M-payment is rising, but m-banking is challenging

Friday 16 January 2015 | 14:22 CET | Background

The mobile industry is fast-tracking mobile commerce, as countless Silicon Valley companies try and some do build multi-billion dollar businesses. The banking sector in the United States is slower at moving towards mobile payments. The payment infrastructure is gradually moving away from the traditional magnetic stripe card. Replacement will come in the shape of an EMV chip, but also in mobile, NFC-based communications. However, banking itself must also be adapted to mobile.

In an online poll commissioned by Verifone, half of the consumers were unfamiliar with mobile technologies such as near field communication (NFC) and mobile wallets. The survey was held in the United States in December.

More than half of respondents, namely 53 percent, said it was important for more stores to install devices that enable consumers to pay with their smartphones, indicating wide receptivity to mobile pay options once they’re provided.

The response was significantly higher among younger consumers: some 64 percent of respondents aged 40 and below. In addition, 84 percent of respondents said they would use their smartphones to pay for small and medium purchases, such as a cup of coffee or pair of jeans.

Credit/debit cards remain the primary method of payment for 63 percent of all survey respondents, with six percent favoring alternative payment options such as PayPal, and four percent preferring mobile wallet services, the survey says.

Apple’s entry into the mobile payments ecosystem is significant, for an important reason: Apple Pay feels like a credit card. Every iPhone user has set up a payment option with iTunes, often the credit card that is used on a daily basis. Activating the NFC functionality in the iPhone 6 for that credit card is only a small step, while reaching for the phone in pocket or bag is something users do many times a day.

Market watchers say that the number of Apple Pay transactions is rising steeply, even when the number of stores that accept NFC is still fairly small.

MPOS equipment

Verifone already offers a range of terminals for mobile point of sale transactions. The most basic versions plug into the audio jack of a smartphone running iOS or Android. The reader is used to swipe a mag stripe card, while the touchscreen on the phone is used to capture a signature. This setup is also available in a slightly larger version combining a PIN pad, a MSR (Mag Stripe Reader) and EMV reader for landed smart cards.

Verifone also offers integrated cases for iPhone 5 and iPad Mini, which put the PIN pad somewhat counter intuitively on the backside of the device. The custom fit also means that the mPOS terminal cannot be reused with redesigned devices.

The company has announced the PAYware Mobile e355, a device that sets the hardware in interchangeable modules on a common base plate. Verifone says this system works with Android, iOS and Windows and will be able to handle all future developments.

Banking on apps

Hardware at point of sale is not the only requirement.  If developments in Europe are an indication, banking apps will be an important factor in the adoption of mobile payments. In the UK, all leading retail banks have a mobile app that shows transaction history in real-time. This has put the mobile phone at the centre of attention.

Some 21 million UK consumers would switch banks if their current bank was unable to offer mobile payments and had no plans to do so, according to a survey of over 2,000 people conducted by Atomik Research in December for m-payment company Zapp. Some 59 percent of respondents said they would use their phone to pay if a simple system existed and did not require extra set up, 48 percent more than a year ago.

VocaLink, operator of the UK national payments infrastructure, has announced that HSBC, first direct, Nationwide, Santander and Metro Bank will roll out Zapp mobile payments to 18 million customers across the UK. Zapp will provide customers with real-time payments on their mobile phone banking applications, allowing secure payments between consumers and merchants. Zapp will be integrated into the mobile banking applications of these financial organisations.

A transaction at point of sale can be handled quickly. Payment service providers have long been aware of the fraud risks with cheques, mag stripes and signature-based authentication. Helped by flat rates for fixed telephony, the card networks have developed real-time reporting to spot suspicious transactions and mitigate fraud.

Behind the scenes however, real time payments or near-real-time payments are challenging. The Federal Reserve Bank of Atlanta recently commented that conversations about the basic idea of moving ahead with near-real-time payments in the United States have been positive. 

Branch banking still mainstream

However, the fragmentation in the system is significant and many services have yet to move into the online realm. The majority of consumers still rely on local branches as their primary banking method, financial research company RateWatch reported in December.
Respondents, which included financial institutions across the country reported that: 62 percent of bank customers/members consider "at the branch" to be their primary banking method, compared to 29 percent who consider "online" to be their primary banking method and only 2 percent who consider "via mobile device" to be their primary banking method.

More than three quarters (77%) have less than a quarter of their customers/members using mobile banking. Compared to banks (57%), credit unions (68%) are more likely to have clients use mobile banking multiple times per week. It must be noted that this poll counts the number of banks, not their size. The largest retail banks have a mobile app and report a significant uptake. 

This puts the banking sector on unequal footing with the e-commerce sector and may slow down the development of mobile payments.

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