Text-Based Payment Systems: Clearing Up the Confusion

It’s clear that texting has evolved in recent years; most people know it has become a payment method. However, this is where the clarity stops and the confusion starts. Many people don’t realize that there are actually two types of systems or services for making payments via text: those that allow consumers to send payments via text (short messaging service, or SMS), and those that let consumers pay bills and receive payment reminders by text. Even a multitude of those who do are confused by the difference between the two options. Here’s what you need to know.

Text-based payment systems in the first category use mobile payment providers as transaction “go-betweens.” When consumers want to pay for an item or service (real or virtual), they send a text message not to the business itself, but instead to their mobile phone service provider. The transaction is cleared by the provider, and the transaction total is added to the consumer’s monthly mobile phone bill or deducted from a prepaid balance held by the mobile phone operator.

Charitable organizations, such as the Red Cross, have begun to invite consumers to send them contributions by text, promoting the option via social media and in traditional advertising. As with payments for goods or services, the contribution total appears on the consumer’s mobile phone bill or is subtracted from monies that have been prepaid to the mobile phone provider. Either way, consumers favor this type of text-based payment system because of the convenience it affords—no need to enter a credit or debit card number or checking account information to make a payment.

So what’s the difference between text-based systems of this type and text-based systems that let consumers pay bills? First, the obvious: text-based systems in the second category are intended for bill-paying purposes only. They’re designed for businesses and industries that bill customers on a recurring basis—for example, utility companies, telecom and mobile phone service providers, financial lenders, “rent-to-own” operations, personal and business insurance companies, property management companies, and the like. They’re not for transmitting remittances to merchants for goods and services, nor for sending charitable contributions through a mobile phone.

More importantly, though, there’s no middleman. Businesses elect to offer a text-based bill payment service, and customers can sign up for it, or not. In registering for the “pay by text” option, customers share their account information, which is stored in a secure system maintained by the payment solutions provider that operates the system. With E-Complish’s Text2Pay, they also create a personalized PIN that is included in their text whenever they use the system to pay their bills electronically. Customers receive a text notification when a bill is due and, when ready to make a payment, do so by submitting their PIN number via return text at any time of day or night. With some systems in this category, customers needn’t sign up to use the payment option—just to receive a reminder text when the bill comes due. Whichever option they select, customers like the ability to securely handle their bills from any SMS-capable device whenever the time is right for them. Businesses reap the benefits of improved payment accuracy and speed, coupled with reductions in lost, missed, and late payments.

Texting is the most widely and frequently used smartphone app, with 97 percent of Americans using it at least once daily and more than 80 percent of adults in the U.S. now engaging in texting to some degree, according to Pew Internet. Meanwhile, Forrester Research estimates that more than six billion text messages are sent in the U.S. each day. Given these statistics, it makes sense for businesses to provide customers with a service that enables text-based bill payment. Learn more about Text2Pay, E-Complish’s text-based bill payment acceptance and processing system, here.