As the mobile wars heat up, titans of change are beginning to align. In one camp, Apple Inc. supporters contend that Apple Pay sealed the deal for near field communication (NFC) payments. Others point to the universality of quick response (QR) codes and valid applications for Bluetooth technology in retail spaces.
Evidence suggests no clear trajectory for any single approach, but rather an amalgamation of technologies adaptable to specific use case scenarios. Beyond the already complex U.S. payments infrastructure, another inherent challenge that has impeded progress until recently was how to bridge disparate ecosystems to perform proximity payments within milliseconds.
What emerged is advanced development of two existing mechanisms, electronic and optical. "Electronic transmission uses radio frequency or magnetic induction, and optical transmission uses the consumer's smartphone camera to interact with the merchant POS terminal," wrote Thad Peterson, Senior Analyst at Aite Group LLC, in Mobile Proximity Payments: A Disruption in the Force.
NFC, Bluetooth low energy (BLE) and magnetic secure transmission (MST) represent electronic mechanisms, and QR the optical side. In addition to providing payment functionality, NFC, BLE and QR enable merchants to tag items, so consumers can access information or take advantage of in-store offers.
That said, technology deployments traditionally led by large Level 1 merchants could be slow to trickle down to smaller Level 4 merchants as many struggle with increased costs due to recent minimum wage and healthcare mandates.
According to the latest CAN Capital Inc. Small Business Health Index released in April 2015, 13 percent of small-business owners surveyed accept mobile payments, 19 percent have taken steps to update to EMV (Europay, MasterCard and Visa) chip-enabled terminals, and only 18 percent were planning to invest in new payment technology over the next 12 months. This suggests technology uptake in this segment will be gradual. Nonetheless, the future looks solid for mobile proximity payments. Javelin Strategy & Research estimated that mobile proximity payments in the United States will total $54 billion by 2019.
One accelerant that could prove to be a mobile tipping point is the October 2015 fraud liability shift to merchants who fail to deploy EMV terminals. Experts claim that if EMV contact payments appreciably alter the transaction experience, it could trigger further movement toward mobile payments. Since most U.S. merchants will require EMV cards to be physically inserted into readers rather than tapped or swiped, the process will be slower.
"Swipe is like butter," said Jeff Thorness, Chief Executive Officer at Forte Payment Systems. "It works beautifully. It's a very positive experience for the consumer and for the merchant, because it's so quick and easy. EMV does add some time. You have to leave the card in there and wait. Even though Apple Pay may not be as seamless as swipe, you may find it ends up being a more positive experience than EMV."
Since NFC uses the same radio frequency as contactless smartcards, terminal manufactures were swift to build dual-interface EMV/ NFC terminals to accommodate contact and contactless payments, including mobile NFC, as systems evolve. Berg Insight AB estimated that 9.5 million NFC-ready POS terminals were shipped globally in 2014 and accounted for 75 percent of U.S. shipments where 3.7 million have been installed.
Verifone Inc. reported its EMV terminals are equipped with NFC chips. And Ingenico Group has implemented a similar strategy. "Following the lead of large retailers, small merchants have confirmed their interest in combining EMV and NFC solutions, while semi-integrated retailers have been accelerating the replacement of their non-EMV compliant payment infrastructures," Ingenico stated in its first quarter 2015 performance report.
But efforts to close the gap between non-NFC and NFC-ready terminals could linger into the next decade. Overall, roughly 13.9 million POS terminals were installed at U.S. merchants in 2014; 1.7 million of them were mobile POS terminals, according to research firm GrowthPraxis. Aite predicted U.S. NFC terminal penetration will reach 80 percent by 2020, growing from 1.05 million units in 2015 to 7.88 million in 2020.
Globally, projected growth for NFC-equipped POS terminals is expected to reach an installed base of 74.9 million units in 2019, up from 21.4 million in 2014. "As a result, more than 70 percent of the world's POS terminals will be NFC-ready in 2019, up from 28 percent in 2014," Berg Insight stated in its research findings.
Mobile wielding consumers could exert greater pressure on mobile payments in the near future. IHS Technology estimated that 416 million NFC-enabled mobile phones were shipped globally in 2014. It projected annual shipments to reach 1.2 billion by 2018.
Adept players like Apple have clearly taken advantage of this market confluence. "Not only did they improve the NFC payment experience with Apple Pay, but their real magic was in their orchestration of not only the banking community, but also recognizing that there is a sea change going on at the merchant where we're now in the process of re-terminalization with the EMV rollout," said George Peabody, Managing Partner at Glenbrook Partners. Apple Pay launched one year in advance of the EMV deadline.
Also in Apple's favor, from a payments perspective, is its embracement of the existing infrastructure. "It's an entirely bank-friendly deployment," Peabody said. "It doesn't change other than Apple getting paid a little bit for providing the service, and there is the authentication piece by fingerprinting; the economics stay the same. With Apple Pay, the ISO is not being cut out of any revenue. It runs on traditional card rails, so that works."
Google Inc., which was a bit ahead of its time with the launch of NFC-based Google Wallet in 2011, is mounting a comeback campaign with its Android Pay, also reliant on NFC. To further leverage its offering, Google acquired joint mobile wallet venture Softcard (formerly Isis) in Feb. 2015, and made Google Wallet the de facto offering for all Android devices sold by former Softcard partners AT&T, T-Mobile and Verizon Wireless.
With Samsung phasing out its wallet at the end of June in favor of Samsung Pay, the smartphone giant is entering the field with a transitioned approach to mobile payments. After acquiring LoopPay in February, Samsung incorporated LoopPay's patented MST technology to transact mobile payments on existing POS terminals, as merchants and mobile users upgrade terminals and phones.
"They don't have quite the solid control of the ecosystem that Apple does on the iOS side," Peabody said. "Samsung has to live in the Android world, so it's a little more difficult for them." Collectively, Android and iOS run on 93.9 percent of the 173 million U.S. smartphones in circulation today, according to comScore Inc.
"As far as trends, I think you're going to see more of these wallets," said Don Bush, Vice President of Marketing of the online fraud detection firm Kount Inc. "I think there's going to be some shake out there. I don't think Apple is done. NFC, in my opinion, was their beta test, and now they're going to add tactics and features. And others are going to chase them, just like Samsung Pay, and try to be part of that revolution."
While merchants have been slow to embrace NFC contactless technology, the needle could shift as mobile NFC payments continue to gain momentum.
As NFC players jockey for position, QR code proponents are gaining traction in mobilizing the world. Advances in QR code technology have improved speed and attracted loyalty and reward constituents. In that category, LevelUp, after initially launching an integrated package based on QR technology for payments and loyalty/rewards, later added NFC and BLE capabilities for small to midsize merchants.
Three years after Merchant Customer Exchange (MCX) was formed by a consortium of mega-retailers including Wal-Mart Stores Inc., CVS, Target Corp., Exxon Mobile Corp., among others, it launched its first product, the CurrentC mobile app, in February 2015. The QR code-based proprietary platform relies on Paydiant, now a part of PayPal, to execute payments via the automated clearing house network instead of using traditional card brands.
Participation in MCX has been cost prohibitive to smaller merchants, and by most accounts, less ISO-friendly than other QR-based programs. During a protracted incubation phase, MCX experienced fallout from merchants like Best Buy Inc., who opted to accept Apple Pay even after signing a three-year exclusivity agreement to join initially.
"Some MCX members will create their own app," Peabody said. "Others will just use the CurrentC wallet that comes directly from MCX. That's still very much a work in progress."
Many value QR-code technology for its ability to unite devices across the entire spectrum because it bypasses proprietary restrictions. "I think there are three key issues that need to be addressed with respect to mobile wallets being adopted – speed, security and universal application," said Sandy Travers, Vice President & Solutions Architect at DigiPay Solutions.
While Travers has observed that initiatives like Apple Pay appeal to the Tier 1 and Tier 2 merchants she advises, she recognizes innate attributes in QR technology. "I think QR is very applicable because it's instant, there are no delays, and it's agnostic with respect to device. In order to accept Apple Pay, merchants must have the NFC reader. With the QR code, there is no equipment. It integrates seamlessly into existing terminals."
Besides its universal device applicability, QR technology also delivers omnichannel capabilities. "QR technology can be used for card-present and card-not-present transactions, and that is something that NFC is not capable of doing," Travers said, although mobile bill pay and online/in-app purchases can be executed using smartphones with processes in place today.
Another player in the QR code space is InvisiCorp Inc., creator of InvisiPay, a secure mobile payment platform that is free to consumers and offers a revenue share model to ISOs and merchant level salespeople who board merchants. What's unique about InvisiPay is its patent-pending process. Instead of presenting the QR code from the consumer side, which thieves can exploit by tapping into the phone, the code is presented on the merchant side.
"It flips everything upside down, and it says, 'You're never going to give out a code that actually pays out the money; you're only going to give out a code to receive money,'" said Magid Mina, founder and CEO of InvisiCorp. "The merchant presents a one-time code and if somebody steals the merchant's code they can't benefit from that, because all they can do is pay money into that code. Nobody in their right mind is going to do that."
With InvisiPay users can remain incognito or identify themselves for VIP treatment at participating retailers, Mina noted, adding that either way the merchant never sees the customer's payment information. "We sit in the middle and block that information," he said. The two-step payment process requires users to scan the merchant's InvisiCode and enter a four-digit PIN code, which can take anywhere from 3 to 5 seconds to complete.
"In the restaurant vertical, the use case is speed for both the consumer and the merchant," Mina said. "For the consumer, it reduces a process that normally takes 11 minutes to a few seconds. From a merchant perspective, that's a table-turn advantage." InvisiPay has also created a dining guide, which offers complete profiles on participating restaurants, as well as rewards, discounts and VIP offerings available to loyal customers.
While Bluetooth LE has certainly received its share of positive and negative reviews, some consider it invasive for tracking consumer movement in stores and issuing push notifications. Its proponents recognize the capacity for BLE to facilitate payments in environments where NFC and QR code transactions are less convenient.
"There are folks trialing Bluetooth LE that talks to a merchant app for a drive-up window use," Peabody said. "You can with BLE, because it's a radio, tune the area it operates in. You can literally use antennas to tune the reception to just the front seat of the car. It works through the glass, so you could use your app to pay. You don't even have to roll down your window until the food is handed to you, which is a lot easier than a terminal being passed out the window to you to tap and use your thumb at the same time."
But it all boils down to individual use cases. "The notion of ‘Is one size going to fit all?’ is a false hope, which gets back to the merchant and financial institution having to get crisp about the use cases," Peabody noted. "Which ones do I have to support, and which ones aren't going to have enough volume to bother supporting?"
Regardless of what will ultimately win over consumers and merchants, speed remains of the essence. "I think the thing that we found is iTunes and Amazon kind of set the pace," Bush said. "You've got one click, and I want to see something delivered. That frictionless transaction is still going to be preeminent with mobile, especially in North America."
Strategic integration will also factor in more prominently in acquirer offerings. "I think that anyone who can take all of these best-in-class solutions and offer a single method that addresses the different technologies, like supporting Apple Pay, EMV, swipe, QR codes and other technologies that come along, in one implementation, will be highly desirable," Thorness stated.
Wherever technology may lead us, the path to payment hinges upon whether merchants can deliver rich and rewarding experiences that engage customers on their own terms.
Having a basic understanding of proximity technologies can go a long way toward helping merchants weather the storm of possibilities. Following is a brief description of each of the technologies mentioned in this issue's lead article.
Near field communication (NFC) – A short-range wireless connectivity standard that employs magnetic field induction to enable two-way communication between electronic devices brought into close proximity of each other (3.93 inches or less) or can be used to exchange data by tapping devices to one another.
Bluetooth low energy (BLE) – Branded as Bluetooth Smart, BLE wireless beacons can be deployed in stores to exchange data over short distances with a range of up to 200 feet or more using radio transmissions.
Magnetic secure transmission (MST) – A short-range mobile technology developed by LoopPay that generates changing magnetic fields through an inductive loop, which can then be read by a magnetic card reader at a distance of up to three inches.
Quick response code (QR) – A two-dimensional barcode that can be scanned with a mobile tagging app in a smartphone and used to execute payments or exchange data.
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