Magazine Article | March 19, 2012

The Future Of Payments: Smartphones, Retailers, And Consumers

By Tracy Metzger, executive VP, SecureNet Payment Systems

What is the smartphone’s role in mobile payments, and where do POS VARs fit?

It seems like you cannot go a day without some passing mention of the smartphone and the future of payments. There are so many different ways to approach the subject, but for me, the most intriguing is the evolution of the smartphone to be used as a form for making payments.

Over the past year, we have seen the launch of a number of consumer-based products to drive this initiative. Starbucks has successfully rolled out a program allowing their customers to preload values on their Smartphones and then use them as a form of convenient payment at the register. They claim that $100M-plus dollars have been loaded via their smartphone apps this year. Other initiatives, such as the Google Wallet and ISIS mobile applications, are emerging as well. These technologies leverage Near Field Communication (NFC) technology that manufacturers of smartphones.

Both Google and ISIS link your existing credit cards to the NFC chip embedded in your smartphone. They are also collaborating with retailers and restaurants to drive the consumer usage via deals and discounts for using these products at the point-ofsale (POS) to drive more greater acceptance and frequency of use. This is a solid philosophy, but the real question is, “Where can I use this technology?” Without mass acceptance of this technology from the merchant then, how can this initiative actually become mainstream?

Recently, Visa has announced the acceleration of the EMV initiative in the United States. EMV, or “Chip and PIN”, as it is more commonly referred to, is a card security standard adopted in just about every region in the world, but the United States. The interesting point in their announcement was the incentive to relax the requirements of the merchant’s PCI compliance obligation by outfitting their POS with the ability to accept both contact-based EMV cards and “contactless” EMV cards (or NFC). Is Visa embracing these new technologies and Smartphones as a significant piece of the future of the payments industry by this initiative? The entire strategy may not be clear, but the move certainly gets my attention.

That said, what we still have not been able to establish is what it will take to move this technology from innovation to mass acceptance. Visa seems to be committed, MasterCard appears to be onboard via their partnership with Google and the Google Wallet, and I have to believe the other card-issuing brands have similar initiatives to stay in the game. But the real challenge is getting the merchant to make the investment in the technology to accept the payment. For larger retailers, if they get relief from the PCI requirements by outfitting their registers, it may be a wash to make the investment, but will it pay off for the small retailer?

That brings me to the consumer and what — in my opinion — will drive widespread acceptance of this technology. I have a 15-year-old daughter who spends the majority of her time with her face glued to her smartphone. She does not have a credit card yet, but has asked for one on any number of occasions. I am reluctant because, every 15-yearold lacks a degree of responsibility and they constantly lose things. One thing that I know she never, ever loses is her smartphone. Her social network apps are on that phone, her contacts, her e-mail, photos, and her music — it is one of her main tethers to the world at large.

So why not make it her way to pay? Younger generations have been driving new technologies for years, so it only makes sense that this will follow suit.

Taking this one step further, in a few short years she will be off to college and looking for an allowance. Today, pre-paid cards are one way to track spending of a college student, but they often get lost and then used by whoever finds them. If college campuses and their surrounding merchant locations launched an initiative to outfit their registers with contactless payments, they could drive this form of payment forward. It also offers a new degree of security to the parents. If they know that if a phone was lost, the finder could not just drain their prepaid account without the PIN number to unlock the app on the phone and the account could quickly be closed remotely and transferred to a new device without any loss of value. Trust me, as the students spill back into their home towns on breaks and vacations and start asking for the same kind of POS experience, this advantage will certainly get attention from the rest of the consumer market.

Even though there are perceived challenges with this technology currently, there is no doubt in my mind that the smartphone will play a key role in the future of payments, the questions are: when and where will it start to get real traction and how quickly will it spread to mass acceptance?