"When will mobile payments replace card payments?" This question has been on the lips of the payments industry for years. But as Ian Hermon argues, we may have been asking the wrong question
Despite the hype, mobile payments have so far failed to gain widespread traction in the developed world (it’s a different story in certain emerging economies such as Kenya, Uganda or the Philippines where mobile money solutions have gained widespread consumer use). With the arrival of Apple Pay to considerable fanfare in the media, many commentators have argued that this may be the technology that will finally hasten the decline of credit and debit cards.
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The trouble is that we just may be asking the wrong question. Credit and debit card payments are far from broken. In the back and forth between the participants in the payments value chain, the industry has been guilty of focusing on how we are going to monetise mobile payments, rather than questioning why we are developing these payments methods in the first place. Are mobile payments lower cost, more convenient or quicker than card payments? The answer is perhaps all of these things, but only in certain situations.
One of the major selling points of card payments is their almost universal applicability. With your credit or debit card, you can pay for goods and services in just about any country, at both online and offline point-of-sale, and can withdraw cash from almost any ATM with a Visa or MasterCard branded card.
This near universal payment method has perhaps kept us shackled to the idea that we need to replicate this model as we move forward with mobile payments. We hear over and over again that mobile payments won’t gain widespread consumer adoption until one solution ‘wins’ the race.
The fact is that the trend in payments innovation has been one of fragmentation, rather than consolidation. There are currently 180 currencies in circulation that are recognised as legal tender You can pay people with cash, via bank transfer, SWIFT, with peer-to-peer mobile apps like Pingit, at the physical POS, online, via mPOS, or with virtual currencies like Bitcoin. The list of payments methods is expanding all the time.
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By GlobalDataGiven the plethora of technologies available to send and receive money, is it realistic to expect one payment type to fit each and every scenario? Using a contactless card might be the best option when taking the bus or paying for a coffee. Higher value transactions such as paying for dinner or booking airline tickets online on the other hand may require consumers to consider other payments options available.
The natural evolution of the payments industry will be to find an equilibrium between offering a range of payments options to consumers that are tailor-made for different scenarios while minimizing consumer confusion.
Both cash and cards still have a big role to play in the future. There are many scenarios in which it’s difficult to beat cash both for convenience and anonymity. Card payments will likewise remain the preferred payment option in certain scenarios.
Mobile contactless payments will almost certainly join the picture for lower value payments, as the most convenient way of paying for something in store. P2P mobile payments have already proven their worth. mPOS payments in the same vein have significant benefits for certain types of merchants e.g. seasonal businesses or those in the hospitality industry.
Instead of arguing over when mobile payments will replace card payments, we should be discussing which payments methods are most suitable for certain transaction environments.
The providers of mobile payments solutions must play a careful balancing act between ensuring the highest standards of security while preserving a familiar user experience.
Mobile payments should provide a better way to pay for things and not simply another way to buy things with a different technology. Badly thought out security can create friction for the consumer, and will often hinder adoption of a new technology.
It is clear that for any payment method to be successful, it must be underpinned by the highest standards of security. New payments methods – whether mobile or otherwise – create new vulnerabilities, and therefore new points of attack for criminals.
The arrival of mobile payments dramatically expands the payments ecosystem, bringing new players such as mobile network operators and handset manufacturers into play. Multiple mobile payment technologies are coming into use, with parties advocating a different idea of where the consumer’s ‘mobile wallet’ – the trusted source of credentials – should reside.
The theft or misuse of consumer payments data can quickly destroy trust in a mobile payments method. Time and time again strong encryption backed up by careful key management has been proven to be the most secure means of protecting payments data.
Hardware-based security plays a central role in establishing trust in the payments industry, and for years has helped to establish the high standards of data protection, assisting organisations along the value chain comply with evolving PCI DSS standards and in the process devaluing stolen data.
Ian Hermon is mobile payment specialist at Thales e-Security
