Mobile banking adoption has been fast — five years versus 10 for online, says Marc Warshawsky, senior vice president of mobile for Bank of America — so why aren’t we all paying with mobile wallets?
“We’re seeing some fundamental changes in the landscape that will lead to mobile payments,” he said, referring to the ubiquity of mobile wallets. Of course, mobile payments are already near-ubiquitous, if smartphone app purchases count. More than half of Americans own a smartphone, and 80% of them have bought something, including apps, on the device, Warshawsky said.
Russell pointed to the smartphone revolution, the now-familiar story of how much people love their phones and how often they carry them, which is almost always. He pointed out how mobile has disrupted multiple industries: cameras, travel agencies, books, music, even wristwatches. (Now, what if Apple’s rumored iWatch disrupts smartphones?)
The financial services industry is being disrupted by mobile, too, Russell said, but not in its core competencies. Instead, the real disruption is happening around the peripheries. At the core — the funding sources and the rails of banking — there has been relatively little disruption, though Russell allowed that PayPal comes close to being a disruptive enterprise for the industry.
It’s at the periphery, at the point of sale and the payment device, that banks are losing out to the likes of Square and retail apps.
“It’s a misconception that change at the infrastructure level, at terminals, will take a long time,” Russell said. “EMV and NFC are coming faster than we think.”
Indeed, Jessica Turner, senior vice president of business development at MasterCard International, said that most merchants “have the hardware for NFC; that happened five years ago. They just need software.”
Russell asserted that just 2% of merchants are NFC-ready at this point, but those 2% represent 80% to 90% of retail transactions in the nation. (As a point of reference, data shows that 1 in 10 Americans buys something at McDonald’s every day, said Capital One’s Mark Jamison, managing VP of Capital One Labs, the bank’s innovation unit.)
Just 125 large merchants out of an estimated 8 million nationwide, account for 50% of all transactions, said Russell, so this talk of merchants being the sticking point is wrong. It’s the customers, not the merchants that are the problem, he said.
It’s also wrong for banks to outsource security to the periphery, Russell said. “We make a piece of plastic and give it to customers, and the only security we give them is we say, ‘Don’t lose it,’” he said. Operating on the 16-digit card model would be wrong for mobile payments, Russell said.
“By demanding cutting-edge security,” Russell said, and failing to provide it at the core, “[banks have] become reliant on devices we don’t control.”
Customers are indeed worried about security on their mobile phones, but Russell believes this is misguided. “The phone is a powerful and connected device. It has deep capabilities to be very secure.”
The best method, he suggested, might be the one-time use of payment tokens, exchanged from phone to terminal via NFC. Tokens are simply the matching of information in the cloud, Russell explained.
“The single token model is simple and secure,” he said. Besides, most customers are not even aware of mobile wallets — they just want to be able to make purchases as quickly and easily as possible, and maybe get some discounts along the way.
“Wallets can take many forms,” Russell said, noting that Capital One is working with the Isis mobile wallet consortium. “It can be an app, the phone, or a folder on a phone.”
Core payments will remain the same, said Russell, “with a cloud-based model and the phone as a wallet.” An open ecosystem will ultimately allow for the most innovation and security, he said, so that is what banks should push for, even though openness isn’t in their organizational DNA.
Banks don’t need the sweat the technology so much, he said. The technology will develop. “The competition will be around trust and value creation,” he said, “not technology.”
All this makes MasterCard’s proclamation at the conference all the more significant. The mega payments company said it will not create a mobile wallet, said MasterCard’s Turner. “We’re a B2B company. We know that.” MasterCard will leave the relationships to the banks — or whomever.
Instead, MasterCard will offer its MasterPass solution, which will sit at the point of sale, similar to PayPal, and will work with all mobile wallets, even V.me, Visa’s offering.
One of the key value propositions of MasterPass will be one-click checkout. It turns out mobile shopping cart abandonment is on the rise as mobile purchases gain in popularity. Those pesky mobile keyboards make it onerous to type in credit card numbers, and errors are easily introduced. And no one wants mobile shopping cart abandonment, right?