Mobile payment apps have transformed how customers pay. In 2024, mobile wallets were already the most popular method of online payment worldwide, and adoption is expected to continue to grow. The compound annual growth rate (CAGR) of digital wallet transactions is estimated to be 15% between 2023 and 2027.
Accepting payments beyond cash, credit cards, and checks helps you stay competitive. These apps let you reach more customers, offer seamless checkout, and gain valuable data insights. Built-in encryption and tokenization protect both you and your customers from fraud.
This guide walks through how mobile payment apps work, the three main types, and how to accept the most popular options—PayPal, Apple Pay, Google Pay, and Venmo—in your store.
What is a mobile payment app and how does it work?
A mobile payment app is a digital platform that allows your customers to securely check out in stores, online, or within a mobile ecommerce site using their smartphones or other mobile devices. To use one, the customer creates an account with their chosen app and links it to an existing financial account (like a credit card, debit card, or bank account).
When the customer wants to use the app to pay for something, the app handles the transaction quickly and securely through the following steps:
1. Authentication. The customer usually authenticates their identity—using a fingerprint scan, facial recognition, or PIN.
2. Payment initiation. The app communicates with your payment processor. If the customer is in your physical store, they might use tap to pay or a QR code with your point-of-sale (POS) machine. A virtual customer can select the app as a payment option through your online checkout.
3. Transaction request. Your payment processor communicates with the customer’s linked financial account, like their credit card issuer or bank, to check for available funds and screen for fraud.
4. Confirmation. If the transaction is approved, you and your customer get instant confirmation, and the transaction is recorded. The app may also generate a digital receipt.
The transaction itself takes about a second. This speed reduces checkout friction that causes cart abandonment, while the built-in authentication and encryption protect both you and your customers from fraud. Your payment processor then moves the money from the customer’s account into your bank account, which may take a couple of business days.
To accept these types of payments, you’ll need a POS machine that can handle them. Shopify POS, for example, can process tap to pay, contactless payments, and chip or swipe card payments.
Types of mobile payment apps
There are three main categories of mobile payment apps. The key difference between them lies in their network scope. Closed-loop systems are restricted to a specific network or provider, while open-loop systems are widely accepted across various networks. Peer-to-peer (P2P) apps allow users to send money to another person or business, often within a specific platform. Each works differently:
Closed-loop apps
Customers can use a closed-loop mobile payment app only with a specific retailer or a set of related businesses. For example, within the Starbucks app, customers can save their credit and debit cards or preload money onto a gift card. They can choose a payment method from the app to buy coffee in the store or start a delivery.
Closed-loop apps can also provide customer loyalty programs, where the customer has access to special deals or accumulates rewards to spend with that retailer.
Small businesses can create their own apps to build customer loyalty and collect data on customer shopping habits. This information can help you improve customer service and develop strategies for targeted marketing. Shopify merchants, for example, can develop an app and launch it on the Shopify App Store.
Open-loop apps
An open-loop mobile payment app—such as Apple Pay, Google Pay, and Samsung Pay—can be used at a wider range of businesses. For example, a customer can use Apple Pay at most US retailers but can only use the Starbucks app at that brand’s coffee shops.
These payment apps are usually one piece of a broader digital wallet. For example, Apple Wallet is a digital wallet where a customer can store their debit cards, credit cards, transit cards, event tickets, and more. Apple Pay allows the customer to use those cards to make purchases.
If the customer uses Apple Pay to check out in a physical store, they’ll pull up the mobile wallet app and tap their smartphone or Apple Watch to a POS machine that can receive near-field communication (NFC). This technology can transmit payment information between two devices, like your customer’s phone (with their digital wallet app open) and your card reader, using low-speed radio.
In an online shop, the customer can choose Apple Pay at checkout and pay without taking out their card. To accept these payments online, you’ll activate the payment option within your payment processor. You can do this via your Shopify Admin page.
Peer-to-peer apps
A peer-to-peer (P2P) payment app—like PayPal, Venmo, and Cash App—is designed to facilitate money transfers between two people. This type of app became popular as a way to send money to friends and family members. But businesses can also accept P2P apps as a form of payment for goods and services. Shopify Payments lets you accept PayPal and Venmo as forms of payment for your online store.
Depending on the app, customers may be able to store their credit cards, debit cards, bank account details, and more. They may also accumulate a balance within the app and use it to make purchases.
Each P2P app has different mechanisms for customers to make payments to businesses. For example, to pay with Venmo, a customer can send you a direct payment, scan your personalized QR code, or check out with Tap to Pay. You can also accept Venmo payments online. The process is similar for Cash App payments as well.
Top payment apps
Accepting different types of mobile payment apps makes checkout easier and more appealing for a wide range of customers. Here’s an overview of the most popular apps and how you can accept these payments:
PayPal
Customers can check out using PayPal in your physical store by scanning your personalized QR code. Online, the customer logs into their PayPal account to authorize a digital payment from your website or social media page. The company protects customer transaction information through encryption, fraud monitoring, and purchase protection programs.
Apple Pay and Google Pay
In a physical store, a customer activates the relevant app on their mobile device at checkout. They hold the device against your POS machine until you hear the confirmation alert. Online, the customer chooses their preferred digital wallet at checkout. Both Apple Pay and Google Pay use tokenization and biometric authentication for authentication to protect the customer’s details.
Venmo
When buying products or paying for services in person, customers can check out with Tap to Pay. They can also send you a direct payment or scan your personalized QR code. Venmo monitors customer transactions to screen for fraud. It also allows users to set up a PIN at login, enables biometric authentication, and encrypts users’ payment details within the app.
Mobile payment app FAQ
What is the most-used mobile payment app?
According to YouGov data, PayPal is the most-used mobile payment app in the US, with two in five Americans using it for purchases. Zelle, Venmo, Apple Pay, and Google Pay are other popular mobile payment apps.
What is the best app to take payments?
The best app to accept payments depends on what you sell, what your customer base is comfortable with using, and how simple or complex you want your payment processing to be. PayPal, Apple Pay, Venmo, and Google Pay are some of the most popular mobile payment apps to choose from.
How do I set up mobile payments on my phone?
Merchants can accept payments from their smartphones if they have a card reader and payment processing provider. For instance, Shopify merchants can ring up orders on the Shopify POS mobile app and sync their card reader to process mobile payments from their devices.
