Mobile Payment Momentum Forces IBM to Improve Its Tech

Initiatives such as Apple Pay and the upcoming CurrentC wallet are placing pressure on banks and retailers to accommodate the higher transaction speed, volume and performance expected on smartphones and tablets.

IBM is behind the technology that powers mobile payments for a large range of companies—it provides the mainframe computing for 92 of the world's 100 largest banks, 23 of the 25 largest airlines and 23 of the 25 largest retailers. The Armonk, N.Y.-based vendor is updating its mainframe to handle an expected spike in volume stemming from more mobile payments and related tasks such message delivery, marketing, balance queries, account transfers, and security.

"Consumers are only going to care that they can reach out to their phone and know that the information is there, that you can approve and execute a transaction securely," said Deon Newman, vice president of systems for IBM. "I recently moved money … while I was in a plane on the runway. It never crossed my mind that it would not work. That's the performance that is necessary."

IBM expects its updates to go live in early 2015. The company is currently testing upgrades designed to improve connections between the mainframe and the technology that executes and routes information for payments and other transactions. The plan is to ease the integration between the access point for the transaction and the company's back end for risk and data management. IBM is also improving the mainframe's ability to refresh and update account information, as well as analyze the types of transactions, taking size, geography and the payment parties into consideration.

That analysis will enable companies to determine the risk management and processing needs for different transactions. The goal is the reduce risk resources for safer, smaller payments, while enabling more robust work for larger transactions.

"We're looking at bifurcated pricing for mobile transactions for what some in the space would consider lower-value transactions, such as those that are not revenue-generating," Newman said. "We would assign those in a way that ensured the transactions came out at a lower price."

The new mainframe technology will also be designed to broaden the ability of application programming interfaces to quickly add payments functions and secure transactions. Retailers often use APIs to add a payments interface or an e-commerce component to their existing website.

"The first phase of [the API wave] was about the user experience, but what is critical now is to ensure the apps are bundled with more robust back-end integration and security," Newman said.

As part of its mobile strategy, IBM recently patented mobile security technology that encrypts data as it moves between developers, companies and third-party providers. IBM has also partnered with Apple to build apps and provide IT maintenance help for financial institutions and other businesses.

The rise in mobile transaction activity is already underway. The British Bankers Association reports mobile transactions doubled in the past year, while one of IBM's clients, The First National Bank of South Africa, reports an expansion in yearly mobile transactions from 80 million mobile transactions in 2012 to about 240 million in 2014. Much of the bank's volume has come from payments, as it is active in Africa's mobile money industry. Most institutions that IBM works with are reporting 40% in year-over-year growth or more, Newman said.

"I think the IBM upgrade demonstrates how 'big data,' or better use of data, creates all sorts of opportunities from risk management to better analytics, etc.," said Gareth Lodge, a senior analyst at Celent. "That very much does need a boost in technology. I think that also means opportunity for the cloud, as that on-demand processing power really does make a difference."