Well, in order to make mobile payments a reality, tech companies have to jump through a number of technological and regulatory hoops, plus, they have to wait for various other industries to get in line, as well. Apple, Google and Samsung are heavyweights and trendsetters, but that does not mean they are able to force banks, credit card companies, and merchants to play their game.
Today, we will be taking a look at the future of mobile payments and emerging opportunities for developers. Needless to say, with each new opportunity, developers will have to face new challenges. However, since we are talking about money, I don’t think anyone expects a shortage of software developers eager to learn a few new tricks and get into this space.
Apple Pay vs. Android Pay vs. Samsung Pay
Let’s start with a quick overview of the most promising mobile payments platforms out there.
There’s money to be made in mobile payments, so Apple, Google and Samsung are eager to get on board.
Apple Pay hardly needs an introduction at this point, but I should note that it’s still the new kid on the block. Apple limited the initial rollout to North America, so it will be a while before users around the globe get a chance to pay for their coffee with their iPhone.
Samsung fired back with the announcement of Samsung Pay during the Galaxy S6 launch event. Like Apple’s service, Samsung’s payment solution is limited to its own hardware, but it has a few neat tricks up its sleeve. My favourite is Magnetic Secure Transmission (MST), which was integrated following the acquisition of LoopPay. This clever technology allows compatible Samsung phones to emit a magnetic field that simulates the swiping of a “magstrip” card, fooling the card reader into thinking a card was swiped. In theory, it should enable the use of Samsung Pay on legacy point of sale (POS) devices, which were designed and deployed long before mobile payments became a reality.
Android Pay is launching in North America as we speak, and being vendor-agnostic, it should work on a majority of Android devices. Users will just need a phone running Android 4.4.x KitKat or later, along with Near Field Communication (NFC) support. Google claims NFC is already present in about 70 percent of potentially compatible phones. NFC integration took a while, bearing in mind that Google first deployed the technology into the good old Nexus S, which launched in late 2011. The latest versions of Android, iOS, and Windows support biometric security as well, which should help.
In many respects, Apple Pay, Android Pay, and Samsung Pay are similar; the underlying idea is the same, the implementation is similar, and the goal is to enable virtually any consumer to use these services, which means they have to be fool proof or fail. They rely on tokenization to eliminate sensitive data transfers. If you are familiar with Google Wallet, you probably know that it does not rely on tokenization. However, Android Pay still shares some solutions used in Google Wallet. For example, both rely on Host Card Emulation (HCE), while Apple Pay employs a Secure Element (SE) to protect sensitive information. Both HCE and SE have certain advantages, and you can check out this quick comparison for more info.
Secure Element and HCE are two very different ways of protecting sensitive information.
Looking at the feature set and market support, each platform – Android Pay, Apple Pay and Samsung Pay – has something going for it. Apple Pay relies on a large and loyal consumer base running homogenous hardware. Samsung’s trump card is MST. Android Pay will be available on more devices than Apple Pay and Samsung Pay combined, but, for the moment, it will have to deal with heterogeneous hardware. You can probably see what I am aiming at here: If we had one mobile payments standard that covered all of the above, we would probably see faster market adoption.
The Problem With Mobile Payments
So what are the big challenges for these systems? Security, privacy, and consumer trust, along with time-to-market and market adoption.While consumers may get a new phone every two years or so, merchants don’t replace their POS infrastructure as often. This means they are stuck with the same hardware for years. Banks, credit card companies and payment rail operators need to force an upgrade. And this brings up another problem: If a merchant in Ottawa or Seattle gets a lot of consumer demand for NFC-enabled POS terminals, he or she will contact the credit card company. To stay competitive, merchants will need new hardware to keep up with demand. However, what happens in Lagos or Buenos Aires? Not much, because demand won’t pick up for a while, and the infrastructure won’t be ready for years.
In my opinion, the lack of a coherent mobile payments infrastructure strategy is the biggest problem facing the industry. It may take years for all the pieces of the puzzle to fall into place. As usual, developed markets will lead the way, while developing countries will be slow to catch up.
The fact of having three different, yet similar, platforms endorsed by three tech giants, is another problem. It will slow down adoption, and depending on how easy it is to migrate from one platform to another, it may lock in users who simply can’t be bothered to switch. Make no mistake, mobile payments services will be big money makers for those who end up controlling the market. Google Wallet transactions, reportedly, did not generate a profit, and Google was losing cash on each transaction.
However, imagine a billion smartphone users paying for everything with their mobile phones, now imagine that you skim off just a couple of dollars off their transaction fees each year. That sounds like a nice little money maker, does it not? Analysts are still divided, but most are bullish on Apple Pay’s prospects. It’s safe to assume that rivals will not cede this potentially lucrative market to Apple, and I expect a number of players will emerge, especially from big, regional markets like China and India.
Mobile payments will be a hotly contested space, and strong competition could be a double-edged sword.
Security and regulatory concerns are another problem. Although a lot of time and effort will go into making these systems secure, sooner or later, cybercriminals will catch up and come up with inventive ways of bleeding reckless consumers dry. Yes, I said it, mobile payments will never be totally secure no matter what tech companies do. Sooner or later, someone will figure out a way of scamming people out of their money. However, looking at the broader picture, I don’t think this will be a huge concern. Credit card fraud is still widespread, and people still get mugged in dark alleys. Criminals will simply shift their focus.
Mobile payments could help curb street crime, but what about cybercrime?
Regulation will also have to catch up with mobile payments, and this may take a while. Since we are not a law firm, I won’t get into this particular problem. Let’s just let lawmakers and lawyers figure it out. That usually works, sort of.
by Nermin Hajdarbegovic - Technical Editor @ Toptal
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