A closer look at the most recent developments in digital payments
Apple’s refusal to play ball with NFC has slowed hands free digital payments but there may be a beacon of light on the horizon
Security and interoperability are among the challenges to a uniform digital payments ecosystem and progress has been slow. However, to move the digital payments debate forward, the finance industry has been working on the development of magnetic stripe, EMV-chip (contact and contactless), as well as mobile acceptance solutions to help address issues of security and interoperability.
Recently Visa, MasterCard and American Express came up with a proposed framework for an original global standard to improve the security of digital payments and simplify the purchase experience when completing a transaction on mobile phones, tablets, PCs or other smart devices.
The idea is to replace the conventional account number with a digital payment token for online and mobile transactions. With a token, shoppers won’t need to put in an actual account number when transacting online or on a smart device. Such standard will enable new products in addition to being congruent with the existing payments infrastructure. One advantage would be to allow all players in the existing ecosystem to route and pass through the payment token.
Hotel companies can learn a lot from financial institutions and retail companies. For instance, today one can find smartphone-based solutions that enable retail outlets to send real-time information about products, when smartphone users are in the store. Hotel entities could think about creating solutions that let users pay by waving their devices on a secure reader to up-sell for incremental revenue.
Here EyeforTravel’s Ritesh Gupta talks to Peter Matthews, director of UK-based Smart Transactions Group, about mobile commerce and related payment solutions and the travel industry should take note.
EFT: Looking back at 2013, how has mobile commerce developed?
PM: 2013 has demonstrated the massive potential of mobile commerce in the sense that consumers are using their smartphones to buy products, but largely only online. Using smartphones as retail payment devices, usually via near field communications, has struggled. Meanwhile, payment providers are piling into the market with different digital wallets, including MasterCard’s PayPass, Visa’s V.me (a free online payment service that lets you check out by simply entering your username and password) and PayPal’ s digital app. Meanwhile Google Wallet and Isis digital wallets have struggled to gain traction. Security concerns remain.
EFT: Are consumers today comfortable with conducting transactions via their mobile?
PM: Consumers seem happy to use their smartphones for buying online, entering credit card details in the commerce way or storing them in an app. iPads and tablets are used for online purchases in much the same way as PCs.
However, waving a phone to pay for something has not yet caught on, as security concerns about NFC and Apple’ s refusal to play ball has yet to convince enough retailers to invest in new point of sales systems.
Contactless payments by cards, however, finally seem to be growing, and their use in travel – like on London’ s buses – is gaining momentum.
EFT: In your view, what have been the major developments in mobile commerce?
PM: The major development beyond digital wallets will be in reducing or eliminating ‘friction’ in the in-store payment process. This is the NFC-on-a-smartphones Achilles’ Heel. You have to take out your phone, hope it’s charged, wake it up or unlock it, find an app, log-in and then wave it in front of the reader. This is why Apple hasn’t committed to NFC – because it’s not a great user experience.
Where Apple now seems to be heading is using iBeacons and its own secure element and payments application processor.
iOS7 supports seamless, passive Bluetooth LE (low energy) detection and has recently filed new patents to apply this technology to enable ‘hands-free’ payments, which, conceptually is very elegant indeed. Better still, its patents cover using WiFi, Bluetooth and NFC to create an even more secure link with POS systems, where it can use a second channel to separate payment details – ‘shared secrets’ - using two sets of cryptographic keys. This will be much harder to crack. [In cryptography, a ‘shared secret’ is something that is confidential, and it is also used to protect data from being changed and to make data comes from a specific party.
According to Microsoft, cryptography provides a secure means of communication over otherwise insecure channels. Shared-secret encryption algorithms feature one secret key to encrypt and decrypt data and it is also called symmetric encryption since the same key is used for encryption and decryption].
Because hands-free payments will be so much more convenient for the user, it could gain mass adoption quickly. PayPal are also developing ‘beacon-based’ systems.
EFT: How is the real-time component of mobile fuelling improvement in experience as well as mobile commerce?
PM: Lots of exciting things are possible in mobile payments, but, again, NFC is limited because as a contactless protocol it is not well suited to longer transaction times, such as downloading coupons or additional data. With a WiFi or Bluetooth connection, the link between the payment device and the POS system can be maintained for longer and with ‘shared secrets’, it is also more secure.
We haven't seen the future of mobile payments yet.