Towards an OS/device-based mobile wallet

Towards an OS/device-based mobile wallet
Over a year ago, we published a 2014 edition of our annual Top Retail Payment Trends Report (2015 edition is here), in which we distinguished between app-based wallets – majority of mobile payments solutions in the market at that point – and device-based wallets. We suggested that payments would become ever tighter integrated into the device and the operating system (OS) and that we will see the emergence of device-based wallets, “which store securely on the phone a token associated with payment credentials, which can be discovered and summoned as needed by any app or a site reached via mobile browser.” Then Apple Pay came along and demonstrated to everyone the beauty of a payments solution tightly integrated into the OS and the device itself. There is no separate wallet app; customers can configure the solution via the Settings page and store their cards in Passbook. And the token of the credentials can be summoned for an in-store or an in-app transaction. Apply Pay raised the stakes for everyone in mobile payments. The challenge for Google is that the Android ecosystem is nowhere near as tightly controlled as Apple’s. Yet, in the last couple of weeks, we’ve seen a few interesting moves that indicate steps towards OS and device-based wallets in the Android ecosystem. First, Samsung, the leading Android device manufacturer acquired LoopPay, which uses Magnetic Secure Transmission (MST) technology to enable mobile payments at the existing POS devices. Then, Google announced it was buying Softcard’s technology. Finally, the news just emerged that Google would be launching Android Pay at its Google I/O conference in May. LoopPay’s wallet today requires additional hardware, such as phone cases or fobs. I am convinced that Samsung will seek to get away from that and would integrate the technology into its devices. The big question is – why continue to invest into “mag-stripe technology,” and isn’t it a step backwards? It certainly feels that way, although I don’t think it indicates Samsung’s shift away from NFC; my view is that this is a pragmatic move recognising that even with EMV migration underway, the US will continue to accept magstripe-like transactions for the foreseeable future. After all, Visa has also invested in LoopPay back in the middle of last year. The big question with Google’s purchase of Softcard’s IP is whether Google would go back to SIM-based secure element, now that the mobile operators would finally play ball. My guess is that it won’t. HCE gives everyone more flexibility, and leverages the investments the issuers and networks have been making into tokenisation. Visa just announced yesterday that it has been partnering with FIs around the world to enable HCE-based digital services. HCE is also what would enable Android Pay, which would allow third parties to build in payments features into their apps, either for in-app or in-store purchases. Instead of going back to SIM-based SE, I suspect Google will make use of Softcard’s loyalty functionality and will gain access to the MNO distribution networks. According to the announcement, Google Wallet will come pre-loaded on the handsets sold by the operators, which I assume will get paid a distribution fee. As various solutions get tighter integrated into device hardware and operating system, it will be interesting to watch how they would co-exist. Could the latest Samsung Galaxy device support a PayPal app with biometric authentication, LoopPay, Google Wallet and Android Pay without at least confusing the customer? Or are the two giants in the Android ecosystem on the collision path here? Clearly, there is no respite from interesting developments in mobile payments. I am sure we’ll see another wave of interesting announcements next week at Mobile World Congress in Barcelona. I had the privilege to serve as a judge for GSMA Global Mobile Awards, and I am certainly looking forward to the ceremony and the rest of the Congress. I’ll make sure to blog my impressions when I am back. In the meantime, drop me a note if you would like to meet in Barcelona next week.
Zilvinas Bareisis About Zilvinas Bareisis

Zilvinas Bareisis is a senior analyst with Celent's Banking practice. His research focuses on retail payments, including cards, e-commerce, and mobile payments. He has a global perspective with a particular emphasis on market developments in North America, the UK, and Europe.


  1. James Smith says:

    Hi Zil

    I think this analysis is bang on. Will be interesting to see how proprietary Samsung Pay proves to be in terms of the payment hardware on the device – particularly the MST, NFC and SE components. Will they look to block software access to NFC, nixing the opportunity for others via HCE? Agree regarding the pragmatism being shown here given variable speed of NFC Terminal rollout across markets – using tokens might allay security concerns of MST which has been likened to user sanctioned card skimming.

    Will also be interesting to note what route Google will take post Softcard acquisition. Clearly getting three major US MMOs to distribute their app on any new Android device out of the box is a great step forward. Note that the current Google Wallet solution uses a virtual card for NFC on the device, so as a staged rather than a pass though wallet Google pays additional processing costs (but also gets to see all purchase data). Softcard SE on SIM would be cheaper in the long run, but the security benefits are negligible vs a tokenised solution and may not be worth the strategic dependency on MNOs in the future and the often painful provisioning process borne by end users.

    See you at MWC!



    • Zilvinas Bareisis Zilvinas Bareisis says:

      Hi James, thank you for your comment. I agree, interesting times ahead. See you at MWC!

  2. Surely the security vulnerabilities which have been actively exploited in Apple pay are slowing growth in mobile payments, at least on the consumer side. As for the Android side, I agree, PayPal is too big of an obstacle for the Google Wallet guys to ignore. Will be interesting to sit back and watch the fireworks on that one.

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