Where Are Mobile Payments Headed?
Apple is not the only company trying to grab a piece of the nascent mobile payment market.
Apple has garnered much of the mobile payments hype following the introduction of Apple Pay last October and the Apple Watch this month, but Apple's solution is only one of many that payments providers are considering as they try to stay ahead of the expected growth in mobile payments, which some experts expect to become commonplace in the next few years.
Apple Pay, while continuing to grow in popularity, is still available at less than 1 million of an estimated 12 million payment terminals in the U.S. That means there is plenty of room for Samsung and other players that are coming out with their own mobile payments solutions to get a share of the nascent market.
NFC, HCE and Payment Security
Those solutions rely on NFC, which didn’t get much traction until the end of the great recession, Barry Mosteller, director of research and development for CPI Card Group, said during a panel presentation during the recent Card Forum in Chicago.
Development of near field communication (NFC)-based solutions began in the last couple of years, including the secure element that Apple Pay relies on. While the secure element in the phone tends to be more secure than a software solution, any mobile payment solution relying on the element is limited to only the later-model phones with this feature.
Host card emulation (HCE), which enables a phone to perform card emulation on an NFC-enabled device without relying on access to a secure element, has gained traction since Google announced support for HCE in the Android KitKat OS, said Doug Yeager, CEO and co-founder of SimplyTapp.
Several financial services companies are relying on HCE to take advantage of the growth of terminals with NFC capabilities. Many retailers are upgrading their point-of-sale (POS) systems in advance of the onset of new rules by Visa, MasterCard, Discover and American Express that will shift the liability of fraudulent charges to merchants not using EMV-capable terminals after Oct. 1, 2015.
The upgraded POS systems all have NFC capability, though the merchant can opt to keep this feature turned off rather than paying additional processing charges. However, mobile payments providers are progressing as if few merchants will turn off the feature once it is available.
For example, Visa is testing HCE for contactless Visa payWave payments made from smartphones. The card network says several issuers are already piloting this technology. Software-based security hasn’t been considered as secure as chip-based security, but the movement of payment applications to the cloud provides richer data, much like chip data, to authenticate the transaction, said Bengt Horsma, senior business director of Visa Token Service.
BBVA unveiled its own built-from-scratch mobile payments solution last year in Spain. The payment software automatically detects if a user’s phone has the underlying technology to use HCE. If it can, the mobile wallet application will ask the customer for payment approval, then for a PIN.
"We have to be where our customers want us to be," said Jon Groch, executive vice president, global payment system director for BBVA Compass. "We want to drive the experience; we don’t want our customers to have to think about the payment."
Which Wearables Will Win?
The next evolution of mobile payments is expected to come with adoption of the Apple Watch, but companies are experimenting with other wearable form factors as well. British card issuer Barclaycard piloted payment gloves in December. The wearables have embedded payments technology, enabling a user to pass a glove over an NFC-enabled terminal to make the payment.
In a survey by Barclaycard, which quizzed 2,000 people on their Christmas shopping behavior, "gloves you could pay with" were voted the most popular wearable item consumers would like to see, followed by rings in second place and bracelets in third. Barclaycard has yet to reveal the results of the trial, though contactless payments of all types grew 115 per cent by value and 108 per cent by volume in 2014 in the UK, according to the issuer.
Contactless payments is just entering its early stages in Canada, said Jeremy Bornstein, head of payments innovation for RBC, which is in the early stages of its development of the RBC PlayBand, a wearable technology that will use a SIM card and a cloud hybrid to initiate a contactless payment.
One of the features that RBC experimented with was the ability to have an immediate sign-on for several payment cards at once, rather than taking a couple of minutes to register each card. While one of the keys to mobile payments is making it easy for users, the bank discovered that if onboarding was made too simple, customers would question the security of the application. So the bank reverted back to a more complex onboarding process.
Acknowledging the introduction of the Apple Watch and other smartwatches with payment capabilities, as well as the Barclaycard gloves, Bornstein said the wearables market will likely remain very disjointed because no single solution will be the right solution for all consumers.
Phillip J. Britt's work has appeared on technology, financial services and business websites and publications including BAI, Telephony, Connected Planet, Independent Banker, insideARM.com, Bank Systems & Technology, Mobile Marketing & Technology, Loyalty 360, CRM Magazine, KM World and Information Today.