Since Softcard is shutting down this month, we have to ask ourselves about the future of mobile payments. What is next?
Right now, there are several options. The main players are ApplePay, Google Wallet, PayPal, and CurrentC. While ApplePay has gathered the most publicity, Wallet and PayPal have been around a lot longer. How did we get here?
In 2011, Google introduced its Wallet app which you could use for contact-less payments if the terminal was NFC-capable. The problem with Wallet was the access to the “secure element” of the SIM card. AT&T, Verizon, and T-Mobile would not allow Google to have its app access the secure element. Only Sprint allowed Wallet to work with tap-to-pay on its phones. Little did we know that the big 3 blocked Wallet so they could introduce ISIS as the tap-to-pay app. ISIS was a good idea, but with only Chase, Wells Fargo, and American Express on board, most people dismissed the idea of mobile payments.
The PayPal app is a good idea but requires a few steps to pay with PayPal at the terminal. PayPal could work with any phone on any provider, but the merchant had to support PayPal. CurrentC only came to the public knowledge because of ApplePay. Several large retailers like Best Buy, CVS, and others blocked all NFC-based payment methods within a week of Apple Pay coming out.
Apple Pay is relatively late to the party because NFC support wasn’t built-in to the iPhone until the iPhone 6 and 6 Plus were released. But because of the support from major banks including Bank of America and others, ApplePay has started to take off. At the same time, many retailers have to upgrade their terminals to be compliant with the new EMV regulations starting October of 2015.
We cannot forget Starbucks and their massively successful app which allows payments straight from the phone. While the Starbucks uses a similar technology as CurrentC, the combination of rewards and ease-of-use for payments makes the Starbucks app very successful as a mobile payments app.
Now that we know how we arrived here in the mobile payments space, where are we going? First, we have to acknowledge that any system will be insecure until proven otherwise. The recent Apple Pay breach shows that banks still have a long way to go before card not present (CNP) fraud is solved. The new chip cards (chip and pin / chip and signature) should reduce fraud once the cards get out in the public space.
Second, banks have to do a better job of tracking and validating stolen credit cards. If Apple Pay drops a bank because of lax approval practices, then this action or the threat of a suspension would get the bank’s attention. But there is a cost-benefit issue at play. The offending bank won’t change unless there is public pressure to change.
What would the ideal payment solution entail? The first step is to reduce the amount of information between the customer, the merchant, and the banks involved. If the information is encrypted between the customer and their bank, all the customer’s bank has to do is return the approval code and that’s it. This is what chip-and-pin is supposed to do with the one-time token. If the mobile payment solution can work in a similar manner as the new chip and pin, we could have the first steps to resolve credit card fraud. But until banks can resolve the issue of stolen credit cards, we will still have problems no matter the transmission method.