Contactless payment through debit and credit cards is gaining momentum in many markets, and the next step is to extend this capability to mobile phones. Mobile banking applications are increasingly popular, but for mobile payments to reach tipping point, MasterCard Worldwide’s James Davlouros tells Jim Banks, concerns over security must be overcome.
More and more customers have become used to accessing banking applications through their mobile phones, whether they are looking at their account balances, moving money, reading transaction histories or receiving alerts about their balances. The mobile phone is fast becoming a trusted device for banking services and the next step is for it to become a natural choice for making payments.
The day when mobile payments become widespread may be closer than many people think, particularly as there has been a major push to increase the adoption of contactless payment through debit and credit cards. This enables low-cost items to be paid for with a simple swipe, eliminating the need to enter a PIN number, and makes transactions more convenient for both customers and retailers. Enabling a mobile phone to perform a similar function is not a great technical challenge, but requires customers to trust their phones for such transactions.
"Mobile banking is a key application as it introduces the ability to interact with accounts and make payments. A lot of banks have implemented payments applications, but sometimes they are limiting, though balances, transaction histories and alerts are important. They introduce the ability to use a mobile phone in a more monetary fashion. There is an uptick in interest in this, especially in the UK," says James Davlouros, vice-president innovative platforms at MasterCard Worldwide.
"Banking applications are now expected among mobile phone users. The new form factor is doing transactions and that is the main focus for us. The device is associated with flexibility and added value. There are, however, some concerns over security and trusting the device for certain applications," he adds.
Security is, therefore, one of the top priorities for those backing the move to mobile payments, and MasterCard is among those companies looking closely at how to give consumers the necessary level of confidence in the safety of transactions carried out with mobile phones.
"The perceived security of the device is all important, and that is not clear at the moment. Our goal at MasterCard is to approve security and we are testing to make the device as safe as a card. It needs to be interoperable, safe, convenient and add value. Consumers want to trust the device, so we are testing and approving security solutions for the solutions we are rolling out, and for the future. Mobile is the channel of choice and there is a special bond between the device and the users," says Davlouros.
Like contactless debit and credit cards, most mobile phones will soon be equipped with near-field communication (NFC) capability. This allows communication between the device and a reader, which can deduct money from a stored balance for
low-value purchases. Many retailers in the UK have been trialling the technology, which has made life more convenient for customers, and has helped retailers to increase footfall and reduce the cost of handling cash.
Ideas into action
Mobile payments have been at the conceptual stage for many years, but recently there have been many projects rolled out to make them a practical, familiar reality. Financial institutions, hardware providers and network operators are all lending their weight to these projects, and there are an increasing number of new entrants into the market.
"Whoever wins in this race must have the right solution. Mobile phone providers like RIM, Apple and Google have come into play, as have manufacturers like Nokia, as well as large retailers. At MasterCard, we are investing a lot of resources in mobile payments, and we must partner with the right people. We want to get people to access our products through these devices, so we are partnering with banks and operators to provide access to our services," explains Davlouros.
MasterCard has been working with many partners to push mobile payments forward, focusing for now on four key markets where the infrastructure and acceptance of mobile banking is already high - the UK, France, Poland and Turkey.
In Turkey, for instance, services have been launched that work with existing mobile phones to make contactless payment possible. MasterCard has launched services with Orange in Poland, and is working with both Orange and Barclaycard on developing services in the UK. It is also in discussion with new stakeholders in other markets, often talking to OS players and manufacturers to find out how they can work together to better push mobile payments forward. More announcements are likely to come in the next few months.
To get a taste for how the market for mobile payments might develop in the future, it is useful to look at the UK, which is a fantastic testing ground, given that the penetration of smartphones is so high.
"There is huge momentum. For the UK it is important to get contactless payment happening through cards, which will enable the next step, which is making those payments by mobile phone. Cards are easy to issue and there is acceptance of the infrastructure. Most cards will be contactless by the end of this year. Mobile phones are always with you and they add value. They are the first port of call for everyone, whether it is for travelling, reading, finding out where you are and many other things. Ultimately, it will be the same for making payments," says Davlouros.
"Mobile payments happen today. The likes of Google, Samsung and Blackberry are providing NFC-enabled handsets to the market, and Apple may do so, too. So, there are large-scale strategies being launched. The momentum is coming from financial institutions, hardware providers and from consumers, too. NFC-enabled devices will soon become the norm. In ten years, we will still have cards, but phones will be used a lot more."
