The Mobile Payments Paradigm

Mobile technology has dramatically impacted the way people go about their daily lives. The widespread use of smartphones and sophisticated mobile applications has long transcended the email, messaging and social media framework to include a variety of services in almost every possible arena. From the ability to get directions while driving, through ordering a taxi, to performing bank transactions on the move, smartphones have undoubtedly become an integral party of daily life. It would be safe to assume then that a natural extension of these technological advances would be the full scale introduction of mobile payments – the ability to pay for products and amenities using a smartphone without the need for cash or credit cards.

However, the adoption of mobile payments as an alternative to traditional forms of payment has yet to firmly establish itself even though the technology has been around for at least a decade. While the use of mobile phones especially for transit in countries such as Japan and South Korea is a fait accompli, payment has been slow to take off. No doubt the payment cycle involving the transfer of funds from one entity to the other can be more intricate and especially prone to data theft and fraud. Nevertheless, there are additional factors derailing the spread of mobile payments.

First, the highly fragmented payment space makes it increasingly difficult to fully comprehend the defining concept of a mobile payment. Is it NFC based (Near Field Communications) with a chip embedded in the smartphone performing the transaction with an acceptance device without any physical contact between the two? Or is it a mobile wallet that basically stores existing credit card information in a secure component of your smartphone or in the cloud? Does a purchase carried out remotely but not in the immediate proximity of the shopping store also constitute a mobile payment? Are traditional online payments charged to credit cards or bank accounts but performed on smartphones also considered a form of mobile payment?

This is exacerbated by the absence of universal standards in the payment ecosystem. Presence of multiple stakeholders such as cellular operators, banks, credit card companies and technology vendors has made it impossible to agree upon a set of regulations to define the effective functioning of mobile payments. The element of security and primarily that of safeguarding personal data is of paramount importance in the payment value chain. Apart from guiding frameworks (such as EMV or PCI-DSS) there really are no established principles as to how exactly user identifiable information can be managed safely and securely. Each technology vendor is basically free to define their own security methodology albeit with approval from certifying organizations.

Third, the relatively low adoption of mobile payments is related to patterns of consumer behavior. Even with the high penetration of credit cards globally, cash is still king in many developing countries in Asia, Latin America and Eastern Europe. Yet, credit card companies have been able to increase their market share and become profitable by establishing a simple relationship between the consumer and themselves. In the event of fraud, liability falls on the credit card company thereby protecting the consumer from financial damage. This kind of a straightforward relationship is lacking in the mobile payments space for the reasons outlined above. Multiple stakeholders, varied forms of payment with an endless and confusing array of similar applications coupled with the absence of universally accepted regulations makes the case weaker for increased mobile payment acceptance.

Paying with mobile phones is definitely a lucrative concept. It increases engagement with the user transforming the mobile phone into an intelligent, interactive device. The ability to receive targeted promotions on the move or in the proximity of your favorite shopping mall, simplified management of credit/debit and loyalty/gift cards along with the option to buy with a tap or wave of the phone can only serve to enhance customer experience and also improve retention. But for that to happen, consumers need greater clarity on who exactly owns the process and how their personal data is protected in this highly fragmented space.