Back in January, Apple CEO Tim Cook declared 2015 “the year of Apple Pay.” While I like his enthusiasm, I think we are a long way away from declaring any one technology -- or tech company -- the leader. The mobile payment industry has changed dramatically and permanently (largely as a result of Apple Pay), resulting in a wealth of new opportunities for mobile payments, and along with it, a whole bunch of confusion.
The problem (and reality) is that I think the average consumer feels lost when faced with the paradox of choice in mobile smartphones today; the operating systems, the manufacturer, the carrier, the apps and the payment solutions -- these terms get tossed around, but the concepts rarely stick. In particular, the choice for mobile payments is a daunting one that not only affects a person’s choice of smartphones, but could impact his/her credit and financial standing if they choose the wrong one.
What’s out there?
Mobile payments, as a whole, encompass any app or hardware device that supports the transaction of money between a retailer and a consumer using the mobile device. It can be mobile payment acceptance in the form of the Square reader, for example, or your favorite retailer’s gift-card rewards app that enables payment at the point of sale.
Looking ahead, I believe there is no room for the majority of mobile payment services that act as overlay services. Companies like PayPal and LevelUp – and even Starbuck’s mobile app -- are quickly reaching their limit of usability on the mobile device because they cannot guarantee the most pressing issue in payments today: security of transactions.
The most important mobile payment device has surfaced just in the last year: the payment services built directly into the smartphone by companies like Android, Apple and Samsung.
The trail blazed by Apple Pay, and replicated by Android Pay and, soon, Samsung Pay, is one that shows a seamless integration with the existing infrastructure of payments: Attach a credit or debit card to your mobile device, allow the banks to authorize transactions and review your monthly statement in the same manner as if you used the piece of plastic in your wallet. This will remain critical to adoption; when it comes to financial matters, consumers rely on the comfort of tradition and previous experience. So while it may seem odd to wave a smartphone around a terminal the first few times, knowing the same statement will be delivered with the same rewards points and familiar logos will help consumers bridge the gap between traditional payments and mobile.
Mobile payments and security
These payment devices offered by Apple, Android and Samsung enable a higher order of security and seamlessly integrate into the existing credit and banking industry, something that has woefully been needed, especially in the U.S.
Consider how the majority of major retailer credit card breaches have occurred -- credit card data sitting in merchant POS systems -- and you’ll appreciate how important it is that these new devices keep that data far away from those systems. These systems work off of the same concepts as EMV cards, or chip-n-PIN cards that are being rolled out in the U.S. this fall; secure, encrypted communications flow between device and network, making it extremely difficult for a thief to steal any usable data.
Mobile payments: Not created equal
So what are the fundamental differences between these payment devices? At first blush, not much. They all support NFC, or tapping, on the terminal; they all support some form of unlock before a transaction; they all have lots of credit/debit cards and banks supporting the transactions and they all work at mainly the same retailers. They also support both in-store and in-app payments, meaning mobile-first companies like Uber and Airbnb were readily able to leverage the security of these mobile payments while not changing their revenue or business models drastically.
Where they differ is in some of the technical details:
- Apple Pay rolled out with one goal in mind: secure the transactions completely (going so far as to exclude the merchant from any information regarding the transaction). The transaction is executed in a direct line -- from mobile device to terminal to backend banks and processors -- not even requiring the mobile itself to touch its network during transactions. While this has built up consumer confidence, it has come at the expense of merchant loyalty programs because there is no insight into the purchase made. A win for consumers, a loss for merchants.
- Android Pay has made an effort to start with loyalty, ensuring rewards programs and loyalty could be built into the transaction. Unlike Apple, Android Pay doesn’t own every piece of the supply chain, so it needs to rely on the mobile device’s network to securely transact (a subtle but important difference that is felt most painfully when in an area of poor coverage). This also means that Android Pay, and most importantly its parent Google/Alphabet, has the ability to see the transaction and the purchase, further profiling the user for future rewards programs that help the merchant. A win for merchants, a subtle loss for the more security -- and privacy -- minded consumers.
- Samsung Pay approaches the problem a bit differently, combining not only the power of the tap for payments, but also the “hover.” Samsung acquired technology that enables their mobile payment devices to interact with existing, non-tap terminals by using the magnetic fields of the terminal as a rail for communication. This means that Samsung can reach many more merchants without any change to their infrastructure, but it also means proprietary technology and the fear of higher risk. In fact, Samsung Pay services were hacked this year, seemingly for access to that very “hover” technology. A win for merchants who cannot afford a new terminal, a loss for consumers worried about security.
Future adoption of mobile payments
The fact is, all of these solutions are a step up from what we currently have in the U.S., which is a magnetic stripe on the back of a piece of plastic that can readily be lifted, stolen and shopped on the open black market at a cost of about $0.78.
So, what do consumers choose when they’re ready for a new smartphone? Honestly, the differences between Android and Apple are small enough that they should not sway a consumer one way or the other. For the privacy-minded people, there is a lot more to like about Apple Pay, while for those seeking immediate rewards for their purchases, Android Pay will provide that benefit out of the box.
For the short-term, I believe we’ll see mobile payment devices like this becoming the standard. Future growth points to being able to use this payment solution in myriad ways, including payments in-flight (JetBlue), payment at vending machines, payments using private label cards for retailers (Kohl’s), integrated buy buttons on social media services and peer-to-peer payments over debit.
What I’d really like to see soon, however, is payments being used in the biggest mobile device of all -- the automobile. With both Apple and Android pushing into “connected cars,” my hope is that part of that “connectedness" includes mobile payments from your vehicle for things like the drive-thru window, the gas pump, the parking garage and the toll booth.
Then, I might just be prepared to support Mr. Cook in declaring the year for any one type of mobile payment.