Sluggish Adoption of Mobile Proximity Payments
The debit and credit card based proximity payments have been fairly matured and widely adopted payment mechanism, while Mobile Proximity Payments (MPP) are still in its infancy, waiting to see wider adoption. The story should have been otherwise as mobile devices have better reach, better penetration, and customers have better knowhow of handling mobile devices. The graph below depicts the trend of card-based proximity payments vis-à-vis mobile based proximity payment in US market.
The MPP is fairly easy to use, making it very convenient, but the poor adoption and low popularity of this payment mechanism is disappointing and hence is something that needs to be discussed, debated, investigated and analyzed.
Most of the early experiments on the MPP have been in Europe, US and other developed countries. These are based on one of the technologies below:
• Near Field Communication (NFC) (Android pay, Apple Pay, Pay Pal, Life Lock, Arttha)
• 1D & 2D bar-codes (tpay, paytm, bpay, QRpay, Arttha)
• Bluetooth Low Energy (AblePay, Pay360, PowerPay)
• Sound based Payment (Pymnts, Infosys)
Here I have tried to collate the experiences of multiple MPP players and analyzed them to summarize the challenges that need to be overcome to make MPP ubiquitous.
Innovative payments but immature standards
It has been observed that the market for MPP is scattered in all directions leading to lack of interoperability and ac- ceptance of existing infrastructure; for example, acceptance of NFC and QR code-based payment on existing/ traditional merchant device. Secondly, the average time for MPP checkout is not as fast as card-based payments. Thirdly, the payment initiation mechanism varies with use of underlying technologies. The heterogeneous standards for enrolling for MPP as well as storage of secured info is leading to disparate multi-factor verification mechanisms like OTP, biometric, PIN, etc.
"While the mobile proximity payments have potential to outgrow card-based payments, and mobile commerce, its sluggish growth is a result of lack of coordination amongst mobile device manufacturers, certification, standardization, regulatory and banking bodies"
All these have led to diverse MPP solutions based on varied technologies and business rules, which are mostly targeted for limited geography. Too many technologies and process choices (owning to non-standardization) available to MPP providers, makes it difficult for them to strategize, define execution roadmap with a viable busi- ness case. Secondly, MPP solution needs to be simultaneously introduced to customers and merchants, which need significant investments. It is difficult to justify these investments, given the uncertainty in the direction the payments industry will take in future.
Possible Solution: The MPP consortium can evolve basic standards for each type of payment mechanism, which on the lines of EMVCo. Standardization will help MPP providers envision a clear strategy that might cover larger geographies; probably the size of continents.
Commoditization of mobile devices and trust issues
Mobile device manufacturing is highly commoditized; hardware and software elements used in the mobile devices come from different manufacturers which are them assembled, branded and sold in the market. Unless the functional and security aspects are tightly integrated into the process of manufacturing mobile devices, the final device might have integrity issues, manifesting into trust issues.
As MPP is significantly dependent on the underlying mobile hardware, software and OS, designing a proximity payments solution that is compatible with the multiple combinations of hardware and software on the device is challenging in itself. Mobile devices can be jail broken, rooted and prone to malware attacks that expose the users to other security, privacy and identity threats. The consumers trust in MPP is directly linked to security and privacy. Enhanced security might mean substandard user experience, leading to lower adaptation.
Possible Solution: The mobile payments and manufacturing industry must design specifications and standards for securing the MPP environment. Furthermore, they should also define testing standards and certification for the MPP applications and the underlying devices. This will lead to significant reduction in security and fraud issues, accelerating the adaption of MPP.
Ownership of the customer
MPP ecosystem and infrastructure is a conglomerate created by multiple parties leading to increased number of stakeholders. This leads to complexity in terms of revenue sharing, customer support and the ownership of the customer. Also, too many partners in the ecosystem sharing revenues leads to inviable business for some in the ecosystem.
Possible Solution: The MPP probably must be led by the existing dominant payment providers like banks, Visa, Master, etc. The merchant ecosystem business i.e. acquiring merchants, supporting merchants and managing them can be outsourced to competent third parties.
Central banks and regulatory authorities, especially in large economies like US, Europe, India, China, etc, can play an important role in easing away barriers in the MPP market. These authorities can define simple, unified and secured guidelines for MPP, that will make payment providers and mobile manufacturers stick to the predefined ways of performing payments.
In Conclusion: While the mobile proximity payments have potential to outgrow card-based payments, and mobile commerce, its sluggish growth is a result of lack of coordination amongst mobile device manufacturers, certification, standardization, regulatory and banking bodies. Given the potential of MPP, all these organizations need to come together to make a consorted effort so that the MPP sees its potential sooner than later.