Mobile Payments Inheriting the Problems of Contactless
Dead phone batteries. Wrong merchant terminals. Terminals turned off. Terminals unrepaired. No terminals at all.
These and other, less obvious glitches suggest contactless technology may not be the mobile payments panacea for tattered magnetic stripes and other problems with plastic cards. Not without some serious problem-solving, anyway.
In hyping mobile payments, many proponents focus on the way point of sale transactions could change, frequently describing people who leave home without their wallets but never without their phones. But that oft-cited cliche is not likely to become reality anytime soon.
"I'm sure there will be mobile payments, … but I have a hard time believing that I'm not going to still be carrying a wallet at least with my ID and at least with my insurance card," said William Rossiter, the vice president of marketing at the terminal maker Hypercom Corp. "It will be a slow transition."
Nick Holland, a senior analyst at the Yankee Group research firm in Boston, agreed.
"For the next, arguably, 20 years, people are still going to be carrying a wallet on them because there are always going to be places that" do not accept contactless cards, Holland said.
When the payments networks several years ago began pushing contactless cards, which let a consumer pay for a transaction by tapping the card against a payment terminal instead of swiping it through, "there was a lack of consistency in terms of telling people what the cards can do," he said.
As a result, merchants were slow to upgrade to terminals that could read contactless cards, and those that did often failed to maintain them to keep them in working order. Many people also were unaware that their debit or credit cards were equipped with the technology.
"The issue of the readers not being turned on or not working — this is an issue that happens when you have a lot of readers without a lot of cards or a lot of readers without a lot of cards that consumers know they have," said Todd Ablowitz, the president of the payments consulting firm Double Diamond Group LLC in Centennial, Colo. "It's a matter of, when something does go wrong, which is inevitable, if nobody notices, then it doesn't get fixed."
All that said, developers of mobile payments technology acknowledge the potential problems and plan to address them.
"We have been thinking through those things and have different plans in place," said Troy Bernard, the director of emerging technologies at Discover Financial Services.
Breaking or losing a phone would be handled similarly to losing a plastic card, Bernard said, requiring the consumer to contact a wireless carrier for a replacement and to remotely wipe the lost handset if necessary. Depending on the business model, a consumer may also need to contact the bank that issued his payment card account.
A situation in which a consumer's near-field communications-enabled phone dies could be addressed in many ways.
Dave Wentker, the head of mobile products at Visa Inc., said some handset manufacturers may enable contactless capabilities when a handset is not charged, though they can also take the opposite approach and require the phone to be switched on before payments are allowed.
On the terminal side, Bernard and others predicted that the advancement of mobile payments is likely to prompt merchants to upgrade to contactless terminals.
"We definitely see the NFC device being [a] differentiator … from its contactless card predecessor in that it has two-way communication at the point of sale and location-based services so merchants can deliver real-time offers," Bernard said. "That's where we see a lot more promise in NFC."
More than 100,000 merchant sites are equipped with Discover's Zip contactless specifications, said Bernard, who did not rule out subsidy as a strategy for getting retailers to adopt the technology. This was the tactic adopted by payments networks several years ago when they began promoting the technology.
"I think it's a viable short-term strategy to get key merchants to accept the NFC or contactless payment device, but there needs to be two sides," Bernard said. "You can seed the market with terminals but then you need a proliferation of the NFC handsets and stickers … so it feeds off of each other."
Hardware makers are taking steps to ensure merchants have access to accept mobile payments if and when the systems take off.
"Our value proposition to merchants is, we want to help them future-proof their investments," said Steve Elefant, the chief information officer at Heartland Payment Systems Inc.
The Princeton, N.J., payments processor's E3 terminal gives merchants the ability to add on hardware and software to accept contactless payments, Elefant said.
"We can't talk to a tier-one retailer today without talking about contactless and NFC," Hypercom's Rossiter said.
In any event, proponents of contactless payments say the doomsday scenarios should not impede adoption of mobile payments, if only because users should be able to fall back on current payment systems for the foreseeable future.
"In all the pilots and in all the commercial launches that we are planning for the next few years, it is expected that the consumer will have at his disposal multiple ways of making payments, as happens today," said Deepak Jain, the president and chief executive of DeviceFidelity Inc. The Richardson, Texas, company is working with Visa on mobile payments trials with Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and U.S. Bancorp, tests that involve using DeviceFidelity's payment-enabled In2Pay microSD cards with smartphones.
"In your wallet you have multiple ways of making payments," Jain said. "You've got your debit card. You've got your credit card. You've got a prepaid card. You've got some cash."