There is a small battle going on in the payments world that may soon come to the surface. The world is now seeing the era of mobile payments and the focus is on the consumer adoption and growth of the industry. The underlying questions is, which wallet, from either your phone maker or your bank will you use? As the mobile wallet market matures, consumers will demand more from their banks and phone makers need to do more than just payments. Consumers want one place where we can do everything, like point of sale payments, banking activities, loyalty activities and online and in-app purchases.
The struggle will be between phone makers, like Google, Samsung and Apple and Financial Institutions, such as Chase, Citi Bank and Bank of America and new challenger Banks, like Mondo and Curve. The new banks are positioning themselves as different to traditional banks by focusing on the added value to the customer, for examples; creating an easy way to view my monthly purchases categorized in an easy way on their phone. This is not a massive banking disruption, but the openness and future possibilities make this an exciting time to watch the banking industry. The future possibilities are very interesting, as no traditional bank has really opened their API’s to outside parties. Companies such as Mondo.com are creating a platform that will be driven by a single savings account, which will be the trigger for all other banking activities. It will allow you to eventually link the app or API to your device so users can make payments at the point of sale, split bills with friends and maybe also build a better relationship with merchants to leverage a loyalty platform.
The banking industry is moving towards the mobile platform in a fast way and the mobile device will be the enabling force for banking change. Google, Apple and Samsung have platforms that allow interaction between the software and hardware, which is a critical component to ensure the security and integrity of the banking data. The provisioning of a credit card to the wallet and the security mechanism is a service that both Visa and MasterCard have generated to ensure a generic solution is available across the board. It also allows both to keep control of the process.
Using the Secure Token or the TPM to authenticate the phone and the user is a unique hardware security measure that will reduce the risk of device cloning. The IDMV data elements and passing of data to the issuing bank will inevitably be the decision maker on the customer and the transactions from the device. It’s the banks decision to allow a user to provision their credit card to the specific device and also perform any banking activity within the wallet. If the bank receives more data on that customer, like their historical transactions for all merchants (which is user generated), will provide a greater amount of data to the bank to make decision about what the customer can do.
Mobile Device Generated Wallets
Apple Pay – The pioneer in the mobile payment space. Apple wrote the specs for the Tokenization service with the credit card networks and have allowed banks to leverage this functionality with other wallet providers. Apple products enhancements are typically customer focused and often industry changing and will surely make the next iteration of the wallet a game changer.
Android Pay – The true designer of the HCE functionality for wallets linked to phone for security measurements us the TPM. Out of all the wallets, Android pay is making strives with the loyalty component. Allowing user to use loyalty points (i.e. the Coke-a-Cola example) to pay partially for a product, within the checkout process. However, Google released a Wallet many years back and haven’t completely dominated the market.
Samsung Pay – Samsung pay is getting a lot of visibility in the market and is moving faster to get global roll out. With their acquisition of LoopPay, they can leverage the benefits of Magnetic Secure Transition, which is a way of differentiating themselves from Apple Pay.
Banking Generated Wallets
Chase Pay – Multiple banks have launched their own wallets to allow customers to leverage their online banking activities and mobile payments via MCX platform. Chase has 50 million cards on file, so it’s easy for them to leverages those into a Chase Wallet.
Citi Wallet – CitiBank leverages the functionality of MasterCard’s MasterPass to enable customers to use the wallet.
There are several other alternate NFC payment solutions on the market that enable users to use their payment instrument within a device, like a watch or band. The major problem is that these devices doesn’t really allow you to do anything else. It’s really restricted to the transaction activity of tapping on device.
The battle is defiantly between the banks and phones providers to capture the customers banking activities. There are two aspects to consider;
Banks leading the way
For a US bank to excel this space, there are several points to consider;
Banks should link their mobile wallet to a phones operating system and leverage the security aspects of the phone.
Create a consumer banking platform that can allow all types of banking tools (including payments) and services that consumers what with their banking activities
Partner with or buy a stake in a phone company, HTC would be a great candidate in the US market. A mid-sized bank could make a huge play for new customers with linking their wallet to a phone.
Banking data is something banks have a lot of and they need to leverage it. Empowering the merchant with more profile data can positively effect the users experience with merchants at the check-out and for merchants increase sales and revenue. But this will put much more pressure on banks and phone providers to ensure their risk profile systems are accurate.
Tech Companies changing directions
Tech companies often break out into different areas of business in an attempt to increase revenue. Few have ventured in the banking industry. Companies like Facebook and Google have explored with their relevant money transmitter licenses, which allows them to hold funds on behalf of their users. But none have applied for a full banking license.
Companies like Apple and Android have the technical platform to ensure the security of the banking details and also the ability to reduce the amount of friction for users to do all their banking and financial activities. Banking aspects such as, providing credit lines for specific users for specific types of products. Similarly, it would allow users to send more information to merchants during the transaction cycle to ensure they are leveraging a user’s loyalty and reward’s program. Fundamentally, there could be a situation where a wallet provider/platform that becomes an issuing bank could build a relationship with large merchants to process transactions directly with the issuer, bypassing VISA and MasterCard.
The next five years are going to be really interesting as the mobile payments market matures and grows internationally. Banks will also be finding new avenues to get more customers and offer more banking services that we are seeing from the smaller challenger banks.
Recent news is evidence that large traditional bank are now taking notice to the change and trend in challenger banks, with the Holvi, the European online current account banking platform being bought be BBVA. Mobile Payments and New Banking is moving full steam ahead and both tech companies and traditional banks will be fighting to gain control.