Payments with mobile devices has exploded. 2014 was a year of huge and rapid change and the first quarter of 2015 has not disappointed. Impactful events like the Consumer Electronics Show (CES) and Mobile World Congress (MWC) have delivered a slew of significant announcements. So, amid the foray, what have we learned?
Major players vie for US market
The big guns have well and truly arrived. Samsung launched Samsung Pay, following its acquisition of magstripe emulation platform, LoopPay. PayPal acquired mobile wallet platform Paydiant. Google showed its hand with the purchase of Softcard and its discussion around Android Pay’s APIs, which will be used by banks and service providers (SP) to develop mobile payment products. All of these announcements reflect a shared intent to maximise US market share and, in the process, square up to Apple. The big players are investing heavily to secure a short-term position in just one, albeit significant, region. What lengths they will go to in order to conquer the rest of the globe?
Fragmentation stands in the way
The market has traded one form of complexity for another. Gone, seemingly, are the days where service providers must grapple with the mobile network operator (MNO) and SIM secure element (SE) business model. Instead, they must now contend with a bewildering array of go to market options, from Apple and Samsung’s embedded SE (eSE) approach, to a variety of host card emulation (HCE) and tokenisation hybrid models, each offering varying degrees of control, risk and benefits for service providers like banks.
After so many years of inertia, it is encouraging to see the NFC industry finally moving but for banks and service providers, the planning and decision making process is no less convoluted than before. It’s just different. Ecosystem complexity has replaced deployment and integration complexity and each service provider will now need more guidance than ever if they are to tailor a solution that appropriately supports their individual business.
With Apple controlling its own ecosystem and HCE putting power in the hands of service providers, MNOs have been unceremoniously ousted from the top table. Drawn out negotiations and complex pricing side-lined the SIM-SE model and the various combinations of eSE, tokenisation and HCE have dealt the final blow. Holding firm was logical when the MNOs were in control, but now that the eSE approach is up and running and technologies like LoopPay, HCE and tokenisation are enabling service providers to choose their channel, MNOs are in freefall. Banks need to take note and act now to ensure they don’t suffer a similar fate.
The payment schemes have positioned themselves well since HCE and tokenisation came to the fore. They announced work to standardise both technologies and have driven market education through events and workshops. In tokenisation specifically they also hold a very strong position; they are the only authorised token service providers for Apple Pay. This may change, but it is clear that, for now at least, the schemes remain at the top of the mobile payments food chain.
Banks need more support from the payment schemes. One example is Visa’s release of its mobile wallet software development kit (SDK). A welcome move, but banks don’t fully understand it. The whole industry needs more education on technologies like HCE, tokenisation and the role of token service providers. Banks want to make their move, but they just don’t know which option to take and where to find sound information. Mobey Forum’s HCE Working Group is working with its members to develop a comprehensive overview of the market which, it is hoped, will go some way to alleviating the confusion.
Now is the time for banks to be bold. Unfortunately, this is not what we are seeing. If the financial industry is to avoid becoming a back-end player, confined to a bit-part in the value chain, banks need to be brave. In March, some have raised their heads above the parapet. Norway’s EIKA Group and OP Financial Group in Finland both launched wallets and Barclays opened up Twitter payments. This is good progress, but more is needed. The over the top players are starting to get comfortable, so the banking industry must galvanise itself or risk being pushed out into the cold.
What were your key takeaways from the last few months? Join the discussion by posting your comments below.
By Sirpa Nordlund, Executive Director of Mobey Forum and bobsguide Contributing Editor