner, text messages have a 98% open rate and 45% response rate, compared to emails, which have a 20% open rate and 6% response rate.

• Customers can pay within minutes for a faster invoicing process and improved cash flow for your business. This is often quicker than near-field communication payments, which still require that customers come in person to the store.

• Text messages can be sent manually or automated. Automation can be especially helpful in the case of subscriptions and memberships with recurring billing.

• Merchants can design, manage and send text messages right from their customer relationship management (CRM) dashboard, making the process comfortable, quick and easy to do.

• Once customers have opted in to text messaging for payment reminders and payments, merchants can contact these same customers via text for the purposes of retargeting marketing, promotions and special offers (unless they opt out of receiving such texts).

Benefits of Text Payments for Customers

• Customers can pay anywhere, anytime. They don’t need to be in front of a computer or go to the store to pay.

• As customers don’t typically share their mobile phones with others, SMS payments are completed without any need to log in or complete further account authentication measures.

• Customers receive near-instant confirmation of payment, giving them full peace of mind.

• Text messages are less likely to get lost than emails, reducing the likelihood of overdue payments.

• SMS messages have a 160-character limit, making these messages short and less likely to be annoying than an email.

• SMS payments don’t require physical contact with other people or cash, which can be an advantage during disease outbreaks.

Drawbacks of Text Payments for Merchants

• Text messages cost money to send. However, it costs less to send a text message than it does to send a bill in the mail.

• The merchant will also be looking at fees for third-party SMS payment services. Where possible, it’s best to choose a payment processing company that already offers text payments as part of their merchant services package.

Drawbacks of Text Payments for Customers

• People typically have one mobile phone for personal and business communications and payment request messages could be seen as obtrusive. The key here is to make this an opt-in service rather than take customers by surprise.

• Customers may be worried about the security of their payment information. This fear can usually be allayed by educating customers about the way in which secure payments via text message work.

How Popular Is Payment by Text?

According to one Weave survey, 35% of customers are interested in payment by text, which almost doubles to 62% for customers under 35. However, in 2020, only 4% of stores offered this option.

In 2021, 86% of the European population subscribed to mobile services, and according to data from 2019 and 2021, around 20-40% of smartphone users in Europe already complete near-field communications transactions with their phones. For these customers, payment by text (from anywhere) would be a logical next step.

How Secure Are SMS Payments?

SMS payments might not sound secure, but in actual fact, they are more secure than many other types of payments.

1. Firstly, the customer must enter their passcode to unlock the phone. This may not be the case on a shared computer that has multiple people’s account usernames and passwords stored for easy access.
2. Secondly, customers’ card details aren’t being written in the text messages themselves. Rather, they are stored in each customer’s user profile and tokenised before they are sent through the SMS payment gateway.
3. Thirdly, 4G LTE networks encrypt all data before it’s sent. So even if the customer is using cellular data rather than a trusted home WiFi network, their payment data is secure.

Make Your Text-to-Pay Program a Success

Invoicing and paying via SMS text messages may seem too easy to be true, but this payment option is already being used by businesses around the world and is easy to implement if your payment processing company offers a text message service.

If you decide to include text messages among your payment options, make sure that customers choose to opt in (rather than assuming they’re ok with it), store their payment details securely and ensure that a customer representative is available to answer questions and provide assistance. When done well, payments by text can lead to increased customer satisfaction and a greater percentage of timely payments for you.