Srinivas Nidugondi, Sr. VP & Head of Mobile Financial Solutions, Mahindra Comviva
Being a relatively nascent market hasn’t prevented the mobile payments industry from making great advancements in recent months. As Apple announced the launch of the NFC capabilities in its iPhone 6, there has been speculation that mobile payments are now poised for take-off. But is this the beginning of the NFC revolution and what does it mean for the banking industry? Banks and Financial Institutions will need to offer their payments products to consumers irrespective of which OS platform they are on and, herein, lie the challenges.
At the heart of the issue is this; the potential for mobile money will only be fully realised if we focus on the requirements for the customer, improve interoperability and enhance the decision making process across platforms and devices.
From Closed Loop to Open Interfaces
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In terms of adoption rates, the mobile money space is now something of a success story. The stats speak for themselves; according to the GSMA’s State of the Industry 2013* report, 219 services were live in 84 countries and mobile money services were available in most emerging markets. The technology is advancing daily, as is the number of subscribers signing up for the service.
For this growth to continue, however, we need to tackle the challenges in the ecosystem, the biggest of which is the lack of interoperability between mobile money services. Today, we rarely come across instances where we cannot use a particular debit or credit card because the merchant does not have a point-of-sale machine that supports that particular bank. The reality is that mobile money has a long way to go before it reaches this stage.
All of the various stakeholders in the mobile money ecosystem stand to benefit from improved interoperability. For operators, this would provide customers with more flexible payment options which could increase the number of transactions and the velocity and volume of money in the ecosystem. For regulators, it is an opportunity to draw more cash into the formal financial systems. Importantly, for customers it promises more accessible and flexible services and financial inclusion is expected to get a significant boost.
However, currently, most mobile money services currently work as closed loop systems, disconnected from other payment services. A closed loop system met the original requirements of mobile money systems, which was to provide an alternative for cash for customers who did not have a bank account. It brought the added advantages of minimised costs, simplified operations, and access to real time transactions. However demand for these services has soared and for many consumers it’s their principal route for financial and payment requirements. The impetus for open interfaces to make the service interoperable is assuming more importance.
Systems are changing in some regions, however, with the industry working together to join the dots in the global mobile money ecosystem. In Indonesia three leading telecom operators-Telkomsel, Indosat and XL went “live” last year with a ground-breaking initiative which enabled their mobile money customers to send and receive money across each other’s networks. For the first time in this space, mobile money platforms run by telecom operators could “talk” to each other: account-to-account or wallet-to-wallet, in real-time. This trailblazing initiative has helped to demystify the concept of interoperability.
Apple, Android and Beyond
What of the buzz around NFC and mobile wallet systems, of which Apple is the latest to place their stake in the ground? Although NFC to date has not made it into the mainstream, the idea of mobile payments is still seen as viable. Now, Host Card Emulation (HCE) has taken off rapidly and helped to sort out a few kinks in the traditional NFC model with big players like MasterCard and VISA announcing their specs and EMV following suit and developing their own guidelines for tokenization. Google introduced HCE specs in its KitKat version of Android and the next advancement will be extending HCE-based NFC payments outside the Android universe. Meanwhile, the next big question is: which platform would provide a more secure environment to support HCE-based wallets: the Trusted Execution Environment (TEE) or the secure element (SE) on the cloud?
As with any burgeoning technology there are challenges inherent in the different ecosystems that are emerging. We will need to see how Apple will tackle the disconnected environment and who will bring about payments and authentication to specific industries like transit which has always been regarded to be a killer app for NFC. Further, how will wallet providers, including large retailers, align their wallet offering to the Apple payment systems?
It is clear that Apple has thought the overall payment process through with a system which is not only frictionless but also secure. It builds on the tokenisation thought process which began with HCE and which looks destined to become part of any payment flow. However outside of the US, Android still dominates and will need to enable NFC so that the market becomes broad based. Banks and payment providers will need to offer their payments products to consumers irrespective of which OS platform they are on. The challenge is that dealing with HCE on Android is very different to Apple Pay and banks will have to make decisions on how to replicate the process across platforms.
Challenges aside, what’s perhaps most important is that we continue to focus on providing customers with a reason to move to mobile payments; that combines ease of use, interoperability and added value. In this way, customers will have a solid reason to buy into the mobile payments thought process.