2014 in review, part II: Security, bitcoin, carrier billing, and mPOS
Apple Pay might have been the most discussed mobile payments story in 2014, but data breaches were top-of-mind with consumers and the entire payments industry.
Coming off the massive Target breach in 2013, we saw a number of high-profile incidents throughout this year. Those breaches put more emphasis on preventative security measures such as EMV, tokenization and other methods.
And security is where we start with part II of our two-part 2014 review.
We arrived at a point in 2014 where we weren’t guessing when the next retailer data breach would happen but which big-name merchant would fall victim to a hack.
While the Sony Pictures hack didn’t directly affect consumers, it was the cherry on top of a year that saw headline-grabbing data intrusions at some of the largest and most popular retailers in the U.S. Consumers now more than ever are well aware that their sensitive financial information can fall into the wrong hands each time they use plastic to pay at their favorite establishment.
In the aftermath of this year’s breaches (which followed the massive Target hack in 2013), EMV and tokenization became the new buzzwords in the U.S.
Merchants now have less than a year to switch to new EMV terminals that will also accept magnetic-stripe cards. The Payments Security Task Force, a group of acquirers, predicts that at least 47 percent of U.S. merchant terminals will be enabled for EMV chip technology by the end of 2015. Nine of the country's largest payment card issuers estimate they would issue more than 575 million chip-enabled payment cards by the end of 2015.
EMV, of course, isn’t a silver bullet in the fight against card fraud. The technology doesn’t solve for online fraud and the Target breach still would’ve happened.
Industry observers believe tokenization and end-to-end encryption also need to play a role in data protection alongside EMV. We now know what tokenization can look like for mobile payments thanks to Apple Pay, but this is obviously limited to one payment method.
“Given that EMV fails to mask cardholder data, expect tokenization to play a significant role in payment security moving forward,” Jordan McKee, a senior analyst with 451 Research, told Mobile Payments Today.
Depending on whom you ask, bitcoin is either sputtering along on its way to a nosedive off a cliff end or is just beginning to capture the mainstream attention it so desperately needs to become a viable alternative to fiat currency. The current and future state of bitcoin probably lies somewhere in the middle of those two opposing views.
Bitcoin was all the rage in 2013 when a single unit of the cryptocurrency reached $1,242 in value late that year. But after Japan-based bitcoin exchange Mt. Gox ceased operations in February and later filed for bankruptcy after losing 774,408 bitcoins in a hack that went undetected for years, legacy financial institutions and governments worldwide viewed bitcoin with more skepticism.
Earlier this month, MasterCard’s president for Southeast Asia lampooned bitcoin and other virtual currencies and said they could not be trusted and lack a real value to consumers and merchants.
"Trust and security, a stable form of value, are incredibly critical if you’re going to be able to gain acceptance for the services you’re looking to provide,” Matthew Driver said in a video. “The challenge for cryptocurrencies, like bitcoin, is that they’re unstable in terms of their intrinsic value."
Pending regulation from the New York Department of Financial Services casts a long shadow on virtual currencies’ prospects in 2015. Since the department released the first draft of its proposed regulations in July, bitcoin enthusiasts have worried that startups would be at a disadvantage because they could not afford to purchase the necessary license to operate in New York.
Benjamin Lawsky, New York's superintendent of financial services, in November introduced a way for startups to apply for a special BitLicense so that they could operate with a more flexible license for a set amount of time as they grow larger. The NYDFS will then consider various factors in deciding whether to grant businesses a full BitLicense.
Lawksy said this past week that his department is about to release an updated BitLicense that will start another comment period.
As bitcoin use waned in 2014, more advocates began discussing ways the underlying blockchain technology could be used for things such as document authentication and B2B payments. Some companies such as Bitspark in Hong Kong are pushing remittances as a way to increase bitcoin’s use with financially underserved consumers.
Despite unclear regulatory environments in the U.S. and worldwide, bitcoin service providers continue their march to make virtual currencies more mainstream in 2015.
Bitcoin processor BitPay continues to make the currency’s acceptance possible at more merchants. It recently enabled Microsoft to allow its customers to load funds into a wallet using bitcoin. BitPay is even sponsoring a college football postseason bowl game later this month.
Venture capitalists continue to invest money into bitcoin startups and don’t seem bothered by a decrease in the virtual currency’s use. That alone will keep bitcoin as a topic of conversation in 2015.
Direct carrier billing
Direct carrier billing providers benefitted from a few emerging trends in 2014:
- app stores such as Google Play are becoming more popular with smartphone users and a sizable chunk of those consumers do not wish to use plastic to pay for digital content;
- mobile network operators’ desire to find new revenue streams amid diminishing margins from services such as data plans opened the door for direct carrier billing providers to partner with telcos to help them capture spend from app stores; and
- direct carrier billing in the last few years has moved beyond digital content and is encroaching on the physical world in a few ways and almost every major provider this year announced its intentions to bridge the gap.
Let’s examine that final trend first.
CardMobili, a Portugal-based digital wallet provider, is integrating Bango's direct carrier billing capabilities with its own technology to create a product that MNOs (and merchants) can brand as their own to enable consumers to buy physical items and charge them to their monthly mobile bill.
Boku, a San Francisco-based direct carrier billing company, in October announced that it had signed agreements with the U.K.'s three major mobile network operators to let those customers charge items such as bus tickets and magazines to their phone bill. The company also wants to expand its merchant reach with businesses that sell food items and become a staple at vending machines.
Also in October, Fortumo announced its first foray into physical goods, thanks to a partnership with mobile operator SingTel and Rovio, developers of the popular Angry Birds mobile game. Post-paid subscribers of Singapore-based Singtel can now purchase Angry Birds plush toys and charge them to their phone bill.
All three providers also continued to pad their core business of connecting MNO subscribers with app stores.
Bango announced some key partnerships in 2014 that involved Google Play and the Samsung Galaxy Apps store. Boku launched direct carrier billing connections in India thanks to the 2013 acquisition of Qubecell. Fortumo pushed mobile developers to create apps for Windows Phone.
Boku also made a move to consolidate the market when it acquired one of its leading competitors in Germany-based mopay.
The new point of sale
The mobile point-of-sale market became more about ancillary services in 2014 than dongles and iPad stands. And that trend will continue next year as the EMV migration is opening all sorts of opportunities for both the established mPOS companies and new entrants such as Poynt.
“Currently, the vast majority of mobile POS sales are very basic, payment-only applications,” Rick Oglesby, a senior research analyst for Double Diamond Payments Research, told Mobile Payments Today. “However ISOs and acquirers are gearing up to change that, looking to replace magstripe terminals with EMV-ready mPOS products that will serve as a product hubs, including not only payments products but also loyalty solutions, accounting products, business development solutions, and business management solutions.”
Oglesby believes those additional services will pave the way for merchant app stores that retailers can use to download different services to their mPOS system.
“First Data and its bank partners, Vantiv, Chase Paymentech, EVO and Heartland are all top acquirers that will hit the market hard in 2015 with mPOS solutions that include a merchant app store,” Oglesby said. “This is a foot-in-the-door strategy where the acquirers will sell very simple MPOS solutions to get onto merchant desktops, and subsequently sell more advanced solutions via application downloads.”
That software approach is at the center of Poynt, which former Google Wallet and PayPal executive Osama Bedier showcased at Money 20/20.
Bigcommerce, Boomtown, Intuit, Kabbage, Swarm and Vend each provided applications for Poynt that are intended to help merchants better manage day-to-day operations. For example, Vend's app provides merchants with inventory and customer loyalty tools. Swarm gives merchants a Beacon device to help them track customer movement at the storefront. Boomtown, a tech support vendor, can provide an Amazon Mayday-type experience using Poynt's built-in camera.
“Vendors including Poynt, Clover and Leaf are executing on an API-driven vision that will create an app-centric POS ecosystem,” McKee said. “The hope amongst vendors is that by inviting outside participation, their solutions will have broader market appeal and increased functionality. The challenge will be in attracting developers to build inside of an ecosystem with a limited merchant footprint.”
The year also saw a number of other significant developments that didn’t appear in this review.
PayPal will become a separate company from eBay in 2015 and many observers believe this will better enable the company to respond to changes in the market.
Starbucks continued to break records with mobile payments and many QSRs are trying to find ways to mimic that success. “However, many are beginning to learn their customer base is vastly different from that of Starbucks and are experiencing limited adoption as a result,” McKee said.
Alipay and China Union Pay both are growing stronger in the U.S.
Social media will have an impact on mobile payments in 2015. Facebook, Twitter, and Tumblt are experimenting with a Buy Button in some way. Messaging app Snapchat introduce a way to transfer funds riding the rails of Square cash. This capability might come to Facebook Messenger next year as well.
Topics: ATMs, Bill Payment, Bitcoin, Card Brands, Carriers / Operators, Contactless / NFC, Direct Carrier Billing, Handsets / Devices, In-App Payments, Loyalty Programs, Mobile Banking, Mobile/Digital Wallet, Mobile Marketing, Money Transfer / P2P, POS, Regulatory Issues, Restaurants, Retail, Security, Trends / Statistics
Will Hernandez / Will Hernandez has 14 years of experience ranging from newspapers to wire services and trade publications. Before becoming Editor of MobilePaymentsToday.com, he spent two years as the content manager for PaymentsJournal.com, a leading payments industry news aggregator and information hub published by Mercator Advisory Group. Will spent four years covering the payments industry as an associate editor for multiple publications in SourceMedia's Payments Group based in Chicago.