Parsing the Mobile Payment Playing Field
Suggestions that Apple Pay is unusually vulnerable to fraud were quickly refuted this week. The fact remains, though, that extra care is needed when verifying cards for Apple's mobile wallet.
Digit, a startup in San Francisco targeting millennials, has launched a service that crunches checking account data to determine daily amounts to automatically transfer into users' savings accounts. Its debut points to how personal financial management services are growing up to do the work on the consumer's behalf.
The launch of Apple Pay late last year was bound to shake up the crowded and fragmented mobile payments market. Banks now face more pressure to make the right plays in this space or else lose their customers.
As things stand, Apple shows strong numbers in both iPhone 6 sales and usage of Apple Pay among its early adopters. Competitors are responding with new partnerships and products. Samsung introduced Samsung Pay at Mobile World Congress, with LoopPay's magnetic swipe technology enabling mobile transactions on credit card readers. Google acquired mobile wallet Softcard and partnered with AT&T, Verizon and T-Mobile to preload Google Wallet on their handsets, and will also launch a new mobile payments application program interface later this summer.
How these new developments will impact banks and the rest of the mobile payments market isn't yet fully clear. Questions and barriers remain for Apple, Samsung and Google. And the Merchant Customer Exchange lurks in the background with the anticipated launch of mobile wallet CurrentC later this year. There's a great deal of customer education that needs to be done for any option to gain wide acceptance. This is still a murky landscape for banks to navigate.
Nonetheless, there is enough information to help banks evaluate these mobile payments competitors. This market is moving fast, and banks need to prepare for the mobile payments revolution knocking on their door.
Apple Pay: Moving the Market
Apple Pay has established itself as the early benchmark for other solutions as it shows early strength in adoption. In a January earnings call, Apple CEO Tim Cook said that Apple Pay accounts for two of every three dollars of contactless payments on the major payments networks. Earlier this month, an Auriemma Consulting Group survey of 500 iPhone 6 and iPhone 6 Plus found that more than 75% of those who use Apple Pay made repeat purchases with it.
Apple Pay has three clear impediments on the path to mass adoption. It needs to sell more compatible devicesiPhone 6, iPhone 6 Plus and Apple Watch. More merchants need to upgrade to near-field communication terminals. And more customers need to know where it can be used.
Apple's ownership of the hardware and software on iPhones makes it hard to see anyone overtaking Apple Pay as the most popular mobile wallet solution for iOS users. This means banks will have to work with Apple Pay, as iOS devices tend to attract affluent customers that banks can't afford to lose. The recent news of fraudsters loading stolen card credentials on Apple Pay shows that banks still have kinks to work out in their policies and security measures with Apple Pay. Now is the time to figure those out before more adoption occurs.
Samsung Pay: Looking for a Head Start
Samsung Pay will have many similarities to Apple Pay, such as biometric authentication and tokenization. But it comes with a major difference: it can be used with the magnetic stripe-card readers that are already on the checkout counter at most retailers in the U.S. That gives it a massive advantage in merchant acceptance over other NFC-based solutions here.
But that advantage might not last long. The Samsung Galaxy S6 isn't on sale until next month, and research indicates that the majority of U.S. point-of-sale terminals will be NFC-compatible by the end of this year.
Samsung Pay is already waiving all transaction fees in Korea, and it might choose to do the same here to help spur early adoption. How it will make up for that revenue and how it will share transaction data still needs to be clarified, and there are important security concerns with any magnetic stripe transaction. But banks have to take a hard look at Samsung Pay's potential in the Android market, especially if Galaxy S6 sales take off.
Samsung Pay isn't really competing with Apple Pay in the U.S. market. It's unlikely that historically loyal iPhone users here will switch to Android just to make mobile payments. Those iPhone users can still pay with plastic cards at any magnetic stripe terminal anyway. Samsung is really competing to gain a head start within the Android market, and it could face a lot of competition there very soon.
Google, Android Pay and Open Innovation
In response to the speculation around Samsung Pay, Google reacted by rebooting Google Wallet with the acquisition of Softcard's intellectual property. As part of that acquisition, Google got AT&T, Verizon and T-Mobile to agree to preload Google Wallet on their handsets, putting it in competition with Samsung. For now, Google Wallet will still be at a disadvantage to Samsung Pay, as it can only be used at NFC terminals.
Perhaps more interestingly than the Google Wallet revamp, Google is also launching Android Pay, a payments APIs platform that banks could potentially integrate into their mobile banking apps. Android Pay will leverage both fingerprint authentication and NFC. Integrating the APIs platformwith mobile banking apps could turn mobile devices into a one-stop shop for banking activities and payments transactions. That could be a strong value proposition if it's marketed right.