Adolescent years of
Mobile Payments…inching towards Maturity…
I have been trying to write this
post for a while; the delay was just massive amount of data and recent trends
in Mobile Payment industry. Since
I started my journey into Mobile Payments, a lot has changed, or should I say
Mobile Payments is evolving. As we
try to understand the Mobile Payment landscape, looking at the direction
technology in commerce space is moving, mobile payments i.e. ability to pay via
Mobile device or any other wearable technology is inevitable. The technology
design that is driving the mCommerce and mPayments are hence in lockstep of
development curve. While the Payment industry comes to grips with the cost
model and value of the ‘interchange fees’ in new and bold mobile payment world,
the retailers and mCommerce engines are finding new and creating ways to fuels
the ecosystem and provide the value to the end customer. Value in terms of
convenience, speed and incentives. While many pundits may focus on the traditional value chains
and ‘interchange fees’ and mechanics of ‘Card present’ and ‘card not present’
rates of a transaction, I believe
Mobile payment has a more refined promise. A promise to provide a richer
engagement and understanding of the constituents with value added features such as a analytics, loyalty,
deeper understanding of value and costs models which are not a constant anymore
but varies for every individual.
In this post I intend to discuss
various elements of Mobile payments ranging from proximity technology which is forefront
of any mobile payment experience to Speeding up the process of authorizing,
clearing and settlements of Payments.
I think these are interrelated topics and grouped under large umbrella
of Mobile Payments. As I discuss
these trends with proof points from my own research, experiences, analyst
reports AND recent industry movements, I would like to draw attention on various
interplays. There is an implied interplay between consumer readiness (
development vs. emerging economies), financial service, environment, infrastructure
( Telco may have a role here) and
regulation. So while the Mobile Payment industry is in a flux and inching
towards maturity, it is the confluence of the factors that interplay not only from technology point of view but also from adoption, regulation
and overall readiness that will
dictate the speed of change. Money is changing, and it is changing fast.
Following are a few categories
that contribute to overall evolution of the Mobile Payment Landscape:
1. Proximity Payments Technology
a.
NFC (Host
Card Emulation - HCE, iBeacon, BLE, QR Code and RFE – This is to do with a
set of technology that enables the user to either open an app, Tap and pay or
simply wave the device in front of a mPOS – Mobile Point of Sale system. While
the security elements and other physical aspects such as a distance, speed etc
may differ the intent is to make things more convenient than say pulling out a
credit card.
b.
Mobile
Wallets - Despite the efforts of PayPal, Square, and even Google Wallet,
few people have actually replaced their wallets with their smart phones, which
was the original idea behind mobile payments, this trend begs the question in
viability of wallet in ‘seamless mobile payments’?
The notion of digital wallet is
very confusing. The market of digital wallets is fragmented and changing
rapidly. The innovations to the likes of Google wallet, Square, and PayPal to
name a few have truly disrupted the traditional payment schemes such as cash or
bankcards. This led to a digital
wallet frenzy where every bank, including payment processors such as a Visa and
MasterCard has launched their own version of Digital or Mobile Wallet. So which
is an Ideal Mobile/Digital wallet? The Answer happens to be in our own wallet.
An ideal wallet should be
·
Customizable – Like our own wallets
·
Does more than Pay (such as a Person
to person, like cash, and have the ability to store other credit or cash
instruments)
·
Work Anywhere (open frameworks
technology implied),
·
Inclusive of rewards management – either
links the apps, or drive the reward management from the back end systems
·
Simple, Secure and Easy to use –
Simple and easy to encourage adoption, Secure to institute trust.
2. Remote Payments
a.
Cloud
based Secure element – Now Host Card Emulation (HCE) introduces the concept
of Cloud Based SE – Secure Element. HCE might accelerate the introduction of NFC services, because it
provides an alternative for NFC based solution albeit,
more-simple-but-less-secure way to provide host card emulation service. In this
way, it has great added value for merchants, service providers and
e-commerce/m-commerce operators, that can accept a trade of reduced level of
security in exchange for an improvement of other factors such as time to
market, development costs and the need to cooperate with other parties. But it
appears that this technology concept can be applied to any or all of the
discussed proximity payment technology – iBeacon/BLE, HCE/HFC and QR Code etc.
3. Speed and Immediacy of Payments
a.
Venmo
for instance is a Peer to Peer (P2P) money transfer app which enables the user
to integrate facebook accounts with their Bank accounts, making say splitting
restaurant check easy,
b.
PayPal,
Square Cash and ClearXchnage – All aim to enable faster exchange of Money
and aim to provide a unique value proposition
c.
Ripple -
is an open-source Internet protocol for real-time funds transfer. Ripple
protocol, a crytocurrency transfer protocol is build on distributed public
ledger, which is quite similar to solving for bit coin block chain. The Promise
of Ripple is to reduce cost, and time in settlement, thus enabling real-time
fund transfer and settlement. Stellar seem to have a similar technology
platform with a slightly different mandate. It is to be noted that Ripple aim
to work with existing payment processing consortiums and financial
intermediaries as opposed to create a entirely new system.
d.
Bit coin –
while may seem far away from mainstream adoption, Bit coin does provide some
amazing technology to address speed and immediacy of settlement and fund
transfer. Bit coin’s underlying technology provides a good, cryptographically
secure platform for exchange, and traditional transactions have moved to the
Internet and are leveraging Internet speed for what used to be typical offline
transactions. In essence we can
see technologies enables by Bit coin and Ripple protocol be applied for
traditional transactions and leverage Internet speed for processing and
settlement.
4. Technology driving the Security enabling
Mobile Payments
a.
Payment
Tokenization - The Payment tokenization standard has the potential to move
away form two variables namely Card present and card not present transactions
to several creative ways to set the base rate of all type of Omni-channel
transactions. This is due to elimination
of traditional risk model and adaption of new risk models. The idea behind
token is to protect the data, and device a system to ensure that if the token
are lost or stolen the data is preserved or uncompromised. This also paved way
to many other qualities of services included in toke metadata such as time of
expiry, other policies if access etc. I believe that Payment Tokenization
will significantly change the rick model of proximity/remote payments,
and provide the enabling technology needed for many Mobile payment options
discussed in this post.
b.
Contextual
Multifactor Authentication – This includes the contextual and multifactor security such as correlating usage to past behavior,
location and other device specific factors such as a device fingerprinting,
failed password attempts etc. The goal is to ensure transactional, interaction and identity security. This is to
address emerging vulnerability directly impacting mobile payment security such as
i. a.
Mobile devices themselves have become security tokens that are easily lost or stolen
ii. User
interaction with mobile devices is brief,
iii. Situational
Impairments
iv. Ephemeral
nature of data acquisition and interaction.
Some Notable
recent Announcements:
1.
FIS to
Acquire Clear2Pay - Clear2Pay
- company's flagship Open Payments Framework offers a suite of re-usable
components through which banks can process multiple payments types via a centralized
payments engine.
2.
MCX
Announces CurrentC – MCX –
Merchant Customer Exchange - a
consortium of Retailers announced
payment network. Working with tech partners FIS, Gemalto and Paydiant
the group has now unveiled its CurrentC network, which will enable customers to
pay with their mobiles at more than 110,000 US merchant locations
3.
Apple and
Mobile Payments – At the time of writing this blog post, we are 2 days away
from significant Apple announcements. But a Few pre-release articles suggest
that Apple has been aggressive in going after Mobile Payment space. This
includes aggressive negotiation
with Visa/MasterCard and AMEX for favorable (Card present) rates and technology
certification but also capitalizing on its 800 Million iTunes user base to not
only digital goods but also physical goods. Apple already has 800 million
iTuned customers, so why not use a model where the consumers cannot only buy
goods from store as opposed to ONLY digital goods. So Apple is partnering with
VISA/MC and other payment processor to make sure they address security/support
etc and use of their touchID which reduces risk and provides avenue to multi
factor authentication , and on client side which is what consumers will see is
include array of option with proximity technology like NFC/iBeacon/BLE. Next
step is to enable a ecosystem that will make payment seamless and iTune account
a primary account to manage it all. Apple gets behavioral data and analytics,
retailers gets the spend and payment processors benefit from spend at
retailers.
4.
ISIS
Wallet Changing name to Softcard – This was an interesting development of
events where a non related entity causes a marketing nighmare for ISIS to
change it’s name to Softcard. Softcard is
same carrier-backed mobile wallet, which after initial success is now
struggling for wide consumer adoption.
Analyst Tidbits on
Mobile Payments:
1.
Merchandise purchases (e.g. via Amazon and eBay)
account for most of m-payments in developed markets.
2.
Money transfers and prepaid top-ups account for
most of m-payments in developing markets.
3.
Gartner (June 2013):
estimates that there are 245 million people making mobile payments (money
transfer, purchases, bill payment) in 2013. This is expected to grow to 450
million people in 2017.
4.
Juniper
(April 2014): global payments via mobile devices expected to be US $507 billion
in 2014, up 40 percent from 2013.
5.
Gartner (June 2013):
estimates mobile payment transaction values at $235 billion in 2013 and will
reach $721 billion in 2017. Money transfers account for about 71 percent of
total transfers in 2013 and 69 percent in 2017.
6.
Gartner (June 2013):
forecasts that Asia pacific will overtake Africa as the largest region for
mobile payments by 2016 worth $165 billion against Africa’s $160 billion.
7.
Juniper
(April 2014): growth of mobile payments will be driven by purchases of physical
goods via mobile devices. Average transaction sizes over tablets are already
exceeding those via desktop PCs in many markets. Spend via smart phones is
increasing sharply, but primarily used as search and discovery devices with the
final purchase being made on the tablet.
Conclusion:
Re-iterating Gary NorCross of FIS that, many
institutions are struggling to adapt to the evolving global payments landscape,
inclusive of high-value and cross-currency corporate payments and new channels.
As the title of this blog posts suggest that while Mobile Payments has a long
way to go in asserting itself as mainstream and a de facto payment option -
Cash threatens it! 80% of all
world transactions are cash transactions. The flux of technology options and
value propositions of each of technology option while may be a characteristic
of a Mobile Payment industry’s adolescent years, the proof points set by
technology and mass adoption will push the industry into a progressive maturity
model where proximity technology, remote payments, security and speed of
payments will be foundational requirements of any Mobile Payment solution.
References:
