In September of 2014, Apple CEO Tim Cook promised that his company’s upcoming mobile payment offering would forever change the way we buy. They launched Apple Pay to bring more convenience to their customers. This announcement undeniably accelerated our collective migration towards mobile payments.
Early mobile wallet introductions from Google, Softcard (at the time ISIS), and others garnered significant industry media attention at the time of their announcements but never converted into more than a trickle of commerce when pushed out to Main Street.
There isn’t going to be much traffic on Main Street anytime soon anyway. Analyst estimates of the mobile payments business are conservative at best. The consensus for two years out from now is still around $100 billion, which is about two per cent of the approximately $5 trillion of total retail transactions.
Don’t overlook the fact that through the last five years of mobile payments evolution, one winner has already been clearly established and that is Starbucks. While Apple boasted of one million credit cards collected so far. That number is dwarfed by Starbucks’ seven million weekly transactions.
Also the number of mobile payments that they process is growing at 50 per cent annually. Here’s what is most impressive – Starbucks processed 90 per cent of all mobile payments made in 2013 (latest data available from Starbucks); CEO Howard Schultz related that the secret to their success lies in their loyalty program.
Starbucks gained a true advantage by being first with a great app that consumers are using. According to a March 2014 report from the Board of Governors of the Federal Reserve, 51 per cent of smartphone owners have used mobile banking in the past 12 months, that’s up from 48 per cent a year earlier.
Also 12 per cent of mobile phone users who are not currently using mobile banking think that they will probably use it within the next 12 months. That’s tens of millions of consumers already using their bank’s mobile application and that places them just a simple app feature addition away from being the platform of choice in mobile payments.
Executing successful loyalty programs is important, but is the world secure enough for mobile payments to become a big hit?
Security will definitely be one of the deciding factors. It goes without saying that any method for making payment convenient invites security threats. The bigger issue for consumers will still be protecting their everyday online and mobile transactions from attacks that are becoming more frequent and more sophisticated. Consumers want to be sure that their money and their privacy are safe.
In the end, reputation will trump all of the techno-babble about Secure Element (SE) and Host Card Emulation (HCE). In fact, this is a complex topic because both are fundamentally secure. If implemented properly, neither is the biggest vulnerability.
The main difference is that with Secure Element, the card and payment information is stored on the mobile device in a secure area such as the SIM card. With Host Card Emulation, the card/payment info is stored in the cloud and not on the local mobile device. HCE was implemented by Google, not for security, but because the mobile network operators were backing Softcard and blocking Google’s use of SE, and HCE was their way around the obstacle.
Frankly speaking, 99 per cent of mobile phone users will never know the difference or even which technology they are using. In truth, it doesn’t matter because they are both more than adequate in providing security.
The biggest risks to consumers remain phishing attacks, mobile malware, and weaponised apps. Protection against these threats requires the commitment of both application owners and end-users. It is a joint effort that creates a balance between security and day-to-day convenience.
John Gunn is vice president of corporate communications for VASCO
