31 July 2014

Banking Transformation

Tushar Chitra - Oracle Financial Services Software

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Mobile Payments: Why Now is the Right Time to Adopt NFC

27 August 2013  |  9458 views  |  4

Continuing from my earlier post “Mobile Payments: Is Your Bank Putting Its Best Foot Forward?” on how disruptive innovations in mobile communications technology are transforming the payments landscape, I would now like to draw attention to recent developments that are likely to have a significant impact on the adoption of mobile payments technologies.

Leading payments systems such as Visa, MasterCard and Discover have recently announced the liability shift dates for adoption of EMV (Europay MasterCard Visa)-capable POS terminals for countries that are still to adopt the technology (http://en.wikipedia.org/wiki/EMV) This essentially means that after the cut-off date, which is, for instance, mandated as October 2015 for the US by Visa and MasterCard, the liability for any fraudulent transactions occurring on POS terminals that are not EMV-capable will rest solely on the merchant and not on the bank. The liability shifts are already in place in European countries and many countries in the Middle East and Africa. The obvious and direct implication of this development is that merchants across these countries will be forced to adopt EMV-enabled POS terminals. An implicit fallout will be the impact this will have on the mobile payments landscape.

The future of mobile payments is going to be heavily influenced by the near field communications (NFC) technology, as I had discussed in my previous post. As merchants and retailers upgrade their POS terminals to support chip-based cards, a logical extension will be the introduction of NFC-based contactless payments support. Since NFC-based transactions use the standard ISO/IEC 14443 communication protocol currently used by EMV, merchants will not need to incur significant additional costs for NFC adoption at the point of sale. Also, since the payment flow in any NFC-based transaction is governed by the contactless EMV specifications, merchants and financial institutions will not face significant hurdles related to compliance and security. Hence, we can safely assume that EMV adoption will encourage NFC adoption as well. Soon enough, as the liability shift dates for EMV-adoption for ATM transactions draw nearer, we are likely to witness the mushrooming of NFC-enabled ATMs as well. Banks will need to enhance software to enable support for contactless cards and NFC devices.

However, there is still the issue of customer ownership that I raised in my earlier post “Mobile Payments: Is Your Bank Putting Its Best Foot Forward?”. There is still considerable ambiguity regarding the control of the secure element among mobile hardware vendors, platform vendors, operators and payment gateways. There is still no standardization on who will own and streamline it.

For banks, the present scenario can be perceived as an opportunity as well as a threat. The opportunity exists in the increasing acceptance of mobile payments while the ownership conundrum poses a threat. Admittedly, banks have not been the first movers as far as mobile contactless payments are concerned. Non-traditional players such as mobile service providers have taken a lead. However, it’s still not too late for banks to garner a foothold. They need to utilize the complementary technologies of EMV and NFC to deliver a comprehensive payments ecosystem that offers customers the dual benefits of increased security and convenience.

I would love to your views and take this discussion forward, so please put forward your perspectives and opinions.

Mobile Payments: Is Your Bank Putting Its Best Foot Forward? TagsMobile & onlinePayments

Comments: (4)

Nitin More - Nuance - Mumbai | 28 August, 2013, 03:41

anything with NFC to drive urban and rural payments ? can a simple NFC tag not do the job with prepaid wallet for payments , low cost , effective and multipurpose applications ...

nitin more



James O'Keefe - Optima Consultancy UK (Ltd) - Manchester | 28 August, 2013, 21:29

I think you raise some valid points on the technical barriers, although I think one of the most significant issues is the proposition itself.  Even with more acceptance and improved stability, there is still a very distinct lack of a reason for mobile to displace card or contactless or cash, and that's if we as an industry can do more to create trust and belief in the security and stability of the technology.

Where is the value for the customer?  What's the compelling reason for them to adopt mobile payments?

And perhaps most importantly is POS payment enough?  Or can wallet to be so much more?  Electronic keys/ access, Identity, Loyalty & Reward, Ecommerce to name but a few...

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 29 August, 2013, 13:47

@JamesO'K + 1.

I'd actually go one step further and say that the truly compelling value proposition of a mobile wallet for a consumer lies only in loyalty cards and other nonpayment use cases. 

Mark Pavan - mapa research - London | 02 September, 2013, 14:29

Good post and discussion prompter- I think the banks will struggle to react constructively . The edited Finextra post shown below illustrates the challenges they face:

Transport for London has opened a public consultation on proposals to remove the option to pay by cash on all bus services in the capital in 2014.

TfL says that savings of up to £24m per annum by 2019/20 will be expected due to reductions in the cost of handling cash over the network.

The banks are making money from the cash handling and as that is being squeezed so one part of the organisation is losing out directly and losing fixed economies of scale, whilst the returns on cashless are much smaller and less defined. On the other side they are being squeezed by the credit card providers who have years of experience in persuading customers to carry them in their pockets.

Not a good place to make radical decisions.

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Tushar Chitra

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Sr. Director Product Marketing

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Oracle Financial Services Software

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I am Sr. Director of Product Marketing for FLEXCUBE at Oracle Financial Services. With over 14 ye...

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