The Next Big Thing in Payments: Door Keys? Why Diverse Tech Matters

For MasterCard's Mung Ki Woo, the future of payments is an app that unlocks new consumer habits by literally unlocking their doors.

"You have a hotel key on a mobile app. You can book, check in, and pay with that contactless technology," said Woo, a group executive of mobile at MasterCard. "It's a fluid customer experience, and it solves a pain point. You don't have to stand in line if you arrive at the hotel late at night, you can check right in and go directly to you room. You use the electronic key to open the door and pay."

This is already reality at Hilton hotels, and some Palladium Group hotels and Walt Disney World resorts have RFID wristbands that function as room keys and payment cards. MasterCard hopes to partner with issuers and other stakeholders to power multi-functional experiences such as these—where the payment is only one part of a series of experiences that can come from mobile apps and contactless technology. The hotel example will be commonplace in the next two or three years, Woo said.

MasterCard finds that diversification is a necessary move since the core digital payment has become commoditized; it's hard to compete on mobile payments alone.

"The payment is a foundation for digital commerce," Woo said. "Our vision is to have a very tight integration between digital payments and other services."

In the next year, MasterCard plans to use its MasterPass digital wallet, QkR ordering app, tokenization security and other mobile technology to spot opportunities to tie different services together. The card network has already made some early moves in this direction, such as testing mobile ordering within brick-and-mortar stores as a line-busting technique.

Much of the technology to drive this diversification already exists, Woo said. The rapid adoption of mobile commerce is leading merchants to aggressively seek ways to improve customer service, speed, advanced shopping and enterprise resource planning, Woo said.

"It's kind of like the tectonic plates," Woo said. "They move a few inches per year, and all of a sudden there's a snap and there's a dramatic earthquake."

What used to be called add-on services have actually become part of the core payment offering, said Scott Holt, vice president of marketing for North America for Ingenico. "We are seeing heavy interest in this from merchants, across both our fixed and mobile payment acceptance offerings."

The mobile point of sale vendors also feel pressure to diversify, as the growing number of competitors has leveled the playing field for the hardware that enables the payments.

"What we hear from businesses is they don't want to have one system for one thing and another system for another task," said Faryl Ury, a Square spokesperson.

Square has made a number of moves to diversify, including the launch of a merchant capital program that bases lending decisions on data from a merchant's transaction history with Square.

In the year ahead, Square plans to use new investment to grow the merchant capital program and add additional services. "We want to offer tools that allow businesses to run well, so they can make offers with an understanding of things like what time of day the business makes the most sales, or the time where a campaign would make the most sense," Ury said.

The trend toward diversification is fueled by the underlying technology, which is becoming more readily available and less expensive, said Richard Crone, a payments consultant.

"With the advent of tablet and cloud-based processing, it's made it easier for smaller payment companies to vertically integrate and move deeper into retail applications," Crone said. "Payments used to be the tail. Now payments is the dog and can enhance the entire management experience of retailers."

There's also market and branding pressure on traditional payments businesses to be seen as more than a "dumb pipe," given the myriad competitors that are entering the market to offer mobile payments and other digital services.

"For larger players, adding services is a big opportunity to sell services that are particular to a certain industry," Crone said. "When you do that, the barriers to exit are so high that you have a client for life. There's a huge amount of profit here. Processing payments can set up an endless stream of development where the transaction is just the tip of the iceberg."