ETA EXPERT INSIGHTS: MOBILE PAYMENTS ON CONSUMER DEVICES – DRIVING ADOPTION
By: Derek Webster, Founder & CEO of CardFlight, Chair of the ETA Mobile Payments Council
More than 1.5 billion new smartphones will be shipped worldwide this year, according to IDC. In developed markets like the United States, smartphone usage has reached near-ubiquitous status, and in response, a wide range of industry players are working to turn the smartphone into a payment device. New smartphone-based consumer payment options and mobile wallets have been introduced by operating system suppliers, device manufacturers, mobile telephone companies, financial institutions, major retailers, and peer-to-peer payment networks.
Given the keen interest in mobile payments and wide-ranging speculation about how the market will develop from here, we interviewed two industry experts about the market for using a consumer mobile device for payment transactions. Steve Klebe is on the Android Pay Business Development team at Google and Jamie Uppenberg is the Global Head of Digital Payments Strategy at Discover. We asked them for their insights on the mobile payments opportunity and what merchant acquirers need to know.
What are the key benefits and opportunities of mobile payments on consumer devices?
STEVE KLEBE (SK): The benefits to the consumer are convenience and security. For in-store payments, contactless transactions are faster and more user-friendly than chip-insert transactions. For online payments, it is a very simple 1-2 click process rather than filling out 30+ fields of data. Also, where applicable, the combination of loyalty and payments via simple taps on the phone is a benefit. Examples include Walgreens and tens of thousands of Coca-Cola vending machines.
JAMIE UPPENBERG (JU): Enhancing the customer experience is one of the many benefits and opportunities for mobile payments. Consumers are increasingly looking for more seamless and compelling ways to use their mobile devices for everyday experiences, and mobile payments is one way that the payments industry is looking to meet consumers where they are at in a mobile-first future.
In markets with a high amount of mobile wallet use, what have been the key drivers?
SK: The key drivers have been a relatively consolidated acquiring/banking community (with minimal fragmentation compared to the U.S. market), existing NFC infrastructure, and pre-existing use of contactless cards.
JU: Markets with high mobile wallet use and acceptance tend to be those that don’t have as much of a card-based payments legacy like we have in the U.S. With fewer hurdles standing in the way, those markets have been able to move faster in their adoption of mobile wallets.
Are there things holding back mobile payments in the United States?
SK: There are multiple factors holding back mobile payments in the United States. First, there is a lack of any positive incentives for merchants to promote their use. Additionally, consumers feel no direct financial pain if their cards are compromised, and so they are not strongly swayed by security considerations. Fragmentation of solutions and providers, paired with a lack of awareness by both consumers and merchants also contribute to low adoption. For instance, many merchants have NFC-capable terminals and do not even know it.
JU: The U.S. has a well-established card-based payments system and culture. People love their plastic and they have a high level of comfort and familiarity with the card-based payment experience. This, more than anything, is what differentiates the U.S. from other markets where mobile payments are more the norm.
Is security a major challenge for industry players? Is it a concern for end users?
SK: Clearly security is a major challenge – just look at the number of breaches that have happened. It is a major cost. Moving to a purely network-tokenized model for both online and offline transactions would significantly reduce that overhead. If you ask consumers whether they are concerned about security, they will say yes, but their behavior doesn’t always reflect that concern.
JU: At Discover, we take security throughout the entire payment process very seriously, as does the industry at large. Security is something that’s constantly evolving and being enhanced through new technologies and capabilities.
What steps do merchants need to take?
SK: They need to promote contactless payments to their customers, but first their acquirers must work with them to make sure their terminals are ready and, if not, upgrade them. This will allow merchants to satisfy their millennial customers’ desire to use their phones for everything, and hopefully drive incremental transactions as a result.
JU: Customers choose how they want to pay, so make sure your point-of-sale and shopping carts are enabled for all types of payments, including all e-wallets, taps and others. Then, in e- and m-commerce, review the user experience for any hurdles that can be removed. Even reducing the number of screens or form-fills can have tremendous impact on customer satisfaction and revenue.
What is your company doing to drive mobile payments?
SK: At Google, we’re actively promoting consumer and merchant adoption through Android Pay and now Pay With Google adoption. We’ve been working with networks and issuers to promote usage. One key example is our push provisioning effort with major issuers. Also, our work with Walgreens illustrates how we can add more value to the mobile checkout process.
JU: Discover actively participates in payment councils to ensure that as a part of the payment community we’re doing what’s right for all parties in the payments ecosystem. We continue to enhance Discover Digital Exchange, or DDX, which is our simple, integrated solution for mobile payment enablement on the Discover Global Network. The platform allows others to leverage our tokenization services without heavy investment in resources.
What actions should ETA member companies consider taking now?
SK: History has shown that financial incentives can shift merchant and ultimately consumer behavior. An example of this was the need to drive merchants to terminalize a few decades ago when fraud was escalating and both Networks provided a very modest incentive to inspire merchants to move away from warning bulletins and knuckle busters. Anything that ETA members can do to offer positive economic incentives would support mobile payments. In the online context, having consistency for fraud liability shift to issuers for highly authenticated transactions (that is, mobile wallets) would provide additional motivation to merchants to promote these EMV-based transactions.
JU: Know and remain active about the shopping experience. Be demanding about making the consumer shopping experience easier and more standardized for the benefit of the entire payment ecosystem.
With thanks to Steve Klebe (Google) and Jamie Uppenberg (Discover) for their contributions to this article.
The ETA Mobile Payments Council works to facilitate the growth of mobile payments technology and expand the opportunities for that technology to transform the future of commerce and enrich every consumer. The council deliberates on ways to enhance business relationships and network interoperability among merchants, card brands, networks, equipment manufacturers and financial institutions to further the growth and utility of mobile payments. ETA members can join the council here.