At a recent stop at Starbucks, I pulled out my iPhone and held it up for the counter clerk to scan. With a quick beep, I paid for my frothy cold drink and put my phone back in my purse. A few customers in line behind me were intrigued by this and asked me how I used my phone to pay. I showed them the Starbucks mobile app and told them it only works at Starbucks—but it sure is slick.
I like that payment app and wish I had access to a more universal mobile payment app that I could use everywhere where I typically use a debit or credit card. In fact, I want a universal mobile wallet that will hold all my credit cards, my debit card, my loyalty cards and my coupons and daily deals. The financial services industry has been promising to deliver a mobile wallet for some time now, so where is it?
The truth is, plenty of players have given us mobile wallet applications—but not a universal one that works with any card and at any merchant’s point-of-sale (POS). Most of today’s wallets are limited in scope. Typically the user must have a specific phone, or a specific kind of payment card from this bank or that card association. For example, Google Wallet, when first introduced, only supported the Nexus S 4G Android phone on the Sprint network, and the consumer had to have a Citi MasterCard for payments. That’s a pretty restrictive configuration. Google has since expanded the number of phones and carriers and the types of cards it supports, but you can’t run Google Wallet on an iPhone, which leaves me out in the cold.
I commend the handful of companies that have launched mobile wallets to date. They have given the industry much needed experience on how to do things as well as how not to do things. Now it’s time to take the lessons learned and apply them to come up with broadly supported and truly useful universal mobile wallets.
There are three things that are needed that will help mobile wallets reach critical mass: technology, partnerships and consumer demand. Let have a look at each.
There’s no shortage of innovative technology being applied to mobile wallets. For instance, consider the Starbucks app I used to buy my drink. My iPhone displays a quick response (QR) code that gets scanned by the sales clerk. The QR code is linked to my Starbucks prepaid account. This is a creative use of existing technology, but it doesn’t scale well, and it isn’t terribly secure.
What seems to be emerging as a more universally accepted set of standardized technologies is the use of a secure element (SE) in the phone for storing payment accounts and applications, coupled with near field communication (NFC) to transmit and receive transaction data. These technologies already are being broadly adopted by mobile phone manufacturers/carriers and merchants. Today there are more than 125 mobile phones that support NFC to transmit data from the phone to a POS terminal. And, by 2017, it’s projected that 86% of merchant POS terminals in North America will support NFC. That makes it infinitely easier for a consumer to use his or her phone at a checkout station to securely make an electronic payment.
Considering that a mobile wallet is, essentially, where you hold access to your money, security is a foremost concern. This makes the secure element, or SE, a critical component in the technology set. The SE is a microchip embedded or inserted into a mobile phone that is used to store your extremely sensitive payment account information and related payment applications. This is not the same storage area that holds your phone’s contacts, photos and other personal data. Access to the SE is tightly controlled and data stored there is encrypted. Typically, a trusted service manager (TSM) is the only entity allowed to administer accounts on the SE.
The technology is the easy part of mobile wallets. More challenging is the fact that we need an ecosystem of companies that agree to work together, even if they are normally competitors or they have no existing relationships. This ecosystem has to include the mobile network operators/carriers (i.e., the AT&T’s and Verizons of the world) ; the card issuers (banks, credit unions, merchants, card associations); and this new type of entity called a trusted service manager. The good news is that, like the Big Bang that created the universe, this ecosystem is forming and bringing together the key players that can get things done.
The role of the trusted service manager is emerging as a pretty important position in this ecosystem. A TSM is the entity that provisions customer accounts onto the secure element of these customers’ phones. So, for example, say you want to put your American Express account onto a mobile wallet on your phone. You would initiate this action by downloading an app, but then a TSM is going to send your encrypted account credentials to your phone over the air. This is akin to creating your plastic Amex card and sending it to you in the mail. Once the credentials are in your mobile wallet, you are primed to pay with your phone.
The great thing about this process is that you, the consumer, are completely oblivious to it. That ecosystem of companies is working out all the details of how to securely get your payment accounts onto your phone for you. As far as you’re concerned, it will all happen auto-magically. But you can rest easy in knowing that lots and lots of security is built into the processes to ensure the privacy and safety of your financial accounts.
More than anything else, the one thing that will make mobile wallets successful is that people like you and me want to use them. All the technology can be in place, and all the partnerships can be formed—but if we consumers don’t embrace mobile wallets, they won’t get far off the ground.
I like the convenience of my Starbucks payment app, and if a general use mobile wallet can be as simple (or almost as simple) to use as that app, I’ll be jumping on that bandwagon right away. I’m ready to flash my phone and go. Just don’t ask me to buy a new phone or switch banks or open accounts I don’t want to have.
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