Monday Mar 03, 2014

Two Really Cool Approaches to Payment

As if the oodles of emerging payment schemes weren't enough, two more approaches have arrived on scene.  Aside from enabling your phone to make payments, they are very unique and well worth some consideration.  The first solution is called LoopPay, and its creators claim it works on 90% of existing payment terminals without any new hardware.  Install the wallet on your phone and plug-in either the fob or charge case, then tap on any existing payment terminal to pay using your credit or debit card.  Now think about that.  How's it done?

No, they're not using NFC or bluetooth to communicate with the terminal.  That would involve additional or updated hardware, and I said this works with existing terminals.  Are they using sound like ShopKick?  Nope.  QRcodes?  Good guess, but no.  Think about it from the terminal's perspective.  The only way to enter card data is the keyboard or the magstripe.  Wait for it.  Yes, the phone via the fob emits a magnetic field that contains the track data.  Its pushing the track data into the magstripe head of the terminal.  From the terminal's perspective, we have a traditional, card-present transaction.

Here's the rub: like I said, it only works on 90% of the terminals, and in real-world tests maybe even less.  Its a tough sell for banks and retailers to say "works most of the time" to their customers.  Obviously there are security concerns as well, but I'm assuming they are able to vary the track data just as EMV would, so its at least as secure...maybe.  But then again, I'm still not convinced that tapping my phone is any more efficient than swiping inserting my card.

The second approach is a bit more traditional.  If you'll recall, Google Wallet only worked on certain phones when it was first released.  iPhones were out because they don't support NFC, and only select carriers were supported with Android.  That's because the wallet made use of the secure element, a place were crypto algorithms are run and data can be secured.  The secure element can be built into the phone, but most of the time its in the SIM chip that's owned by the telcos.  And as Google found out, if the telcos don't allow access to the secure element, you can't do NFC payment.

That's where SimplyTapp enters the scene.  They're advancing Host Card Emulation (HCE), a method by which you can do NFC payments using a secure element that resides in the cloud instead of the phone.  Android has included HCE in their latest version, KitKat, so now all NFC-capable phones are ready for NFC payments.  The big news here is that banks are now free to create payment schemes without getting approval from the telcos.  Both MasterCard and Visa recently endorsed HCE so I'd expect existing banking applications to begin adding the ability to pay soon.

So where does that leave us?  The telcos continue to want a piece of mobile payments via Isis; Google gets access to more handsets; banks are well positioned to support their own mobile payments; MCX continues to focus on reducing merchant fees; and Apple is the wildcard.

Tuesday Jan 22, 2013

Picking a Winner for Payments

Probably the most common question I get asked is, "which emerging payment system is best?"  Its a good question, and unfortunately, my crystal ball is a bit cloudy.  Remember, it took credit cards a while before they got traction.  Some of the same things I hear today ("we don't need a new payment scheme," and "it compromises my privacy") I'm hearing in reference to emerging payments.  And just as those complaints eventually quieted, the same thing will happen and people will adopt new ways of paying.  One thing I can say confidently is that the payment landscape will change over the next 3-5 years.

Is NFC dead on arrival? No. I'm not going to count Google, AT&T, Verizon, T-Mobile, and MasterCard out this early in the game. They are behind thanks to a lack of NFC support in iPhones, but they are still viable solutions.  With retailers needing to upgrade their POS terminals to accept EMV cards, now is a great time to also install NFC capabilities.  Once there are more NFC readers out there, more and more innovation will occur around them.

PayPal is definitely in the lead since they are able to leverage their e-commerce base of users.  Their lack of reliance on NFC has worked in their favor, at least in the short-term.  Of course if NFC takes off, I'm sure PayPal can add that technology as well.  Their flexibility and reach are strong points.

Google and Isis have great systems, but since they are limited to Android devices they are not serving enough of the market.  That, of course, will improve over time. While all three (Google, Isis, PayPal) are addressing consumer convenience, none are really addressing transaction costs for merchants.  That's where MCX, the retailer led mobile wallet, could shine. Since they are not on the forefront, they have the luxury of watching the market and picking the best ideas.

At the recent NRF conference, MCX representatives said they are planning to use barcodes for payments in order to support all mobile phones.  They are also focused on lowering transaction costs for merchants as well as protecting customer data, something that differentiates them.  The approach sounds right, but they are far behind in development unless they acquire or partner to gain access to an existing wallet.  Best potential of all the solutions, but furthest behind.

I suppose I could put all my retirement savings into one stock, but I'd rather spread the risk across many.  By the same token, there's no reason for retailers to pick winners at this early stage.  The best advice is to get into the game and try supporting one of the new wallets. In many cases, there's funding available to help offset costs.  This invaluable experience will prepare you to take advantage when winners are more apparent.

Monday Oct 29, 2012

Isis Finally Rolls Out

Google has rolled their wallet out for several chains; I see the NFC readers in Walgreen's when I'm sent their for milk.  But Isis has been relatively quiet until now.  As of last week they have finally launched in their two test cities: Austin, and Salt Lake City.  Below are the supported carriers and phones as of now, but more phones will be added later.

  • AT&T supports: HTC One™ X, LG Escape™, Samsung Galaxy Exhilarate™, Samsung Galaxy S® III, Samsung Galaxy Rugby Pro™
  • T-Mobile supports: Samsung Galaxy S® II, Samsung Galaxy S® III, Samsung Galaxy S® Relay 4G
  • Verizon supports: Droid Incredible 4G LTE.

Of course iPhone owners have no wallet since Apple didn't included an NFC chip.

To start using Isis, you have to take your NFC-capable phone to your carrier's store to get the SIM replaced with a more sophisticated one that has a secure element configured for Isis.  The "secure element" is the cryptographic logic that secures mobile payments.  Carriers like the secure element in the SIM while non-carriers (like Google) prefer the secure element in the phone's electronics. (I'm not entirely sure if you could support both Isis and Google Wallet on the same phone.  Anybody know?)

Then you can download the Isis app from Google Play and load your cards.  Most credit cards are supported, and there's a process to verify the credit cards are valid.  Then you can select from the list of participating retailers to "follow."  Selecting a retailer allows that retailer to give you offers via the app.

The app is well done and easy to use.  You can select a default payment type and also switch between them easily.  When the phone is tapped on the reader, there are two exchanges of information.  The payment information is transferred, and then the Isis "SmartTap" information which includes optional loyalty number and digital coupons.  Of course the value of mobile wallets comes from the ease of handling all three data types (i.e. payment, loyalty, offers).

There are several advertisements for Isis running now, and my favorite is below.


Wednesday Sep 12, 2012

No NFC for the iPhone, and here's why

I, like many others in the retail industry, was hoping the iPhone 5 would include an NFC chip that enabled a mobile wallet.  In previous postings I've discussed the possible business case and the foreshadowing of Passbook, but it wasn't meant to be.  A few weeks ago I was considering all the rumors, and it suddenly occurred to me that it wasn't in Apple's best interest to support an NFC chip.  Yes they have patents in this area, but perhaps they are more defensive than indicating new development.

Steve Jobs wanted to always win, but more importantly he didn't want others to win at his expense.  It drove him nuts that Windows was more successful than MacOS, and clearly he was bothered by Samsung and other handset manufacturers copying the iPhone.  But he was most angry at Google for their stewardship of Android.

If the iPhone 5 had an NFC chip, who would benefit most?  Google Wallet is far and away the leader in NFC-based payments via mobile phones in the US.  Even without Steve at the helm, Apple isn't going to do anything to help Google.  Plus Apple doesn't like to do things in an open way -- then they lose control.  For example, you don't see iPhones with expandable memory, replaceable batteries, or USB connectors.  Adding a standards-based NFC chip just isn't in their nature.

So I don't think Apple is holding back on the NFC chip for the 5S or 6.  It just isn't going to happen unless they can figure out how to prevent others from benefiting from it.

All the other handset manufacturers will use NFC as a differentiator, which may be enough to keep Google and Isis afloat, and of course Square and PayPal aren't betting on NFC anyway.  This isn't the end of alternative payments, its just a major speed bump.

Monday Jun 11, 2012

Comparing Isis, Google, and Paypal

Back in 2010 I was sure NFC would make great strides, but here we are two years later and NFC doesn't seem to be sticking. The obvious reason being the chicken-and-egg problem.  Retailers don't want to install the terminals until the phones support NFC, and vice-versa. So consumers continue to sit on the sidelines waiting for either side to blink and make the necessary investment.  In the meantime, EMV is looking for a way to sneak into the US with the help of the card brands.

There are currently three major solutions that are battling in the marketplace.  All three know that replacing mag-stripe alone is not sufficient to move consumers.  Long-term it's the offers and loyalty programs combined with tendering that make NFC attractive.

NFC solutions cross lots of barriers, so a strong partner system is required.  The solutions need to include the carriers, card brands, banks, handset manufacturers, POS terminals, and most of all lots of merchants.  Lots of coordination is necessary to make the solution seamless to the consumer.

Google Wallet

Google's problem has always been that only the Nexus phone has an NFC chip that supports their wallet.  There are a couple of additional phones out there now, but adoption is still slow.  They acquired Zavers a while back to incorporate digital coupons, but the the bulk of their users continue to be non-NFC.  They have taken an open approach by not specifying particular payment brands.  Google is piloting in San Francisco and New York, supporting both MasterCard PayPass and stored value. I suppose the other card brands may eventually follow.  There's no cost for consumers or merchants -- Google will make money via targeted ads.


Isis

Not long after Google announced its wallet, AT&T, Verizon, and T-Mobile announced a joint venture called Isis.  They are in the unique position of owning the SIM in the phones they issue.  At first it seemed Isis was a vehicle for the carriers to compete with the existing card brands, but Isis later switched to a generic wallet that supports the major card brands.  Isis reportedly charges issuers a $5 fee per customer per year.  Isis will pilot this summer in Salt Lake City and Austin.


PayPal

PayPal, the clear winner in the online payment space beyond traditional credit cards, is trying to move into physical stores.  After negotiations with Google to provide a wallet broke off, PayPal decided to avoid NFC altogether, at least for now, and focus on payments without any physical card or phone.  By avoiding NFC, consumers don't need an NFC-enabled phone and merchants don't need a new reader.  Consumers must enter their phone number and PIN in the merchant's existing device, or they can enter their PIN in the PayPal inStore app running on their phone, then show the merchant a unique barcode which authorizes payment.

Paypal is free for consumers and charges a fee for merchants.  Its not clear, at least to me, how PayPal handles fraudulent transactions and whether the consumer is protected.


The wildcard is, of course, Apple.  Their mobile technologies set the standard, so incorporating NFC chips would certainly accelerate adoption of many payment solutions.  Their announcement today of the iOS Passbook is a step in the right direction, but stops short of handling payments.

For those retailers that have invested in modern terminals, it seems the best strategy is to support all the emerging solutions and let the consumers choose the winner.

Tuesday Oct 11, 2011

Mobile Payment Videos

My friend Andrew Morris, who I work with at ARTS, recently sent an email listing the many videos showing the future of mobile payments.  I've selected a few to include here that represent where we're heading.

To get you in the right frame of mind, let's check with George Costanza first:

Here's a demonstration of Google Wallet using a Macy's POS register in the Google lab:

AT&T, T-Mobile, and Verizon formed Isis to advance NFC.  Here's their marketing video:

And here's PayPal's vision of where payments are going:

Andrew was recently on a panel at the ARTS User Conference, and had this to say afterward:

After our panel discussion in Orlando, I’ve been thinking quite a bit about this issue – and my gut is that we’re starting to spend too much time talking about the inevitability of EMV/NFC and not enough time talking about the real business opportunity with regard to mobile payments and how retailers can either ‘take advantage’ or ‘be taken advantage of.’

Well said.

Thursday Jul 07, 2011

NFC in Austin

Back in December in my predictions for 2011, I said this year will be the year when NFC pilots are launched in order to determine the winners for the coming years. There are at least 163 NFC projects in flight across the world at present, with a few big ones planned for the US.  As Randy Vanderhoof explains, there are really three major project in the US for NFC.  First, there's Google Wallet which will be piloted in New York and San Francisco and led by Google and Sprint.  Then there's Isis, which will be piloted in Austin and Salt Lake City and led by AT&T, Verizon, and T-Mobile. Lastly is the approach using a microSD cards which is preferred by financial institutions such of Bank of America and Wells Fargo.

You can read more about the Google Wallet and see a video here.

You can read more about Isis in Austin and see another video here.

I'm sure these pilots will last well into 2012 before we can draw conclusions, but I'm really encouraged the industry is moving forward.  There are two benefits for retailers.  First, there are possibilities to innovate alongside the payments, with loyalty programs, coupons, etc.  Payments alone won't justify the hardware investments required to support NFC, so we'll need NFC to streamline several consumer interactions.

Second, there are potential players (like Paypal) that can offer alternative payment methods that create more competition in the space.  That competition may, in turn, lower processing fees for retailers and finally do away with paper checks.  So keep your eyes on these pilots.

 

About


David Dorf, Sr Director Technology Strategy for Oracle Retail, shares news and ideas about the retail industry with a focus on innovation and emerging technologies.


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