Is the time now for mobile payments?
The Consumer Electronics Show has become an annual showcase for the latest gadgets and technology concepts that might one day become a mainstay with the general public.
Mobile payments isn't the first thing that comes to mind at CES, but event organizers thought it was appropriate to host a panel discussion on the topic and how it resonates with consumers.
I had the privilege of moderating the panel, which included representatives from Citi, MasterCard and Samsung Pay. The session, called "Mobile Payments Roulette," aimed to make sense of what many observers considered a successful past year for mobile payments, but one that also saw significant fragmentation. The questions we sought to answer during the discussion included how we arrived at this point, where mobile payments is going next, and whether consumers are ready to come along for the ride.
What took so long?
James Anderson, group executive for platforms in MasterCard's emerging payments division, joked about the need to retire from his post because of how long it has taken for the idea of mobile payments to become tangible.
"I never thought it would take this long, for the record," he said. "It took a lot longer than many of us ever expected to get mobile payments to a level where it is competitive with cards.
"Obviously, there's still an acceptance gap, which I think we always thought would take a little time to fill. But it took a long time to get a set of [payment] credentials inside a phone."
By now, we're well aware of the competing interests that stalled mobile payments — particularly in the U.S. — for many years.
The banks, mobile operators, smartphone manufacturers and SIM card suppliers each had their vision of the "right" business model for mobile payments. Nobody could agree on how best to move forward together. The best of example of this was the fact that Google Wallet was at first limited to Sprint.
"Part of the reason why it's taken so long is that we were bringing two large, complex businesses together — mobile and payments," Anderson said. "There were are a lot of things that need to get sorted."
But now that a business model is set (for the most part) and companies are making investments to validate their participation in mobile payments, the next step is scale.
Samsung Pay's Thomas Ko talked about the goal of universal acceptance, which is a key differentiator for Samsung over the other "Pays," thanks to the magnetic secure transmission technology that comes embedded on some of the company's devices. Samsung acquired the rights to the technology when it bought LoopPay early in 2015, and has since embedded it into Galaxy S6 and Galaxy S6 Edge smartphones.
The devices still rely on NFC chips to enable users to conduct tap-and-pay transactions at contactless-enabled point-of-sale terminals. But, should contactless be unavailable, MST can communicate with the magnetic stripe reader present on all terminals in the United States. Samsung Pay senses which option is available and transacts accordingly.
"One of our goals is universal acceptance — that [Samsung Pay] can be accepted anywhere you use a card — and until that is reached 100 percent, I think we'll continue to see [consumer adoption] issues," Ko said.
Rich Clow, the head of global payments for Citi, pointed to the need to make things simple for consumers. He remarked that consumers are spending more dollars through digital payments without much push from providers.
"That's really around customer choice, not really what we're doing in the payments ecosystem," he said. "But we need to make sure that the solutions that are there are designed for simplicity and convenience."
Dip vs. tap
One area that hasn't been so simple is the migration to EMV in the U.S. Many consumers haven't found the chip card transaction to be a smooth one. And there have been some inconsistencies in the user experience.
That said, some industry observers believe consumers' frustrations with “dip-and-pay” could lead to more “tap-and-pay” transactions, whether through contactless cards or mobile wallets.
Is this a valid argument?
"Everyone is in a hurry today and any time they can save time, it's going to be perceived as valuable — and contactless has always been the fastest transaction," MasterCard's Anderson said. "I think it's actually going to be a merchant-driven thing and they will decide which areas are time-critical and when it matters [most]."
Andersone cited transit and quick service restaurants as two sectors that have embraced contactless payments.
Clow, however, was quick to remind the audience not to overlook EMV's importance in the U.S.
"No consumer asked for a chip, but the fraud we were experiencing in the U.S. was intolerable," he said. "I think we did [the EMV transition] through a lot of compromise, but at the end of that day, stopping that fraud was critical and this was a step towards that."
Online fraud, however, is the next problem the payments industry will need to address. History has shown that card not present fraud increases in a country that transitions to EMV. Clow said that it's critical for all parties to come together to solve what will soon to become a much bigger problem in the U.S.
The panel also touched upon a number of topics related to mobile payments (and some related to the Internet of Things, which I'll explore next week):
- Clow on banks entering mobile payments with their own proprietary efforts: "We're really past this question. If mobile payments and digital payments are going to scale, it's really more about what's required to accelerate and we need to figure out what our role is in that acceleration."
- Anderson on banks' proprietary efforts: "They absolutely need to have the option of putting their cards into the Pays, but we absolutely believe they need their own offering because they have incredibly valuable assets [to provide and protect]."
- Ko on the outlook for digital payments: "For future generations, digital payments will be all they know, therefore getting it right [now] will be critical."
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.