Mobile Payments Come to Canada

Mobile Payments Come to Canada
I recently blogged about all the different mobile payments initiatives in the UK. As if not wanting to be left behind, this week Canada had a few announcements of its own. On Monday, the Canadian Bankers Association (CBA) introduced mobile payments guidelines. And on Tuesday, Rogers Communications, a Telco, and the Canadian Imperial Bank of Commerce announced that they would be launching a mobile wallet later this year. Canada seems to have many of the ingredients for mobile payments to succeed. The banking and telco markets are relatively concentrated making it (in theory) an easier task to cooperate on industry-wide initiatives. The country has implemented EMV and is boasting one of the highest use rates of contactless cards – according to MasterCard, over 10% of their transactions in Canada are contactless. And the smartphone adoption is already high and continues to rise. However, I couldn’t help but shake off a bit of a “me too” feeling about the announcements. While the guidelines are obviously a welcome document for the Canadian market, it follows a long line of similar documents from EPC, GSMA, SCA, MobeyForum and other organisations. And the wallet announcement reminds of a Quick Tap from BarclayCard and Orange, one of the first NFC initiatives launched in the UK – it’s a single MNO, single bank and a single platform (Blackberry) solution. Given that it is a SIM-based solution, scaling on other platforms, particularly Android, should be possible. Adding more banks and more operators might prove to be more difficult. So, congratulations on taking the first steps. However, more will be needed to make mobile payments ubiquitous in Canada.

Bank Mobile Wallets: NFC or Cloud?

Bank Mobile Wallets: NFC or Cloud?
Extensive travel tends to wreak havoc on the usual patterns and the best intentions. As a result, I haven’t yet had a chance to blog about an interesting development first announced a couple of weeks ago. FIS, a large technology and services provider, has announced a new m-payments system, developed in partnership with Paydiant, a mobile technology company. Celent clients may recall my recent report, “What’s In Your Mobile Wallet? Winning the Battle for Mobile at the Retail POS” where I described the four major domains which represent the key battlegrounds for bringing mobile payments to the physical stores in the developed markets. In that report, I suggested that banks are in danger of losing control over POS payments to cloud-based wallet providers, such as PayPal and others. I also said that NFC, despite all the concerns around infrastructure and business models, represents the best chance for banks to keep their payments credentials used at the POS in the mobile world. With the announcement from FIS, it seems that banks can take on the cloud-based wallet providers at their own game. FIS and Paydiant developed a cloud-based solution that can be integrated into the bank’s mobile app and simply requires downloadable apps for consumers and retailers. Because the app resides in the cloud, no payment credentials need to be exchanged at the POS, giving everyone an additional piece of mind and alleviating the retailers from PCI compliance requirements. In the demo showed to Celent in Boston, the POS terminal produced a QR code, which a consumer would scan with his app on a mobile phone, which then triggers the payment transaction. The QR code is only one possible communications technology – NFC could be used instead if both the terminal and the phone were NFC-capable. The payment is done via one of the payment instruments (e.g. a card) that the consumer has pre-registered with the app and the retailer already accepts. The app could also be developed by retailers rather than banks. In fact, the retailers might find the solution easier to implement than banks, as they can control the acceptance side. The banks wishing to use this solution must ensure that there are enough merchants that have downloaded the appropriate app and are willing to let customers use it. All of which points for the need to create and manage a new scheme, one that consumers recognise as they decide which app to pull up on their mobile phone at the POS. Still, I think it’s a very interesting solution and one that allows the FIs and retailers explore the opportunities around cloud-based wallets.

Winning the Battle for Mobile at the Retail Point of Sale

Winning the Battle for Mobile at the Retail Point of Sale
Over recent months, there has been a considerable increase in the buzz around mobile and electronic wallets in the developed markets. New wallets have been launched (e.g., Google Wallet, Amex Serve), with many more companies announcing intent to compete in this space (e.g., Visa, PayPal, Isis, and others). A number of industry leaders proclaimed (again) the end of physical wallets. Are all these new wallets fundamentally the same? If not, how do they differ? What challenges do they face? What does it take to replace a physical wallet? Who are most likely to emerge as leaders in this space? How will they compete? What does it mean for the payment industry incumbents? These are the questions I am exploring in my new report “What’s in Your Mobile Wallet? Winning the Battle for Mobile at the Retail POS,” published yesterday. One of the insights of the report is that retail POS is not just about NFC. And actually, despite all the challenges to implement NFC-based solutions, they might just offer the banks an opportunity to remain in control of merchant and consumer relationships. The alternative vision of commerce promoted by cloud-based mobile wallet providers, such as PayPal, is a lot less appealing to banks and other incumbents. The report defines the four major domains along which players will compete to bring mobile solutions to retail. It also describes the requirements mobile wallets should fulfill in order to succeed in the market and how specific features are likely to evolve. Finally, the report offers predictions on how the market is likely to develop and makes recommendations for financial institutions. Let me know if you agree with my conclusions.

First Look at PayPal’s Mobile Strategy

First Look at PayPal’s Mobile Strategy
With preparations for SIBOS (see Gareth’s earlier blog), it would have been easy to miss PayPal’s announcement this week amongst all the other pre-SIBOS press releases. And it would have been a mistake, because it is important. PayPal talked about “re-imagining money” and “new normal in retail”. Often such platitudes don’t mean much, but if PayPal can implement what their slick video demonstrates, it might indeed be something special. Details are still scarce, but PayPal showed how it would change the retailing experiencing through mobile, but without changing the retailers’ terminals. No NFC, but code scanning; cards with PayPal logo (but no Visa/ MasterCard and not even a number). Checkouts possible without queuing at the tills. Deciding how to settle for purchases after a busy shopping day by putting some on PayPal credit and paying for others immediately through a card or bank account. More details will be needed to understand if and how this vision is going to be turned into reality, but for now, enjoy the film and I will see you in Toronto.

What Do The German Telcos Know That We Don’t?

What Do The German Telcos Know That We Don’t?
A few weeks ago in August, while the rest of Europe was on holiday, three leading German telecom operators announced a joint venture aimed at bringing NFC payments to the German market. The three operators – Vodafone, Telef√≥nica and Deutsche Telekom – are planning to launch under Mpass brand in early 2012. Mpass is an existing SMS-based service which German consumers can use for Internet shopping and charge their purchases to a pre-registered bank account. Recognising the shortage of NFC phones, the new Mpass service will start with NFC stickers. It is easy to think of it as yet another telco JV. Haven’t we all been following Isis in the US or similar announcements from the UK? However, it seems that there are some important differences in these plans. Isis did have plans to launch a new payment brand, but have since scaled down their ambitions and decided to partner with all the major existing card schemes, such as Visa, MasterCard and others. The UK operators have been less explicit about their plans, but they do stress that their JV is about creating an infrastructure and a single point of contact from telco perspective for other players interested to bringing NFC services to market. In addition to retailers and marketeers, that includes banks for payment services. In contrast, the German operators clearly aim to introduce a new payment brand, mpass, and expect to sign-up enough merchants to create the necessary acceptance infrastructure. Instead of working with banks or existing card schemes, it plans to work with prepaid payment services providers, such as easycash. Celent has always been suspicious of new payment schemes, which are incredibly hard to launch. And the mobile operators (all over the world) are not known for nimbleness of their cooperative efforts. Just as it appears that carriers have finally conceded that they would need to cooperate with banks and existing payment schemes, here comes another major telco-only initiative. What do the German telcos know or have that the rest don’t?

Applauding Visa’s Plans to Accelerate EMV Adoption in the US

Applauding Visa’s Plans to Accelerate EMV Adoption in the US
Yesterday Visa announced its plans to accelerate EMV adoption in the US. A confluence of factors, such as some of the US merchants and issuers making independent moves towards EMV, as well as accelerating developments around mobile payments, helped Visa decide that the time to act is now. It is the first time that a major cards network has thrown its weight behind the EMV debate in the US, and I think it is a very important development. For those of us in Europe already used to EMV, the announcement had a number of familiar tactics and incentives to ignite the industry-wide migration, such as:
  • Expanding the Technology Innovation Program (TIP) to Merchants in the U.S. effective October 1, 2012. TIP eliminates the requirement for eligible merchants to annually validate their compliance with the PCI Data Security Standard for any year in which at least 75 percent of the merchant’s Visa transactions originate from chip-enabled terminals;
  • Establishing a Counterfeit Fraud Liability Shift for domestic and cross-border counterfeit card-present point-of-sale (POS) transactions, effective October 1, 2015 with fuel-selling merchants given an additional two years to comply.
However, there were some very important differences:
  • Visa is not forcing the US to migrate to Chip and PIN, a standard currently used in Europe. Instead, the migration to chip is intended to lay the foundation for dynamic customer authentication. While PIN is undoubtedly more secure than signature, both tools suffer from being static authentication methods, which, if compromised, will lead to security breaches. Dynamic authentication means that new data is generated for every transaction, making it less valuable to steal card data and thus boosting security. Visa re-iterated its intent to support signature and PIN authentication methods globally, but also stated its expectations that their use will diminish over time and be replaced by dynamic authentication technologies.
  • Visa insists on the rollout of terminals able to support both contact and contactless chip acceptance, including NFC-based mobile payments. In fact, unlike in Europe, only such terminals will qualify for the TIP incentive. By doing so, Visa creates the conditions to solve the “chicken part” of the “chicken and egg” connundrum of NFC mobile payments.
In my opinion, Visa should be applauded for:
  • asserting industry leadership;
  • thinking strategically and proposing a pragmatic and forward-looking solution;
  • proposing specific and realistic dates (SEPA rule-makers, take note!)
  • creating incentives for the migration to happen.
Nevertheless, I suspect this will generate a lot of debate in the industry. No doubt, some will argue that given the economic uncertainty and Durbin implementation, the industry already has enough on its hands at the moment. What do you think? Will Visa’s decision be enough to move the needle? How will the issuers, merchants and the other schemes react?

Google Mobile Wallet: A Big Step for Payments

Google Mobile Wallet: A Big Step for Payments
Yesterday Google announced a new mobile wallet in partnership with Citibank, MasterCard, First Data and Sprint. Is it significant? Yes, very. Why? For a number of reasons. First and foremost, mobile proximity payments are getting a boost from a large player whose primary interest is NOT payments. Paradoxically as it may sound, in my view this is key to finally getting some traction around much touted NFC payments. Celent’s view has long been that the payments industry on its own in the developed markets had little incentives to move to NFC. If it’s just purely about payments, then the customer already has a number of perfectly valid alternatives to pay at the POS, so why do something that potentially reduces your revenues (as you have to share them with more parties) and increases costs (as you need to invest in both issuing and acceptance)? Well, Google is not doing this for payments and confirmed yesterday that they would not be charging anything for the payments transaction itself. Instead, they expect to make money from services surrounding the payments transaction, particularly from drawing customers to merchants through targetted ads, coupons, loyalty point management, etc. This is consistent with Google’s strategy to-date where online ads drive majority of their revenues and their vision for the future (see my previous blog post “How Much Does Google Love Mobile?”) Second, while I didn’t hear it mentioned yesterday (I could have missed it), I remember reading in March in Finextra, which was quoting Wall Street Journal and Bloomberg that Google’s “plans also include terminal vendor VeriFone, which … will roll out NFC cash-register systems paid for by the search giant.” If that is the case, it will certainly help drive market penetration for NFC-capable terminals. I am not aware of any other examples where a player outside of a payments industry (i.e. other than acquirers and card schemes) would be investing in building out a payments infrastructure. Again, for Google it makes sense given that they need these terminals to achieve goals other than just payments. Finally, while it is true that partnering with one scheme, one issuer, one network operator, etc. limits the scale initially, Google neverheless has chosen an impressive list of partners – in MasterCard they have a major card scheme, in First Data, a major processor and in Citibank, a major issuer with an impressive track record of innovation. For Citibank this is part of their focused efforts to create significant value through payments for their customers. Last year they created a Global Enterprise Unit, spearheaded by Paul Galant for exactly that purpose and the unit is starting to deliver results. I saw some in the blogosphere questioning Google’s choice of Sprint as a network partner, but I don’t really have a view on that, so wouldn’t like to comment. Of course, the proof is in the pudding – over the coming months we will get to see if the consumers and merchants truly buy into this vision painted by Google and its partners. However, the sketches provided yesterday indicate that this could be seen as a masterstroke by all involved in years to come.

Rewards on Prepaid

Rewards on Prepaid
We are all familiar with loyalty points and other types of rewards we get on credit cards. The economics (i.e. relatively higher interchange, opportunity to earn interest fees, etc.) and the stand-alone product nature (i.e. not linked to a current account) meant that many credit card issuers used to look for additional ways to stand out from the crowd to acquire customers. With economics deteriorating in recent years, the credit card rewards programmes are getting less generous, changing shape, or disappearing altogether – a subject I am looking at in more detail in my research at the moment. Those in the US are also very used to getting rewards on debit cards, something which doesn’t really exist yet in the UK. Again, it is yet to be seen where debit rewards will end-up given the Durbin regulation, but the early signs are that the shape of those is changing as well – some issuers are taking away debit rewards and others are looking for other ways to deliver them and are turning to providers such as Cardlytics for merchant-funded rewards. Then Orange in the UK announced in February this year that they are launching ‘Orange Cash’, “the UK’s first major contactless prepaid card”. In addition to regular payment features, the card allows “Orange Cash customers to earn points as they spend, which are redeemable against a range of rewards including Pay As You Go Orange texts, airtime, credit or Orange shop vouchers”. I believe it must one of the first examples of rewards on a prepaid card. Which actually makes sense – a prepaid card is also a standalone product that the customer needs to buy, so rewards can help differentiate it. And with various fees and interchange exempt from regulation (at least for now), the economics might look more attractive than many debit cards. As an “issuer”, Orange is also taking a relationship perspective and the rewards are designed to engender loyalty not just to the prepaid card, but also to the mobile network, still a primary relationship between Orange and most of its customers. This card is interesting from two other perspectives: a) It’s a prepaid contactless card. I’ve always maintained that contactless technology is most suited for prepaid wallets (from use case, not technology point of view) – given it’s “tap and go” nature, I would much rather expose my prepaid account which has limited funds than, say, my current account. b) It’s a stepping stone for Orange towards mobile payments. It gets their customers used to contactless and prepaid wallet concepts, both of which will be necessary when launching NFC-based mobile payments where Orange have strong ambitions. Now, if only someone could solve the contactless acceptance challenge…

QR Codes in Payments

QR Codes in Payments
Recently there has been a noticeable increase in announcements to use QR (Quick Response) codes in financial services and payments context. Celent has already blogged about how the code can be used to buy a Starbucks coffee. Last week, Smart Transactions launched a loyalty card, where customers can check their card balances (and receive instant merchant offers) using unique two-dimensional QR barcodes printed on the back of each card. And perhaps most interestingly, eWise, a company promoting Online Banking ePayment solutions, such as Secure Vault Payments in the US and eWise payo in the UK, also said recently that it would be launching a QR-based application by the end of the year. QR codes are essentially two-dimensional barcodes, which when scanned are able to convey the encoded information. The technology is not new – it has been developed in 1994 and has become very popular in Japan and Korea, but its adoption in the West so far has been limited. There are many potential applications for QR codes, most obviously in marketing and advertising, especially with the smart phones gaining ground. As the user scans the code, he or she can be redirected to a site further explaining the product, enriching customer experience, and enabling social interactions. According to Wikipedia, in Japan, QR codes have even been used in cemeteries on grave markers as a way to share additional information and unite mourners. So, how likely will we see this technology becoming mainstream in financial services, and particularly payments? Given that QR codes are easy to print, even by individuals, they are likely to be handy in certain use cases, such as small mobile merchant payments, potentially as a cheque replacement. Of course, many issues need to be addressed in order to use QR in payments effectively, not least the security. QR codes can be copied and re-used for fraudulent purposes, so any application using QR to initiate payments, needs to have strong authentication and authorisation capabilities. Consumer education and awareness is another barrier. Are QR codes a threat to NFC? Not really. NFC roll-out in the developed world is not without its own problems (see Celent post on Isis announcement), but in my view QR codes are likely to complement rather than replace NFC. And I think they will be much more relevant in marketing than in payments in the foreseeable future.

Thinking Beyond “Dumb Payments”

Thinking Beyond “Dumb Payments”
Years ago, while an employee at Visa, I was told by my manager that for commercial card payments, “the value is in the non-financial information”. In other words, the value of a commercial card transaction is in the enhanced data that helped corporations with decisioning. On the other hand, financial settlement (moving money from Point A to Point B), is assumed and thus holds little perceived value. Over the past months, my research in Japan, Apple’s patent filings and a presentation by Geoffrey Moore have reminded me of my manager’s words, but applied to mobile retail payments. I’m now convinced that the mobile payment value-add will be enhanced data used for consumer decisioning, not moving money. Specifically, this will mean using mobile technology to guide consumers in real-time to understand which products to buy, at what discount, where to buy them, when, for how many reward points, at what price and importantly, with what payment types. Despite what the mobile future holds, banks and payment brands do not appear to be positioning themselves to play a role in consumers’ payment decisioning. Rather, it appears that they are focusing their mobile payments efforts on what they know best — financial settlement. Their announcements about NFC pilots and mobile technologies relate to new ways of moving money from Point A to Point B. Don’t get me wrong, I am sure that NFC payments and mobile wallets will work fantastically. However, coupled with decisioning, financial settlement will become an afterthought. Put more crassly, financial settlement without prior decisioning intelligence is in danger of being regarded as a “dumb payment”. In the past, banks’ and payment brands’ lack of a decisioning role wouldn’t have mattered — no company had such a capability. However, the combination of the mobile channel with technologies such as merchant aggregation/promotion engines, user analytics, cost comparison tools, location-based services, bar code scanning, etc. means that it’s a matter of time before there is a company (think PayPal, Apple, Google, Verizon, foursquare) that will play a payment decisioning role. It is the banks’ and payment brands’ decision whether or not to play in the decisioning game. However, if properly-executed, payment decisioning would eliminate consumers’ need to choose a payment/bank brand — this choice would be made for them by the likes of PayPal and its ilk. Although this won’t hit critical mass anytime soon, it still cannot be a fun thought for the financial services industry. Going forward, I’ll be very curious to see if it thinks beyond its financial settlement-centric role.