The Tangled Future of Mobile Payments
In Japan and Korea, everyone pays with phones. Tap them at checkout terminals and zap money to merchants -- it's no big deal. But why isn't it caught on in the U.S.? Well, it will, according to Euromonitor. E-wallet use -- or m-commerce, as it's called -- will more than triple over the next four years, up to $400 billion. BlackBerry, Samsung and MasterCard, among others, are jockeying for a place at the front, itching to grab a piece of that pie. But it's not that easy, with big, tangled problems to overcome before we catch up to Asia.
BlackBerry's "Money" Plan
You just finished a great dinner with friends. Now, imagine sending a text for your share of the bill instead of digging up cash. BlackBerry is working on a mobile payment platform that will let you do that. The service, called BBM Money, in partnership with PermataBank and Monitise, is still in the early stages, but if you have a BlackBerry, and you live in Indonesia, you'll be able to transfer money to your contacts over BlackBerry Messenger. Despite a fall from grace, BlackBerry is still the leading smartphone maker on the archipelago, a country of 250 million. More than 60 million residents use BBM, so it makes sense to test the mobile payment waters there.
Would you send cash over an open text? If you're like me, that's an emphatic no. What's to stop a hacker from picking off a message and cleaning out your bank account? For BlackBerry, BBM is the advantage. The secure network, famous for thwarting governments trying to track its citizens, provides the secure backbone needed for financial transactions.
Bianto Surodjo, head of electronic channels at PermataBank, said BBM Money is built on existing infrastructure, so it's intuitive to use. He believes it'll snare a few hundred thousand users within a year. "If they want to do the payment, they just go into BBM Money and they transfer in a simple way as if they were chatting," he told Bloomberg. "We want to put financial activities into customers' habits because BlackBerry Messenger is becoming like the culture here for people to communicate."
But there are limitations. BBM Money only works with devices that run on BlackBerry 5, 6 or 7 software, and not BB10. But if the pilot proves secure and satisfies complex regulatory and banking issues, BlackBerry plans to expand the service to more banks, countries and devices. Still, BlackBerry's foray is intriguing. In spite of its failure to innovate, it's regarded as the most-secure of the platforms -- and ideal to piggyback a payment system. For payment systems to work, they often need phones with special technology, like NFC, and stores to install special terminals. Nobody wants to spend extra, and that's why you're not yet paying with your phone. For BlackBerry, the advantage is, of course, the infrastructure is already in place. Stores won't need to buy equipment, and you won't have to change the way you interact with your everyday world. And that's why it just may work.
Samsung: Slow and Steady Wins the Race
Still, if you're like most people, you're leery to keep your financial data on your phone. Well, Samsung is taking a slow and steady approach to get you adjusted. Its Wallet service, similar to Apple's Passbook, but on Android, won't store your details or transfer money. Instead, it lets you redeem coupons and buy and store tickets for travel and big events. The idea is simple: get you used to checking in, and then slowly introduce cash payments.
At a developer event last week, Samsung and Major League Baseball unveiled its Wallet software. And there are other heavy hitters onboard, including: Walgreens, Belly, Expedia, Booking.com, Hotels.com and Lufthansa. Samsung is picking up where Google's troubled e-wallet service left off, and it's taking a "training wheels" approach -- before you know it, you'll be telling stories of how you used to pay for stuff with cash and coins -- at least, that's just what Samsung hopes.
MasterCard: One System to Rule Them All
Maybe you just don't trust telecoms and phone makers with financial transactions. I mean, what do they know about security? They can't even keep their phones safe -- so leave the business of money to the banks and credit card companies. If that sounds like you, you'll be interested in MasterCard's digital service.
Introduced at MWC in Barcelona, MasterPass is throwing its muscle behind NFC, and set to launch a checkout system in Australia and Canada later this month, with the U.S. and U.K. following shortly afterwards. I know what you're thinking: it didn't work before, it won't work again. But rather than terminals, the system takes payments using QR codes and tags. If you don't know what QR codes are, it's those square pixelated dots you see on the corner of advertisements. You take a picture of it and your phone stores data.
Of course, MasterPass will still push the traditional path: build consumer awareness and confidence in its brand and get merchants and financial institutions onboard. But frankly, that method hasn't gained much traction. And there's little reason to believe it will. Why? That same problem you already know: you don't trust mobile security.
PayPal Finds a Friend in Discover
PayPal teamed up with Discover to allow shoppers to tap into their online accounts in stores, intensifying the competition with traditional payment systems and strengthening its position in the growing mobile payment race.
Discover, which has trailed Visa, MasterCard and American Express for years, hoped to pick up more transaction revenue by processing PayPal's payments. PayPal and Discover also signed on with 16 major national merchants, including Home Depot, Abercrombie and Fitch, Barnes & Noble and Office Depot, reports the Wall Street Journal, putting the service live in about 3,000 locations.
PayPal, operated by eBay, handles online payments for not only the auction site, but for many private transactions, with everyone from friends sending each other money to businesses paying employees with the site's service. Members fund their accounts through debit cards, credit cards or checking accounts.
PayPal, which is accepted anywhere Discover is used, already issues MasterCard debit cards to members so they can spend their account money without waiting for it to be transferred to a bank, but the Discover arrangement is different.
Customers who use the Discover-handled plan can use a mobile phone number and PIN on the payment terminal, rather than using a card or cash, so even terminals not equipped with NFC or Square will still be able to get their money from PayPal. The company still provides customers with debit cards, which can be used at businesses without the new technology.
This differs from the "PayPal Here" system, announced last year. That plan included a thumb-sized credit card reader, which was plugged into a smartphone headphone jack for swiping credit cards and tracking check or cash payments.
The new payment plan obviously benefits PayPal, since the millions of customers that accept Discover cards will also be able to process PayPal transactions, and for the traditional credit card company, the agreement could put an end to comments like, "People still use that?" PayPal expanded its reach well beyond the online sector, positioning itself to take advantage of the growing electronic payments market, which is projected to expand exponentially within the next few years.
However, PayPal has some difficulties convincing people to use their online accounts offline, if they're not doing so already. Nationwide, mobile payments really haven't quite caught on yet, with many people still wary about mobile commerce and a fractured infrastructure that is confusing to many consumers.
The PayPal/Discovery plan isn't the first time major players have teamed up to enter the burgeoning mobile market. Walmart, Best Buy, Target and other retailers announced plans for a mobile payment option, the Merchant Customer Exchange, or MCX. The companies were already leaning toward NFC-enabled payments, which require phone users to have compatible devices. Many smartphones are not yet NFC enabled yet, which could cause problems with that the retailers' payment plans.
In addition, Starbucks and Square have a deal that enables mobile payments at its 7,000 locations nationwide. Google has also been working on a digital wallet, and phone carriers AT&T, Verizon Wireless and T-Mobile are working on the Isis mobile payments system.
PayPal spokesman Anuj Nayar tried to differentiate this agreement, emphasizing his company isn't talking about just one retail chain, but seven million retail locations nationally that already accept Discover. In addition, he stressed, unlike Square or NFC, stores won't have to pay to install costly devices just to accept payments for this program, which may give the method a leg-up in comparison to its other mobile payments competitors.
Still, unless PayPal can convince its users that transactions are just as safe offline as they are online, its alliance with Discover may be just another in an already-crowded marketplace as companies fight to lead the onslaught of mobile payment options.
Still a Long Way to Go
The idea of paying with your phone seems simple enough: hold it up and that's it. But the technologies and players needed to support that quick gesture is taking time to get there. It doesn't matter what BlackBerry, Samsung or MasterCard come up with: it's not ready yet.
"You need a lot of things to align," said Reed Peterson, head of NFC for the GSM Association, a wireless trade group. "I want to get to the point where the consumer goes into the store and says, 'Show me only the phones that have NFC'."
Smartphones need hardware like NFC chips and software to send money securely. Stores need equipment to read devices and training to accept payment. And telecoms and handset makers need to be onboard too, not to mention banks and credit card companies. It's a big jigsaw puzzle -- everyone is fighting for a stake and that makes working together difficult. Really, only a few pieces are in place.
What do mobile players need to do to get ahead? First, deal with security. Then -- arguably the hardest part -- people will need to change their habits and start paying with phones. Maybe tickets and concerts is a way to wean them in, but once it's there, they'll need reassurance that their financial data is safe. In the trenches, companies are making deals and picking sides, creating a confusing menu of choices and making widespread adoption of any one standard impossible. Bank or merchants that want to process payments from Samsung phones, for instance, will need to go through Visa, its authorized partner, who gets a small percentage of transactions -- like it does with its credit card partners.
What will likely emerge is a big battle of standards, a la Betamax and VHS. Only then, either through a lack of choice, or a set standard, we'll have a simple, comprehensive solution, one that offers both ease and omnipotence. But until then, don't cut up that credit card just yet. ♦
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