Mobile Payment Services

Mobile payment systems have come a long way since the advent of magnetic strips on credit and debit cards. Sure, there were mobile payment systems before the credit card, but that ubiquitous magnetic strip fueled the takeoff of mobile payment systems around the world. That same magnetic strip is seeing new competition that
will transform the mobile payment world, just as it did years ago.
Near Field Communication
Many technologies are competing to take over the mobile payment space, but the most often used and talked about is NFC (Near Field Communication). NFC is a short-range wireless technology that can allow two devices, say a smartphone and a mobile payment terminal, to swap data and complete a payment transaction. The short range is an advantage; with a required distance of less than 4 centimeters between devices,there is little chance of accidentally making a payment by casually walking past a terminal. The short distance also makes it almost impossible to eavesdrop on a transaction.
NFC has become a global standard and is being championed by the NFC Forum (www.nfc-forum .org), a non-profit organization designed to advance NFC technology and applications.
NFC for Mobile Payment
The simple answer is, sure thing; what’s not to like? Open your smartphone, select the payment application, and wave your phone near a mobile terminal. Transaction complete.
Well, almost. Currently, there aren’t many NFCcapable smartphones available in the U.S. Even if you’re ready to migrate to an NFC-based phone, are you willing to break a multi-year contract on your current phone to get one? Probably not. That means in the short term, an NFC dongle attached to an existing phone or NFC-based key fobs and cards are the most likely avenues for expanding the reach of NFCbased mobile payments. Alternatively, Bling Nation and Discover Financial Services offer NFC microchips that adhere to anything, including older smartphones.
But dongles and stickers are only temporary solutions. Nokia has said it will include NFC in all smartphones it introduces in 2012. AT&T, Verizon, and T-Mobile have also committed to NFC-based phone offerings, and have formed the ISIS group for deploying mobile payment services. They plan to ramp up NFC offerings over the next 18 months, and will provide their first offering in Salt Lake City in 2012, because its commuter infrastructure already uses NFC for payment. ISIS will also work with local merchants to roll out mobile payment terminals in the Salt Lake City area. In essence, mobile operators see NFC as an opportunity to displace the current card
networks with their own mobile payment systems, bypassing card-based fees and collecting the fees and interest on payments themselves.
Research company Gartner expects that by 2012, 190 million individuals will actively use mobile payment systems, including cards, key fobs, smart tickets, and mobile devices. The year 2012 should also see 3% of all mobile payment transactions being facilitated by smartphones, which Gartner feels is the threshold for the practice to enter the mainstream.
Card Networks Expand
Traditional card payment networks, such as Visa and MasterCard, are also entering the NFC market. Visa plans to use a microSD card with built-in NFC support; the card will be usable in smartphones, tablets, and other devices that have a microSD card slot. Visa has already been operating a pilot program to test the system with participating banks.
MasterCard has certified an NFC-enabled SIM card for smartphones; the card will use MasterCard’s PayPass mobile payment system. It will be up to mobile carriers to offer to pre-load the SIM into phones they sell.
As NFC smartphones become more commonplace, the card networks will offer mobile payment applications, which could lead to some interesting competition. Mobile carriers will have to decide whether to use Visa’s microSD card, preload the MasterCard SIM, offer their own ISIS-based service, or leave it to customers to decide.
Some of the top-tier Internet services, including Amazon and Google, are new competitors in the mobile payment market. Amazon believes it can leverage its already remarkable dominance in Internet marketing to mobile payments, essentially providing another payment processing network for brick-and-mortar stores. Google, in partnership with Citigroup and MasterCard, is pursuing an NFC system that will let customers use an Android smartphone for payment. Google also intends to offer coupons at checkout. When you enter a store, Google will send special offers to your smartphone, which you can then redeem at a checkout terminal.
Merchant Support
When discussing merchant support,“support” may be a bit of an overstatement. Only 1.8% of merchants had NFC terminals in 2010, and that figure includes merchants that are part of pilot programs carried out by banks and card networks.
Merchant support is expected to expand to 5.9% by 2015. Before NFC really catches on, merchants are going to have to be willing to get quicker about adding mobile payment terminals, which may require incentives from service providers.
NFC Isn’t The Only One
One non-NFC payment system that shows promise is being used by Starbucks. In this simple system, you load your smartphone with the Starbucks app. When you’re ready to make a purchase, you simply fire up the Starbucks app, which then displays a barcode on your smartphone. The barcode is scanned at the Starbucks register and your purchase is complete. The advantage of this system is that the merchant, in this case Starbucks, already has barcode scanners, and doesn’t need to invest in any new mobile payment platform.
One of the places where new mobile payment systems are really taking off is transportation. Many municipalities have, or are in the process of adopting, new mobile payment systems. These can range from toll roads using mobile payment transponders, usually based on RFID (Radio Frequency Identification), to complete transportation payment systems that allow a consumer to log in remotely and purchase tickets for trains, buses, trams, parking spaces, even snacks, and use their smartphones to redeem them at transportation center terminals.