Banks Urged to Support Mobile Chip Payments: Report

With questions about mobile-wallet use at the point of sale centering on technology, security, payment accounts and software applications, banks should push Near Field Communication development to ensure they play a vital role in the future of mobile payments, a new study suggests.

Banks should promote NFC as a standard at the retail level because it represents their best chance to maintain relationships with merchants and provide payment credentials to consumers, Zil Bareisis, a senior analyst for Boston-based research firm Celent, writes in his report "What's in Your Mobile Wallet? Winning the Battle for Mobile at the Retail POS."

However, any analysis about mobile wallets cannot solely center on NFC, in which two wireless devices exchange data between similar chips, Bareisis says.

Cloud-based technology for wallets, or the integration of payments and business functions through multiple servers, also offers a realistic alternative for mobile at the point of sale, Bareisis says.

If banks balk at fully supporting NFC, other mobile-wallet or alternative-payment players such as PayPal Inc. and Square Inc. could take over merchant relationships and relegate bank-payment instruments to the role of funding sources, according to the report, which Celent based on 12 months of industry interviews and observations.

Other industry studies have drawn similar conclusions about how PayPal and Square intend to position themselves.

"There are plenty of good examples of PayPal collaborating with banks. But make no mistake, in [mobile wallets], PayPal is not the bank's friend," Bareisis writes.

Banks need the technical capability to provide payment credentials on an NFC chip, the report suggests. Because banks will continue to issue plastic cards, regardless of any mobile-wallet development, they should work with a reputable service manager to deliver credentials to multiple wallets as needed, the report adds.

Before mobile-wallet acceptance becomes widespread without their full involvement, banks should determine if their mobile-banking systems can deliver payments and whether rewards or other value-added services they offer are strong enough to entice customers to use their software applications over other options, the report asserts.

Bank executives and boards also should investigate their willingness to invest in bank-branded mobile wallets to compete for customers, the report suggests.

Mobile-wallet providers that want to gain a following at the retail level must make it simple to load and manage multiple payment credentials, support digital receipts and merchant offers, and eventually provide a way to load and use other identification common in a physical wallet, such as a driver's license, the report suggests.

Consumers will not get rid of their leather wallets, cash or plastic cards any time soon, the study predicts. But that will not slow the progression of mobile-wallet technology, Bareisis adds.

"For NFC, the key challenges are point-of-sale upgrades, device availability for consumers and a compelling business model for all parties," he says. "For cloud-based wallets, the key challenges are new merchant relationships and the wallet provider's ability to convince [merchants] as well as consumers of the value of a new [payment service]."

Regardless of how banks establish a mobile-payment strategy, their nonbank payment competitors will be evolving quickly.

Google Inc.'s mobile wallet represents an NFC-based payments model with a vision to hold many, if not all, of the cards consumers carry in their wallets. PayPal's wallet continues to evolve but appears to be steering toward blurring the lines between online and offline shopping with a cloud-based payment method at checkout, the report contends.

The evolution of mobile payment and mobile wallets is here to stay, Bareisis writes. However, neither current nor future propositions can thrive by focusing only on payments "because it's not solving a genuine problem in the developed markets," he adds.

The report indicates mobile-wallet companies should provide more services consumers consider important or useful, such as coupons, loyalty programs, product information and funds-transfer capabilities.

While a company such as Apple Inc. is likely to "surprise" consumers with its vision of mobile payments, it is not likely Visa Inc. and MasterCard Worldwide will relinquish their positions as dominant retail payment instrument providers, the report states.

"Expect to see two different Visa wallets-a consumer-oriented one from Visa Inc. and the other as a service to member banks from Visa Europe," Bareisis predicts.