From the December 2011 issue of Entrepreneur

Joaquin Ayuso is betting on the future of virtual mobile payments. Early this year, the Spanish-born tech entrepreneur launched Kuapay, an app that allows users to make secure credit card purchases in stores with a smartphone. Users can enter multiple credit cards into the system; they then present participating merchants with a QR code displayed on their phone. The merchants scan the code, and the phone automatically saves the receipt.

Related: A Look at Popular Mobile Payment Systems

"We give people the opportunity to take their wallet from the physical world to the virtual world," says Ayuso, whose Santa Monica, Calif.-based company has 20 employees. "Instead of carrying around those plastic cards everywhere and swiping them, you actually use your phone to make the payments."

Users can add any credit, gift or rewards card to their Kuapay account, and merchants are able to set up loyalty programs through the app. Merchants pay a flat rate of 5 cents per transaction, and the service integrates with most existing point-of-sale systems.

Ayuso is no stranger to the startup scene. In 2006, he co-founded Tuenti, a Madrid-based invitation-only social network that has been called the "Spanish Facebook" and now boasts more than 11 million members. He sold the company in 2009 to a major media group for an undisclosed amount.

After raising $900,000 in seed funding, Kuapay is beta testing its technology at select retailers in Southern California, as well as in Spain and Chile. Ayuso is in talks with potential retail clients and plans to launch worldwide by year's end.

We chatted with Ayuso about his payment revolution.

How will you convince people to ditch their pocketbooks?
Having an app that's just a virtual wallet isn't enough of an incentive for people to make the change and understand the benefits immediately--it will take a while to actually get the users used to this way of paying. In our case, we're working with a two-way solution: We're not only giving users exclusive geo-located coupons, we're giving incentives to the merchants, who also need to be convinced to move to mobile payments. As a small retailer, you're able to create your own loyalty points program embedded into Kuapay.

Security is a huge concern. How do you keep customers' info safe?
We're obsessed with security. That's one of our strengths and something we're proud of. The user is the only one who has access to their credit card information. It's not stored in the phone, but encrypted in our system so well that not even we can see it. We're PCI Security Standards Council compliant, and if you lose your phone you don't have to cancel your credit cards--no one is able to access your info, since it's protected by a PIN code.

With competition from major players like PayPal, Google and Square, how will you gain market share?
If there weren't startups, there would never be PayPals or Googles. We're not afraid of the big guys, because we know our product is much better than what they have to offer right now. It's not about how big you are; it's about how good you are. We're confident that we'll be able to fight against them, or even partner with them in the future, to take mobile payment to the next level.

Eventually we're going to use NFC [near field communication], but that technology won't be mainstream until at least 2013. We've created a mobile payment solution that can be implemented today with nothing more than your phone--no one else can say that.

How did you manage to secure funding?
I primarily raised seed cash from friends and family. Before pitching potential investors, I assembled an excellent team. No one's going to invest if there's no team--no matter what the idea is. If you have investors who are just there for their equity and their money, you're screwed. There's no chance you're going to get that project going. You need investors who believe in your product. You've got to be flexible with your pitch. For us, the recent launch of other mobile payment options was an opportunity for us to prove to investors that our product is better.

What advice do you have for aspiring entrepreneurs?
If you're going to start something, it had better be really good and you'd better test it before you actually launch. Users are getting really demanding, and there's no time anymore for launching something that isn't tried and true.