Monday Mar 02, 2015

Payment Consolidation

What do you get when you add the following pairs?  Samsung+LoopPay, Google+Softcard, PayPal+Paydiant?  Answer: Viable ApplePay competitors.

First everyone and his brother had a mobile payment solution, then a select few rose to the top and got acquired.  The cycle goes like this: innovation, consolidation, standardization.  In this case, there's room for multiple standards, but not too many.  When the music stops, somebody will inevitably be left without a chair.  Today I feel like that's Samsung.

Google wants to play by established rules, but for the longest time telcos weren't letting them in the game.  Their recent agreement with the backers of Softcard now level's the playing field.  I think their ultimate strategy is the obvious one: advertising.  Being part of offline transactions gives them access to the customer's eyes and intentions.  Combine that with their existing online efforts and you have omni-channel marketing.

Approaching from a different angle, Apple is constantly looking for ways to remove the friction in everyday lives.  Their focus is on the user experience of payments, making sure its as smooth and simple as possible.  This either drives sales of existing devices or creates new markets.  With ApplyPay they'll sell more iPhones and create a new market by eventually charging fees (that consumers won't see directly).  They managed to dodge the telcos and get the backing of the banks, but that's no surprise given their track record in other industries. 

On the other hand, PayPal is more aligned with the merchants so their acquisition of the MCX technology-provider makes lots of sense. Their goal is to offer an alternative to swipe fees that satisfies both consumers and merchants.  Their work with Discover, beacons, and their Square-like fob are seeing some success with smaller retailers.  The ability to create orders and do person-to-person payments also sets them apart.

Then there's Samsung, the smartphone manufacturer.  LoopPay has very cool technology that transmits the card data to an existing magstripe reader through the air.  So for terminals that don't support NFC, the consumer can still put the phone within 3 inches of the magstripe terminal and send the card data.  That means that generally every existing merchant can already accept SamsungPay.  But there are two issues.  First, I'm not confident this system works 100% of the time.  And second, its predicated on dying, insecure technology.  Clearly Samsung isn't worried about either of those issues.

All these moves coupled with the occasional security breach makes this space very exciting.  Sit back and enjoy the ride.

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.

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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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