MIAMI BEACH, Fla. — The payments industry is preparing to tackle disruptive changes in technology head-on, rather than brace against them.
In recent weeks, developments in mobile and chip card payments have altered many expectations for when and how magnetic stripe cards will be replaced in the U.S. with payments methods being tested and deployed worldwide. Just within the past month, PayPal Inc. furthered its commitment to mobile payments with its purchase of the startup Fig Card Corp., and two top banks said they expect to issue cards that adhere to the EMV Integrated Circuit Card Specifications.
Even with these bold moves, however, bankers say that consumers still have to weigh in on which payments methods they will use. "Consumer choice will play a big role," said Paul Galant, Citigroup Inc.'s top enterprise executive.
Galant said he was "bullish" on the mobile payments space in particular. "It may take little longer, but it will provide all of us with a very rich future," Galant said. "The digital revolution will encompass payments on digital devices, and that will number in the billions."
When mobile payments become widely available, the rate of adoption will dwarf "anything we've seen before."
Galant and other execs were at the 23rd Annual Card Forum and Expo here last week, which attracted about 750 attendees. SourceMedia Inc., which publishes American Banker, sponsored the event.
In mid-April, Wells Fargo & Co. and JPMorgan Chase & Co. said they would issue EMV cards to customers who frequently travel to countries where the standard is more common. EMV cards are typically called chip-and-PIN cards for their most prominent security feature. (JPMorgan Chase's cards would not use a PIN.) Also last month, Isis, the mobile payments venture backed by major telecom industry players, announced that it would open its system to multiple issuers and networks. Isis also said it is preparing a trial run of its system next year in Salt Lake City.
And eBay Inc.'s PayPal, which was already inching its way toward the physical point of sale, leapt closer with its purchase of a mobile payments system that can run on software from a smartphone.
"I sense that the fear of change we saw a few years ago is gone," said Jack Jania, vice president and general manager for secure transactions at Gemalto NV. The Amsterdam, Netherlands, chip maker is involved in new mobile technology efforts that bridge different industries and technologies, which Jania said is a significant change from a few years ago. "From a technology perspective, I see all players embracing different modes of payment technology, whereas three years ago many were stuck in a mind set of clinging to old technologies such as magnetic stripes and uncomfortable with talking about change," he said.
The conference atmosphere was palpably "more energetic," said Mike Kutsch, a payments consultant and principal at Payment Strategy LLC of Rye, N.Y. "There is a lot more buzz about opportunities that mobile payments represent rather than a feeling that these new technologies are a threat to banks."
But debate flared on a number of topics, including the true benefits EMV technology might bring to the payments ecosystem, the financial burden merchants experience for card fraud compared with what card issuers shoulder and the deeper issues underlying debit interchange legislation.
"It was clear at this meeting that banks are really angry about new rules about debit interchange, but the truth is that everyone needs to be prepared for interchange rates to eventually decline in both debit and credit," said Deborah Baxley, a principal with the consulting firm Capgemini U.S. LLC. "Anyone who doesn't think interchange rates in the U.S. will someday decline is putting their heads in the sand … especially if you look around the world."
And while more banks are testing mobile payments and seem willing to embrace technology that aims to shift payments from branded cards to more generic mobile wallet smartphone applications, many observers are more wary than ever of what is at stake.
"You listen to these speakers talk about the future of payments and how a payment will be a small application inside a phone, and you realize that banks are going to have a major challenge ahead in retaining their brand images in the midst of all this," said Dennis Moroney, research director at TowerGroup. "It's exciting, yes, but it is also going to be extremely challenging."
