To Make Security Fashionable, MasterCard Redesigns Payments

Consumers still aren't eager to make payments from their phones, despite the immense security boost mobile wallets provide through encryption, tokenization, dynamic account data and biometrics. So MasterCard is taking these technologies and hiding them in other products.

On its surface, MasterCard's Internet of Things initiative seems to be casting a wide net to answer just one question: If consumers won't use their phones for payments, what will they use? But the deeper motivation is to get consumers off the aging plastic-card system and encourage them to use something — anything — that can better protect cardholder data.

"The idea here is we're making it easy to add payments to processes and things that people are already finding useful, rather than creating payments just for the sake of creating payments … [Tokenization] makes real the idea that any device can safely make a payment," said Sherri Haymond, senior vice president and group head of digital channel engagement at MasterCard.

The Internet of Things project is also an extension of the MasterCard Digital Enablement Program and the Digital Enablement Express, two programs that aim to speed the adoption of the tokenization security in everything from merchant systems to urban planning.

"We noticed an opportunity to secure the transition to digital, [and] to ensure the transactions are safe and secure," Haymond said. "This new program is the next step to that strategy."

There are signs that consumers are going to be more receptive to wearable computing in the near future. Barclaycard has woven its bPay system into everything from gloves to donkey saddles; Apple Pay is an integral part of the Apple Watch; Walt Disney Co. has seen massive adoption of its MagicBand system in its theme parks; and the startup Kerv just completed a successful crowdfunding for production of a payment-enabled ring.

For the Internet of Things project, MasterCard's partners include General Motors, jewelry company Ringly and designer Adam Selman. Its more traditional banking and fintech partners include Capital One, NXP and Qualcomm. It also works with wearable technology developer Nymi and Bluetooth location service TrackR.

NXP and Qualcomm will build technology to enable and secure payments on most connected devices, while the other participants will design use cases for how and why their devices can make payments. The goal is to achieve commercial availability of payment options for connected devices starting in 2016.

MasterCard's work with these other companies is a major step forward for connected commerce, said Jordan McKee, a senior analyst at 451 Research.

"MasterCard has provided the underlying framework to enable this opportunity, allowing it to transition from ideation to implementation," McKee said, adding that while it's still early days, the move should be seen as the thin wedge for development at the intersection of the Internet of Things and payments. "2016 will see a groundswell of activity relating to this opportunity."

MasterCard isn't the only financial services company on this path. Royal Bank of Canada has been aggressively experimental with mobile and wearable payments, and is already learning the limits of what a bank's role should be in the fashion world. Other groups are focused on determining how wearable payments are provisioned, suggesting that there are still many fundamental details to be worked out.

What will push 'connected device' payments forward is figuring out what people are using regularly, and figuring out how to embed payments and security into those devices in a way that feels natural to the user,  Haymond said.

In the case of General Motors, for example, the key fob that already unlocks the car's door and controls its security system can also be used to initiate many Web-driven tasks, including payments.is can be used to unlock a range of web driven tasks. The fob can serve as a factor of authentication, giving the car's console access to the account credentials to better facilitate the payments motorists make every day, Haymond said.

"Paying ahead for fuel, paying for parking, ordering ahead at a drive-through or restaurant — all of these would be use cases," Haymond said.

The Nymi bands, which use heart rhythms to identify individuals, can also be introduced for non-payment tasks, building a familiarity that can extend to payments, according to Haymond.

"In our Toronto office, many of the staff have enabled the Nymi band to gain access to different floors of the building," she said.