NFC or Not: How Will You Pay?
Perhaps one of biggest market hurdles related to mobile payments is the idea one seems to agree on what a mobile payment actually looks like. While many people often think of NFC (near-field communication)-enabled smartphones when they talk about mobile payment, it is only one of the many technologies that exist today.
In general, mobile-payment technologies can be divided into two categories—chip-based technologies and software-based applications. Certainly the most hyped up chip-based technology has been NFC. The technology allows devices to establish radio communication with each other by touching or bringing them into close proximity. In a retail environment, this would require POS terminals to be equipped with NFC technology. And while most of today’s POS systems are being built with NFC capabilities, getting every retailer to upgrade their equipment takes both time and money. The other option would be for retailers to ditch their POS systems all together and arm their staff with NFC phones.
But NFC isn’t the only chip-based payment technology. In Europe, consumers use EMV smart cards, which are credit cards that contain embedded security chips that hold all of a consumer’s user data. In essence, the chips replace the magnetic strips used in U.S. credit cards. Also referred to as “chip and PIN” technology, EMV smart cards allow users to purchase items by simply scanning their cards (as opposed to swiping) and then entering a four-digit PIN code.
These types of “wallet chips” can also be integrated into mobile devices. Just like a SIM card holds your phone number credentials associated with your service provider, a security chip integrated into a mobile device could hold the credentials associated with credit card companies—just like in Europe’s EMV smart cards. Instead of making online shoppers enter 16-digit credit card numbers, expiration dates, and security codes, the chip could simplify the online payment process, which, in turn, could make online mobile purchases a more attractive option for consumers.
There are also several software-based options. Companies like Jack Dorsey’s Square, www.squareup.com, are leveraging apps and barcode technology to allow consumers to use their mobile phones for payment. Others like Google Wallet, Master Card MasterPass, and the group that came together to form Isis, www.paywithisis.com, are using software to store user credentials and taking the physical credit card out of the payment scenario.
In fact, just recently Isis announced the launch of the Isis Alliance Program, which supports merchant technology ecosystem partners with exclusive tools and resources to help them capitalize on the opportunities created by mobile commerce.
Merchants will now have the ability to deliver a richer, more personalized relationship with their customers through the Isis Mobile Wallet. The key here is that this leverages an existing payments infrastructure, meaning any merchant with a contactless payment terminal can accept payments via the Isis Mobile Wallet.
With so many options, it’s no wonder the industry hasn’t seen broad adoption. What’s more is the supply chain hasn’t been working together to provide a cohesive mobile payment scheme. “The majority of consumers in the world, even with the right devices, can’t actually access [mobile payments] today because the technology hasn’t been made available,” says Jeff Miles, vice president mobile transactions worldwide at NXP Semiconductor, www.nxp.com, one of the original creators of NFC technology. “I need the handset, the mobile network operator, the bank, and Visa or MasterCard to come in line to offer that to a consumer today—that’s been the challenge.”
However, the partnership formed between Visa, www.usa.visa.com, and Samsung, www.samsung.com, this past February could be a step in the right direction. The two companies joined together to combine Visa payment functionality on NFC-enabled next-generation Samsung devices.
Miles of NXP agrees the Visa and Samsung partnership is “closer,” but he believes the industry needs to really focus on simplifying its business model. “It’s not like an Android application, where we simply develop an application and a consumer would download it,” he explains.
In contrast, today’s mobile payment model is closed—something Miles says needs to change. “The use of NFC and the use of the secure element should be a much more open thing,” he offers as an example. “So if you and I have a great application and we are a start-up in Silicon Valley, we should be able to build our gift card application or new payment application and be able to utilize the secure element as part of our application or our technology. That to me is critical.”
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