The 21st Century Wallet: Will Mobile Payments Go Mainstream?

When I set out to write about the pros and cons of mobile payment or electronic wallet technologies, I assumed it would be a simple and interesting subject.

Interesting, yes. Simple? Not at all.

Apple Pay, Google Wallet, SoftCard, and PayPal are some of the leaders in the emerging mobile payments field. But how might these mobile wallets improve my life or shopping experiences? And why would one be preferable to another? To learn more, I interviewed a handful of experts in the technology field to get their opinions.

To my surprise, each conversation inevitably began nearly the same way – with an explanation that the mobile payment landscape is incredibly complex, far from simple to discuss, and that the biggest issue right now isn’t necessarily which mobile payment method to use, but whether any of them is worth using.

In fact, the experts I spoke with debated whether mobile wallets, in their current form, provide any real value proposition or advantage over a traditional credit or debit card.

But the technology’s usefulness is only one sticking point. There’s also much concern regarding security issues that apparently still plague this approach to paying for goods and services. Many platforms rely on the use of near field communication (NFC) technology that allows you to pay for items by holding your smartphone close to the NFC device at a cash register. (Thus, theoretically eliminating your need to carry or use credit cards.)

The concern and caveats from experts were surprising given some recent statistics.

For instance, 77.7% of payment terminals will be NFC-enabled by 2018, up from only 15% at the end of 2013, according to BI Intelligence. People using various NFC payment solutions will increase to 680 million in 2015, according to ABI research.

Trading Security for Convenience

The problem is NFC is not necessarily a secure communication channel, cautions Markus Milsted, CEO of Omlis, which specializes in payment security for mobile wallets.

“Convenience is being pushed above security,” he says.

NFC technology is used by some of the most popular mobile wallets, such as Apple Pay and Google Wallet. Here’s how it works:

With Apple Pay, for instance, your phone unlocks automatically when it is held near the NFC reader on the merchant’s payment system. You’re then prompted to scan your fingerprint to authorize the transaction.

When using Google Wallet on your smartphone, you’re prompted to enter a passcode. One of the first to use NFC technology, Google initially had trouble getting credit card issuers to support Google Wallet, according to various media reports. As a result, Google Wallet now creates a MasterCard debit account for each of its users, and your personal card is charged on the back end. Google Wallet, it is also important to note, only works with some Android phones and tablets.

Milsted, who speaks passionately about the security of this emerging industry, says that among his friends there have been at least 20 incidents of error with NFC technology.

“It’s picking up any card in its field,” he says. “So if you walk past a reader at the time someone is making a purchase, it can pick up your card instead.”

The problem, he says, is that such errors are just micro-incidents at this point, not being reported in the media.

Milsted sees several other issues plaguing the mobile payment landscape, including:

  • There’s too much competing technology, leaving retailers confused about which to adopt.
  • This lack of unification stems from the many different computer technologies available to consumers and different mobile user strategies.
  • While NFC technology may be able to unify things slightly, the question is whether NFC is the best way to make such payments.

“The problem is security always comes last, but security is an inhibiting factor,” says Milsted. “You’ve got to get the security right, both from the device and the NFC reader. And NFC readers are far from perfect at this point. Security remains a big issue.”

The fact that there are so many competing technologies has a great deal to do with the fact that there are so many different types of mobile users, says Gokhan Inonu, president of Cardtek USA, a global leader in software for financial transactions.

“The idea is to cover the whole population,” says Inonu. “There are different types of cellular phones, different types of users. … I have a couple of friends who never change their phones, they are stuck to iPhone. Once they are stuck to iPhone it means they will use Apple Pay. But in the mobile payments arena, Google is also one of the strongest players. In order to cover the most number of consumers, you need to support all different types of payment methodologies.”

In addition to Apple Pay and Google Wallet, SoftCard and PayPal are also among the major players in the mobile payments field.

SoftCard was created and is backed by mobile network operators. (With Apple Pay and Google Wallet, there is no link to mobile network operators.) SoftCard is an NFC-reliant system as well, developed by Verizon, AT&T, and T-Mobile. But to date it can’t be linked with many popular credit cards – just American Express, Chase, and Wells Fargo. SoftCard payment apps are available for both Android and Windows devices.

PayPal, meanwhile, does not rely on NFC technology. There are various ways to use the PayPal app. When purchasing food, users order a meal for pickup or delivery and pay online. When shopping and making an in-store purchase, users authorize that merchant via the app. The merchant, in turn, selects your photo when it appears on the cash register.

The downsides of using PayPal include the fact that different merchants have different approaches to completing payments. And merchants that accept in-store PayPal payments are few and far between.

All of which leaves attorney Thomas P. Brown a little unimpressed when it comes to the value of mobile payments.

Brown lectures on mobile payments at the University of California and specializes in mobile payment law. He also sits on the boards of a number of digital and mobile technology startups.

“The reason that all of the technologies people are trying out are struggling is because it’s unclear why a consumer would use any of them, relative to a plastic card with a magnetic stripe,” says Brown. “They don’t do anything different than the credit card itself.”

Google Wallet, he adds, offers the consumer the opportunity to link to various funding sources, not just a single credit card. But the advantage of even that remains hazy at best.

“Why would that be interesting to the consumer?” Brown says. “That’s not a super-easy question to answer.”

Looking in the Wrong Places

Although the mobile payments market may have some maturing to do, Brown points out that he still believes such forms of payment can be useful under the right circumstances.

PayPal, for instance, can be very useful for making purchases online, he says. “PayPal is great for facilitating a transaction for people who don’t have another way of doing it.”

What’s more, says Brown, we may all be focused in the wrong direction when it comes to gauging the success and emergence of mobile payment technology.

Usage of mobile payments becomes interesting, and useful, at places other than the cash register or in a store — in unexpected places, such as a craft market in Paris or in takeout lines at restaurants.

“I was able to use PayPal at a craft fair in Paris to buy a scarf. That’s awesome. The woman selling the scarves didn’t take credit cards and I didn’t have a check, so I used the PayPal app on my phone,” says Brown.

“I’m totally bullish on mobile payments and mobile wallets,” he adds. “But there are some use cases where the consumer value proposition is evolving and difficult to discern, and one of the hardest places is in the checkout line. The mobile payment revolution won’t be seen there. If that’s where we are looking, then we are looking in the wrong place.

“It’s being able use PayPal to buy a scarf at a marketplace in Paris, and get entertainment delivered to your phone. Those are all places where mobile payments are changing the lives of the consumers for the better right now, without having to wave our phone Harry Potter-like at a device at a register.”

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