Don't blink! Smartphones are evolving faster than anything in the history of mankind, and their influential strength is causing our lives (more than I'd like to admit!) and just about every industry to evolve with them. Payments are no exception, to say the least!
I hope you enjoy our interview as much as I did:
MC: I think we need to start this conversation to clear out what’s probably the first point of confusion about “Mobile” Payments… Are we talking mobile as in the customer is paying with a mobile device? Or do we mean mobile, as in “Roaming… not only at a checkout counter.”
Gord: Thanks, Mark. Yeah. You make a good point. Mobile payments can mean different things so it’s worth drawing a distinction for sure.
If I’m a merchant, when I hear mobile payments I probably think in terms of mobile acceptance.
We’ve all had the experience where a waiter brings us a wireless payment terminal so we can pay from the table or used one of those dongles from Square.
When we think about mobile payments, we’re mostly thinking from the perspective of the consumer. The consumer wants to use their own mobile device to make a payment – not someone else’s device.
To add a little more definition, there are lots of ways to pay from a mobile phone or tablet.
One way we’ve all been doing for years is to just key our credit card details directly on the phone. This is technically a mobile payment, but usually when we talk about mobile payments we’re talking about a payment involving the use of stored credentials. This is where wallets come in. Wallets are where we store payment credentials digitally.
Wallets are becoming the most popular way to pay from mobile devices. Most of us couldn’t be bothered keying in our credit card and address details from a phone. It’s just too tedious. Instead, we use some kind of digital wallet to store the payment credentials for us. This is where solutions with Apple Pay, Android Pay, and Pay Pal come in. If you think of it though, there are all kinds of wallets. VISA Checkout, Masterpass or AMEX Express Checkout are wallets as well.
So the definition of mobile payments is key, but wallets are a big part of mobile payments as well.
MC: OK, now that we’ve got that cleared up, I know that really there are three forms of mobile payments, correct? We’re talking about In-Store, In-App, and On-The-Web. Correct? Would you mind just quickly and simply describing each of these three forms?
Gord: Right on – I think this is exactly right. We see these as the three main use cases. Let’s use Apple Pay as an example. In this case, our mobile device is an Apple Phone, and our wallet is Apple Pay.
- In the store, the user would simply “tap” their Apple iPhone near an NFC capable terminal, just as they would tap a credit card. Through some clever engineering, Apple provides a payment processor like Vantiv with a token that represents the underlying payment method stored in the Apple Pay wallet, and Vantiv authorizes a payment just as we would with any other payment.
- In-App is another big use case. Think of apps like Uber or the Amazon app. With In-App payments, the idea is to make payments a seamless experience with the app. Most major wallet providers try and make it easy for app developers to integrate payment functionality into an app. Most focus on Apple iOS and Google Android because of their market dominance.
- The third use case as you mentioned is “on the web” – this is actually the newer one. This is surprising to some people because we’ve all been paying on the web with credit cards for years. The difference with modern “on the web” mobile payments is that a browser can detect the presence of a mobile wallet on your phone, and allow you to use the payment credentials automatically – using just a thumb print of PIN for identification. Merchants and consumers love this because it takes the friction out of the payment process.
I think you can expect to see growth in all these mobile payment methods – especially mobile “on the web” payments involving wallets. This is where the opportunity and convenience are the greatest.
MC: Ok, so basically, just as described in the names, in store means you’re paying with a mobile device in the store, most likely with an NFC device. In App means that we’re using an app, like the Amazon App and its referring to your digital wallet for payment information, and on-the-web, which is not simply an online purchase – it needs to also refer to your digital wallet for it to be considered a true mobile payment.
Gord: Exactly – I think you’ve hit on the key distinction.
The mobile payment involves the use of some kind stored credential. Digital wallets are where we store these credentials.
You mentioned the Amazon app. If you’re an Amazon or Amazon Prime customer, in essence, Amazon is your wallet provider as well as your online retailer.
They are storing your payment credentials for you and allowing you to access them easily.
In fact, it might have come across Amazon Pay. This is basically Amazon acting as a wallet provider allowing you to use your Amazon wallet to shop at other sites. They’ve become big enough and popular enough with tens of millions of consumer credit cards on file that they are essentially a wallet provider to themselves.
From a technology perspective, this is a key area where Vantiv can help major retailers. We have the capability to securely vault payment credentials at a large-scale. So basically, we can help retailers build their own wallet solutions, or accept payments using a variety of other wallets.
MC: Can we talk a little bit about NFC payments? I probably wouldn’t know what NFC stood for if I weren’t in this business. It’s ‘Near-Field-Communications’, and essentially, this is the communication that happens when you tap your smartphone to a terminal that accepts a mobile payment. I currently use this every time I buy groceries at Whole Foods Market or Sprouts. I get a lot of comments from observers, and something I’ve heard more than once is ‘oh I can’t bring myself to pay with my phone. Some hacker could probably find a way to intercept my payment information’. First – do you use mobile payments at NFC terminals? If not, why? And second – is this concern of hackers intercepting payment information legitimate? Can you think of any way it could be done? And finally, what do you think is more secure: a chip card, or NFC?
Gord: Cool – so in terms of being an adopter, I think you’re out ahead of me. I confess that other than trying out NFC at one point, I don’t use my phone this way personally. It’s not security that worries me. I’m pretty confident that if someone wanted to steal my credit card it’s a lot easier to just beat me up as I’m leaving the store.
I’ve thought about this quite a bit actually as I’ve been working on different wallet solutions at Vantiv. There are probably a bunch of reasons but let me digress and try and explain why.
I live in Canada as you know. This is a much smaller market. Roughly ten times smaller than the US market. We also have far fewer banks and payment providers, and the market is more regulated. We have one major debit network provider. Interac decided way back in 2007 to make EMV mandatory for debit transactions in Canada. So I’ve been carrying a chip card in my wallet for almost ten years now and I don’t think I’ve actually swiped a card in about five years.
This all resulted in EMV technology being rolled out in Canada much faster. I don’t recall exactly, but I think I’ve been using NFC functionality on my chip card for about five years now most places where I shop. I’m a little older too so that may be a factor. I’m just used to tapping with my debit or credit card. I haven’t seen any use for using my phone in this way.
While we’re ahead in EMV, I think we’re behind in wallet adoption. The big wallet providers have been slower to come to the Canadian market. For example, my bank is only just now supporting Android Pay for tap functionality. Tap payments are becoming popular in the US just at a time when everyone has a smart phone. Some of this probably explains the difference. I think the dynamics are complicated.
So back to security – as I mentioned, I don’t tend to worry about it.
A chip card transaction authenticated by a PIN is certainly more secure than NFC transaction because you have that second authentication factor. This is why merchants limit the amount they’ll authorize with an NFC payment.
I don’t know all ins and outs of processing NFC point of sale transactions I’m afraid. I’ve looked carefully at the use of wallets in card not present applications though. The security is just really impressive. If you take Apple Pay for example, the method by which payment credentials are encrypted takes into account the merchant and the SKUs ordered. This means that even if someone managed to intercept and steal your payment credential, the credential is only good for that merchant at that time for the SKUs that you’ve ordered. Not to say there is no risk, but I think digital payments are very safe.
MC: I recently interviewed Josh Mather, our evangelist, about Bitcoin and Blockchain. How far away do you think we are from adding bitcoin as a payment option within our mobile wallets? What do you think would have to happen for payments to come to that?
Gord: So Josh knows far more about these topics than I do. I wouldn’t pretend to know for sure, but I think your question raises an important point. I think need to distinguish between the wallet technology and the underlying payment instrument.
Most wallets use an underlying credit card, bank account or even a bank issued line of credit as the actual payment instrument. I think a lot of people forget this when they make a payment using a wallet - to the card networks the transaction is still essentially a traditional credit card or debit transaction managed by a company like Vantiv.
Google, Microsoft, and others have developed a Payment Request API proposed as a W3C standard. This is the basis of doing an Android Pay integration against Vantiv’s payment platforms today. We document this and explain it in the mobile section of our Vantiv ONE developer site, developer.vantiv.com.
What’s interesting about the Payment Request API is that the wallet functionality is decoupled from the underlying payment instruments. I guess I personally find it hard to see where bitcoin will supplant bank accounts or credit cards anytime soon. I don’t see the big “win” from a consumer perspective. Or maybe this is just me being a luddite again. But I think the key point is that the wallet can be independent of the payment method.
MC: Back to our everyday use of NFC… I remember when Square first came out and suddenly merchants and vendors were asking me to swipe my card onto their little square reader, which was affixed to their smartphones. This still feels a bit funny to me, but even today at certain micro businesses, like food trucks and coffee shops, I still run across this. Are you aware of any devices that allow an NFC payment to be made onto another person’s smartphone? I haven’t been to an Apple Store in a while, but they were the first large business that I was aware of who would take card payments on a mobile, hand held terminal. Maybe they have a way to accept NFC via those mobile devices… what do you know?
Gord: So, definitely this technology exists. Square has evolved their solution and they can now accept both contact and contactless EMV payments from a mobile reader.
The industry dynamics here are interesting. Any solution that accepts EMV payments including NFC EMV transactions needs to be certified by the major card brands. For point of sale providers, this poses a challenge. Engineering an EMV capable terminal and getting it to market and through certification is expensive. Change the hardware or software in a material way, and you need to re-certify again.
Major terminal providers like Ingenico and Verifone have the scale and volume to do this. It’s getting harder for smaller companies to play in this space though and there are a huge number of specialty point of sale solutions out there.
From a developer perspective, one of the more interesting solutions at Vantiv I think is triPOS mobile. Basically triPOS mobile allows a point of sale developer to accept EMV or tap payments from qualified EMV terminals without needing to invest themselves in engineering an EMV solution and going through certification. If I’m building a point of sale solution for pet stores or yoga studios, this makes a ton of sense. I can focus on the value-add in my software and let someone else deal with the complexities of tap payments and EMV.
I think the most exciting next-gen payment solutions are going to come from developers building on top of payment middleware solutions like triPOS.
MC: In passing, I have heard of technologies that exist where you could potentially pay in a retail environment without even pulling out your phone. Does this really exist? If so, where? If not, how far along are we from getting there? Seems you’d need to at least unlock your phone with your password or fingerprint (or, coming soon, retinal scan or face scan), right? How could something like this work?
Gord: So, I’m aware of these, but I don’t have personal experience I’m afraid.
One example of what you’re describing that comes to mind is Google’s hands-free technology. Tony Rose from Vantiv and Steve Klebe discussed this technology in a joint Vantiv Google webinar a few months ago.
The technology is being piloted as I understand it in the bay area with about a dozen merchants.
I gather the solution relies on beacon technology and WiFi location settings so that when you enter a store with a phone in your pocket, Google knows your location.
All you need to say at the cash is “I’ll Pay with Google”. Kind of like the hands-free Google home voice recognition technology.
Google knows your proximity to the cash-based on Bluetooth low energy signals, and they can pop up your picture on the cashier’s screen to verify your identity.
From our perspective at Vantiv though, this is just another digital wallet transaction. I think there’s going to be a lot of innovation like this taking place at the edge of the network in terms of interfaces and authentication methods for wallets.
Mark: You’ve just reminded me of some recent news – can you talk about how the Amazon Grocery Store works?
Gord: So I’ve only just read about this, but this is kind of similar from a technology perspective to what I just described with Pay with Google.
It was the big news of course when Amazon acquired Whole Foods. Amazon is basically signaling their intent to enter and possibly disrupt grocery shopping much as they’ve disrupted other markets.
I think this is at the pilot stage, but the idea is that Amazon plans to transform grocery stores under the Amazon Go brand and create a new experience for grocery shopping. You’ll check in with the Amazon Go app as you enter the store, and simply take items off the shelf and put them on your card. Amazon can manage your grocery list, and because they know your purchase history they can suggest items you may be running short on. There is no need to check out because Amazon knows who you are and what items are in your cart.
The implications for the industry are huge of course. Think of the analytics opportunities and how stores can better manage stocking and inventory – they’ll have visibility to your purchase history, and even what’s on your shopping list before you walk in the store. With machine learning algorithms they can become masters of up-sell and cross-sell, offering dynamic pricing on perishables for example.
I think this is just the next phase of disruption in grocery shopping. We’ll move on from self-checkout all the way to no checkout. I’m sure we’ll see other grocery chains competing with similar types of experiences. I’ve got to admit, I get a little worried by the social implications of all this innovation.
MC: I personally love paying with my smartphone so much, that I’m finding my real wallet is getting left in the locked center console of my car more and more. I hate wallets and would rather have either a smartphone in my pocket or a wallet. But not both, so I choose smartphone when I can. I figure as soon as most merchants accept NFC payments as as soon as I can get all of my ID cards converted to digital cards, I will finally be able to put my wallet in a little box and save it as a historical artifact to tell my bewildered kids about someday. Is it as easy as that?
Gord: Yes – I’m with you. I’m not quite as enamored with my phone for in-store payments, but I’m getting there for eCommerce at least. I still prefer my tablet to my phone though. I’ve downsized to a “skinny wallet”. I tend to only carry my driver license, health card, and two payment cards along with my phone. All my other cards get left at home because I almost never need them. I suspect there are a lot of cultural aspects at play. I look at my two sons who are much more comfortable with their phones than I am. My older son shops online a lot, but interestingly he’d still prefer to tap with his card vs. his phone in the store.
MC: With all of our payments going mobile, what do you feel is the future of currency. Do you see a day where cash will no longer exist?
Gord: So, I don’t pretend to have a crystal ball. I have my personal opinions though. I think it’s going to be a long time.
I live in a semi-rural and around here cash is still pretty important. Our barber shop for example still won’t accept credit cards or debit. When people come to the door offering to sharpen lawn mower blades or aerate our lawn, they’re almost always cash-only businesses. Some of this is about the underground economy I’m sure.
I don’t security is the concern. I think more for more people the larger concern is about privacy.
I don’t generally carry a lot of cash and I’m certainly not doing anything wrong or illegal. My wife and I share an app where we consolidate all our financial statements and we see every transaction. If we can see it, others can see it too. I still like the idea that with cash you can be off the grid and there is no digital audit trail.
MC: What is the single greatest opportunity you see for developers right now in regard to Mobile Payments? What do you wish more developers would consider in the work they do as we build towards a more mobile paying society?
Gord: So, getting back to concrete issues – you mentioned the three types of mobile payments – tap, in-app and mobile web.
I’m convinced that the most immediate and practical opportunities lie in that third bucket - mobile web. To remind people what this is – this is about using some kind of a wallet from your mobile device and authorizing a payment with a tap or password of some kind.
Ease of purchasing from mobile websites is really important. I probably have 30 on-line retailers that I purchase from periodically. Most store my credentials themselves, so I have different logins and passwords with many of them, and I’m always updating details like my credit card expiration dates and home or business addresses. I’ve found myself purchasing more and more from Amazon over the last year, mostly because I use it enough that I remember my password and don’t need to look it up all the time.
I’d read recently that greater than 50% of eCommerce transactions already use a stored credential. This is evidence that consumer behavior is habitual – I think we’ll be inclined to buy more and more over time from a smaller set of retailers that we trust.
Mobile web purchases using a wallet credential have the potential to kind of re-level this playing field for smaller merchants.
If I’m a small eCommerce merchant, using a mobile web checkout, I can now offer one-touch checkout just like Amazon – even if this is the customers first time making a purchase at my store.
This is pretty huge for all the merchants out there that are not Amazon.
Right now, a lot of customers couldn’t be bothered creating a new profile on a new merchant’s website.
On the web, mobile transactions remove this barrier. I think this is a really big deal for the vast majority of merchants.
Thank you gjsissons (Gord), for all of the valuable info! Currently in our 101 blog series, we've covered:
- Payments 101, with Lisa Killigrew
- Bitcoin/Blockchain 101, with Joshua Mather
Stay tuned for the next episode in our series coming up in October (how is it almost October?)...
