When will consumers begin to demand the ability to make payments from their phones? If you look at the studies, surveys and stats released almost daily in the payments and tech media, the day is coming – and fairly soon.
Indeed, consumers are already experimenting with different apps allowing them to tap their phones at the point of sale (POS), buy a coffee with on-screen barcodes or pay for taxi fare with electromagnetic pulses from a fob. We might call those people “early adopters,” and be quick to dismiss them as not representative of the mainstream. However, take a look at this stat I recently came across: It takes 26 hours for the average person to report a lost wallet; it takes 68 minutes to report a lost phone.
Pretty telling, isn’t it? Based on this behavior, consumers have come to think of their smartphones as indispensable. We can live a full day without our wallets. Yet we can barely manage an hour without our phones.
Determining when the phone will officially replace the wallet is mired in a series of challenges, yet it basically boils down to these two: 1) consumer demand (or lack thereof); and 2) collaboration between providers (or lack thereof).
Today, swiping a card or handing over cash isn’t all that hard, so consumers are slow to clamor for a new payments solution. The industry, however, sees the value in allowing fast, anywhere, anytime payments. Financial institutions, telcos, device manufacturers, retailers and Internet giants will ultimately drive consumer adoption; they just have to figure out how to play together first. At the end of the day, jockeying for position among these different industry players has slowed delivery of a tipping-point solution – one that makes the average consumer say, “Yea, I want that.”
That is not to say there is a shortage of options for credit unions looking to provide members with financial apps for their mobile devices. There is, however, a significant lack of apps that sufficiently combine the mobile banking with the mobile payment experience. With the successful blending of these two components, consumers will begin to perceive mobile payments as easier, better or more convenient than swiping a card or paying with cash. Who wouldn’t want a real-time, highly customized, controllable and secure way to both monitor funds and make a payment from the same app?
Today, three main technologies are powering emerging payment apps: cloud, low-energy Bluetooth (BLE) and near-field technology (NFC).
So where can you see these in use today?
Cloud is probably best utilized by Starbucks. However, PayPal, which recently piloted a cloud-based payment technology with Home Depot in which consumers could pay without even taking their phones out of their pockets, has also made good use of the technology. Why should this worry today’s card issuers? Because PayPal traditionally operates on ACH rails. Translation: no interchange revenue for issuers. Brand erosion, too, is possible with PayPal and Starbucks apps, as issuers’ interaction with consumers is removed almost entirely from the transactions.
BLE is one of Apple’s favorites, as evidenced by its most recent operating system and the iPhone 5s. When iPhone users turn on Bluetooth and walk by an Apple Store, they receive special offers designed to entice them to walk through the Apple Store doors. Here again, PayPal is showing some interest in using the technology for payments. Its partnership with iBeacon, for example, allows consumers who have enabled Bluetooth on their devices to make payments at the POS.
NFC is used today best by ISIS, the mobile payment platform owned by three telco giants, Verizon, AT&T and T-Mobile. Each of these wireless companies has a pretty great adoption plan in place, as they introduce ISIS to their customers with special discounts and rewards as they upgrade their phones. Smart.
To make NFC-based applications really sing, however, a second technology is a must: Host Card Emulation (HCE). HCE, which has recently been endorsed by both MasterCard and Visa, complements NFC hardware in a way that keeps card issuers in play and allows for a seamless user experience. In a traditional NFC-based payments app, card credentials are stored on the phone itself. With HCE, the credentials are stored securely in the cloud, which allows users to access them virtually anywhere. This creates a really nice user experience where all consumers need to do is tap the phone, which knows to initiate the authentication process by accessing the cloud.
The other great benefit is once credentials are in the cloud and able to be accessed by multiple platforms, it becomes much easier to offer that banking+payments experience TMG believes will be critical to creating real value for consumers.
Just as credit union card issuers have long pursued top-of-wallet positioning, very soon it will be top-of-app positioning they most cherish. To get there, credit union innovators should let the desired user experience – not the technology – drive their mobile strategies.