Contactless payments and mobile wallets provide the ultimate in convenience for consumers. They enable people to pay for goods online or in stores with a swipe of a card or mobile phone on a payment terminal. The technology is a reality, but it may take time for these tools to become the norm, as Ron van Wezel, chairman of Mobey Forum, tells Jim Banks.
The way we pay for goods and services is undergoing radical change, thanks to new technologies that enable contactless payment. Near-field communications (NFC) technology means that a simple swipe of a card or mobile device can settle a bill, and mobile wallets that hold bank card details on a phone mean that chip and PIN is an increasingly archaic means of payment.
Despite the convenience contactless mobile payment technology offers, it has not yet reached critical mass.
"Contactless payment needs to show the value proposition to the consumer and the merchant," says Ron van Wezel, chairman of Mobey Forum. "Consumers need the convenience, but they must also be sure that contactless payment is secure. They also require ubiquity of acceptance, but the technology is not widespread in most countries. Merchants need to understand why they should make the move to the new technology."
Mobey Forum is a not-for-profit organisation that is helping to define a sustainable and prosperous mobile financial services ecosystem. It comprises financial institutions, mobile network operators, mobile handset manufacturers, payment processors and vendors, which are committed to accelerating the mass-market deployment of user-friendly mobile financial services through open and secure technology standards.
"Contactless payment is mainly card-based at the moment, as developing it for mobile phones is a big challenge," says van Wezel. "It needs cooperation between many stakeholders - the handset manufacturers, mobile operators, banks and merchants - which makes it complex. It needs NFC terminals and phones, which are not widespread yet, though we may see NFC capability on the next iPhone and Android handsets.
"Some say we need acceptance of contactless cards first, but there is more value in mobile contactless technology, so the two could develop simultaneously. The mobile wallet, which is an interface to access all of a consumer's bank cards, doesn't really exist yet, though Google Wallet is out there. But this is where we see tremendous value."
Mobey Forum has spent a lot of time working on mobile contactless payment in the past, and now its priority is to overcome the hurdles that stand in the way of wider acceptance of the mobile wallet.
Mobile wallet applications, such as Google Wallet, securely store debit and credit cards on a phone - or rather in the cloud - allowing consumers to pay for goods and redeem offers in stores or to quickly pay for goods online by signing into a Google Wallet account.
"For the mobile wallet, it is all about familiarity and education," explains van Wezel. "The challenge is to make it really easy to download bank cards to sit in a wallet on a phone. A lot still needs to be done, but it carries a powerful additional value to customers and merchants if the use of the mobile wallet gets price reductions on goods or cashback. It just needs the right branding.
"For online payments, there is no need to put in your card details, because they are transferred to the merchant through the mobile wallet. It is useful at point of sale too, but there is a long way to go."
While there are differences between mobile contactless payment, which relies on storing small amounts of virtual cash on a handset, and the mobile wallet, which depends on storing cards on a mobile handset to enable larger purchases, the two technologies work in tandem in terms of market acceptance.
Their convenience is the key driver, as both enable quick, simple payment through a mobile device. In order to gain wider acceptance, the technologies must be more widespread and, for contactless mobile payment, the biggest hurdle has been customers' views on security.
"A lot of work has been done on security over the last ten years, but it is all about perception," says van Wezel. "The devices must be seen to be as secure as cards and consumers need to know that banks will help if there is any problem. There is also an issue over data privacy, but it is made clear in the terms and conditions how data is used, so that there are no misunderstandings.
"The perception of security comes with use. When ATMs first came out, there were concerns about their security, but that hurdle was easily overcome. It just requires client adoption."
This year's Olympic Games could do a lot to further the adoption of contactless payment. Visa, along with mobile handset maker Samsung, is installing over 3,000 contactless terminals at Olympic and Paralympic venues throughout the UK. Based on Visa's payWave technology, these terminals will allow visitors to use their phones for point-of-sale purchases during the Games.
Such a high-profile showcase for the technology could go a long way towards making contactless payment more familiar to consumers. When it comes to the mobile wallet, there are many challenges.
In its latest white paper, Mobey Forum identifies that implementing a mobile wallet is easy in theory, but not in practice. For users, the advantages are clear, as the contents of the wallet can be mixed and matched to suit particular needs, so competing brands can coexist. The challenge, however, is that users may already have many virtual wallets, so need to see significant benefits to be motivated to shift to a mobile wallet.
Many industry players are vying for position in the nascent market for mobile wallets, so standardisation and interoperability could be difficult to achieve. The new opportunity to interact more strongly with their customers means that players in the market may bring out many competing solutions, fragmenting the market and making potential users more hesitant about adopting the technology.
Despite these challenges, van Wezel is confident that mobile wallets will become commonplace, although much work needs to be done to coordinate the efforts of the many different stakeholders. On the contactless mobile payment side, he believes that momentum could build quickly and it may not be long before the market reaches critical mass.
"Full adoption of contactless payment will take a couple of years," he says. "Take-up can be very fast and the Olympics will drive it. The UK and the US are leading the way, and the transit space is already driving it.
"The Oyster card is very familiar to travellers in London, and it is being combined with Visa and MasterCard schemes, so people are used to the contactless experience. "It is when it reaches tipping point that we will see very fast acceptance."