By Doug Dwyre
Mocapay
The buzz around mobile payments has increased in recent months after several big players launched two separate initiatives, each promising to be the next generation of payments. Not only do carriers and technology companies see the payments industry moving in the mobile direction, but also research firm Gartner Inc. believes mobile payment users worldwide will reach 141.1 million by the end of 2011.
The two major-player mobile initiatives have been Google Wallet, a partnership between companies including Google Inc., Citigroup Inc., MasterCard Worldwide, First Data Corp. and Sprint Nextel Corp., and ISIS, a mobile payment network venture formed by AT&T, T-Mobile USA Inc. and Verizon Mobile. Both are relying on near field communication (NFC) and stored credentials to provision accounts and transact at the POS.
NFC, a technology that completes transactions by exchanging encrypted data with an NFC reader when the payment device is in proximity to the reader, is not new to the payments sphere.
The technology, currently being used with tap-and-go credit cards from American Express Co., Discover Financial Services, MasterCard, and Visa Inc., has been in existence for quite some time. But it has yet to catch on at a majority of merchant locations.
One barrier to NFC adoption has been the requirement for merchants to add hardware in order to accept this technology and for consumers to carry additional NFC-enabled cards, which are similar to traditional mag stripe cards.
Integration of payment functionality into mobile phones eliminates the need for consumers to carry such cards. However, the Google and ISIS solutions require merchants to invest in NFC readers and for consumers to invest in NFC-capable mobile devices.
In addition to employing NFC, the Google and ISIS mobile payment solutions are provisioning and storing sensitive consumer payment credentials on mobile handsets. This, in itself, presents unique security challenges to payment professionals and the merchants they serve.
These issues exist now, when NFC is not even an industry standard, which is asking much from smaller merchants and for consumers outside of the early-adopter demographic. NFC readers on average cost around $100 per terminal, and provisioning accounts to a mobile handset requires a trusted service manager (TSM) that ensures safe and secure transmission of account credentials "over the air" on to the chip within the handset.
For consumers, the only mobile phone available for this is the Sprint Google Nexus S 4G, in addition to a few older Nokia devices that are not available from U.S. carriers.
The requirements and investments surrounding NFC have hindered the adoption of mobile payments for some time. Much like today's payment structure, which includes multiple tender types - cash, check, credit, debit, prepaid, etc. - the mobile payments arena will need to have various players and technologies in addition to NFC to appeal to an array of consumers and merchants.
Mobile payment structures need to address three aspects or features in order to appeal to a large group of merchants and consumers.
A solution that enables mobile payments through a software upgrade or service will help reduce the required investment. Compatibility for consumers is important, as carrier upgrade cycles are typically every 18 months, which would then allow the consumer to purchase a device that features the specific technology.
Short message service (SMS) is widely deployed across the world and can perform functions outside just communication with other people. Offering multiple technology solutions, whether they be SMS, mobile Web (wireless application protocol) or mobile applications, will allow a greater number of consumers to participate, therefore increasing adoption.
What merchants have yet to obtain from a payment system is the ability to integrate marketing tools that better connect consumers to their purchases and all their future spending.
This fact has led to the adoption of gift and loyalty solutions. Even for the merchants who have implemented loyalty programs, solutions integrating payments, marketing and loyalty are rare or not utilized effectively.
The same is true for consumers, who ask why they should use their phones instead of credit cards or cash to make payments. Consumers need a reason to adopt and a reason to continue using a given solution. At minimum, consumers must be able to use the solution at a wide variety and large number of merchants; they also must receive value beyond simply paying with their mobile handsets.
History tells us initial consumer adoption isn't the problem: ongoing use of NFC and mobile commerce as the preferred payment method for consumers has been the hurdle.
Issuers have provided consumers incentives for years to maintain a "top of wallet" position with plastic cards; mobile is no different. Mobile payments need to be a piece of a larger offering to make adoption and continued usage more attractive than other payment options.
The age of the Internet and alternative payment methods and channels has exposed new security threats that force merchants, financial institutions and issuers to react with more stringent security features to protect consumers.
Those who are shaping the mobile payments market have an opportunity to establish a secure payment method from the beginning. Security concerns already present within the industry involve account provisioning, storing of payment credentials and transmitting sensitive consumer payment credentials when transacting. This presents an additional challenge for issuers and merchants.
Successful solutions will protect consumer-sensitive information from the beginning, when accounts are provisioned, and maintain a high level of security throughout each consumer relationship.
The notion of a single solution for mobile commerce seems shortsighted. Mobile presents an opportunity for many constituents within the payments ecosystem to engage with consumers and deliver value in a more personal way. Savvy consumers will demand options and, if not presented with them, may choose not to adopt mobile payments at all.
In the end, solutions that are available to the largest audience, provide additional value beyond just paying for products and services, and protect consumers from theft and fraud will be the most successful in increasing sales for merchants and providing more convenience and benefits for consumers.
Doug Dwyre, President of Mocapay, is a seasoned executive with 24 years of experience in the financial services industry delivering innovative payment solutions to issuers, merchants and consumers. Doug has launched state-of-the-art incentive marketing programs focused on driving consumer behavior and providing valuable customer data to retailers and financial services firms. For more information, email him at doug.dwyer@mocapay.com.
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