Tony Virdi, VP of Banking and Financial Services in the UK & Ireland, Cognizant
NFC technology is currently the most prominent and visible trend in the banking industry. The advantages are huge, especially for smaller transactions. Since its inception, banks have been joined by other industries such as telecommunication and IT companies. Vodafone and Visa Europe, for example, have teamed up to launch the Vodafone Wallet allowing customers to make contactless payments via a special SIM card with embedded NFC technology.
The introduction of ApplePay alongside the launch of the iPhone 6 last month has the possibility to disrupt traditional payment methods even further.
So what can the banks do to ensure they stay ahead of the new competition? Updating cards to include ID-readers, transport tickets and wireless couponsare already a step in the right direction.
Here are some steps that can help banks with the implementation of cashless payments:
Drive an aggressive NFC payments strategy: Organisations like Vodafone, PayPal, Google and now Apple have been very proactive and vehement supporters of NFC payment solutions. Now, the leading solutions are moving toward marginalising banks by substituting bank account usage via cash or debit cards with proprietary pre-paid cards, cloud wallets or credit cards. At this rate, non-banking institutions will soon hold swayover the contactless payments market, demanding some or all of the transaction fees. Unless banks move to increase their influence in the contactless payment market now, they risk relinquishing much of their traditional role – and fees – to major non-financial players. In other words, banks need a more aggressive contactless payment strategy in the coming years.
Drive customer centricity by capitalising on customer trust: Banks need to invest in convincing consumers that the way banks are implementing NFC technologies is safer, more convenient and more cost-effective than the approach being taken by other companies. Here, banks have a competitive edge in that customers trust them more than other companies to look after their money and already rely on them for mobile banking. A successful campaign could help quicken the adoption of contactless payments and, once banks’ solutions have reached critical mass, it will be more inconvenient for merchants and consumers to switch.
Establish a robust risk management framework to address privacy and security concerns: Privacy advocates are particularly concerned about this technology; it is feared that having this much information available “in the open air” will inevitably lead to problems. Using a mobile device to pay at the POS presents a complex security challenge because the handset contains multiple applications that can access the Internet. Furthermore, businesses have a tendency to focus on the security of the device itself rather than the security of the network, which is the point of vulnerability where a fraudster can maximise an attack, infiltrate the system and therefore pose the biggest risk. Also, contactless payments pose the risk of customers being doubly charged without noticing if, for example, the contactless bank card is placed too close to the reader at the same time as the prepaid, contactless travel card. The vulnerability of exposing client sensitive information to third parties also poses a challenge for banks. As such, a bank must deploy a robust risk management framework in its ecosystem to ensure appropriate controls and mitigation measures are in place to safeguard against such vulnerabilities. Some banks have started implementing risk control measures to limit the amount that the customers can pay using contactless payments services, adding a security feature to this payment method.
Increase collaboration synergies among the parties involved: NFC-based payments rely a lot on the collaboration between banks, mobile carriers, card networks and merchants. Unless all the stakeholders are aligned, it is difficult to provide the customers with a seamless customer experience in NFC solutions. To ensure they are ‘first-to-market’ with such services, it is important for banks to increase collaboration efforts with the different partners. Data governance and clarity on who manages the solution and its data are also important here.
Understand customer adoption levels: Banks have to undergo a strategic evaluation of the preferences of their target customer segments and choose a medium best suited to their product positioning objectives. This way they can make sure consumer adoption is maximised.
Some countries have already seen strong adoption of NFC payments, but not all bank cards and smartphones are equipped with NFC technology. Therefore it is very important that banks increase collaboration with third parties and set strategies for a successful implementation of contactless payments. One thing is for sure: banks cannot avoid it.