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Cracking the mobile payments code: Danielle Dalkie of Network Roma scans the horizon to discern the shape of things to come

25 Sep

Danielle Dalkie

It’s never easy predicting which technology will win out in a fast-growing and ever-changing sector crowded with players who are all touting their latest innovation as the future. And that’s especially true when it comes to working out exactly how people will eventually use their phones to pay when they shop. In this article, specially written for NetworkMilan, entrepreneur and social media strategist Danielle Dalkie considers the implications of PayPal’s ongoing tech spending spree. She also hovers her iPhone over the current state of QR codes and scanning technology to take a snapshot of developments in this rapidly-evolving market. Her conclusions may surprise you…

PayPal’s recent tie-up with Discover Card barely a month ago was yet another in a long line of strategic moves which show the growing importance of mobile as a payment option. Discover (which has just agreed to pay back $200m to millions of consumers who were charged for add-ons such as such as credit score tracking and identity theft protection), allows customers to access their PayPal account in-store by using their mobile phone number and PIN.) PayPal also snapped up credit card scanning service card.io earlier this year. However, while Paypal (which is owned by eBay) would like to think it is leading the mobile payments space their strategy so far seems to be more about acquiring interesting bits of technology to supplement online payments while trying to make it “mobile”. And let’s not forget Zong, another of their acquisitions last year, which also allows consumers to pay using their phone.

Cracking the mobile payments code: Danielle Dalkie of Network Roma scans the horizon to discern the shape of things to come

Card.io is just one of the many different mobile payments technologies PayPal is pinning its hopes on

Card.io provides mobile software that lets consumers use their smartphone cameras to scan credit cards for information, thereby simplifying the process of loading those cards into a digital wallet. Many mobile payment application developers have partnered with card.io to take advantage of its card scanning software, and according to PayPal’s Hill Ferguson those developers will continue to be given access to card.io’s technology.

Rather than backing one technology, PayPal is hedging its bets by backing various players. It’s also keen to head off competition by either controlling the technology used or matching it with something similar, if not indistinguishable, in all but name (and shape). PayPal’s Here, for example, allows merchants to accept a payment on any mobile phone using a detachable card-reader. The service presents a head-on challenge to Square, who have a virtually identical technology. The two systems are so close I think we will leave it to them to hash it out amongst themselves to see who wins this particular battle.

Early last year PayPal endorsed peer-to-peer NFC [Near Field Communication, which allows customers to pay by tapping or holding their phone near a counter-top device. Editor’s note.] Then came the big announcement towards the end of 2011 of their closed loop solution for the consumer, which seemed subsequently to have been completely refocused. Their agreement with Discover seems to complicate the picture even further.

PayPal’s NFC solution for mobile payments can hardly be called agile. Paying with your phone is supposed to be streamlined – so why would I want to have five different apps for my favourite stores? And then the scanner app as well? It’s clunky. This is where Google Wallet shows itself to be the true leader in the field. The NFC wallet is simple and really does cut down the time spent at the check-out. That said, the prospect of NFC as a universally-available function of the mobile phone is still a few years off. So we have two options: QR codes or tags? Whilst the code solution is much cheaper it is not that secure. The problem is that QR codes leaves users vulnerable to hackers who may use the code to lead them to a malicious website or application. And with less than 5 per cent of people having any form of security on their mobile phones, it potentially leaves them wide open to fraud.

This type of technology allows for closed loop solutions – a topic which I covered in a recent blog post here on NetworkMilan, explaining that this is good for merchants but makes it more complicated for the user. So, regular readers will already know I don’t think the current payments systems and solutions on offer are ideal. However, there does need to be a universal solution. The fact that your Google Wallet has Visa – which is accepted worldwide – is convenient. And until the industry can settle on an alternative, multiple closed loop solution, any challenger will always come second to the Visa and MasterCard network.

While scanner apps and barcodes are not without risks or issues, around 21 million American adults used mobile barcodes in 2011, a figure that grew by 147 per cent from the previous year, according to a survey carried out by eMarketer. This positive trend expected is expected to continue over the next few years and it tracks, of course, with the wider take-up of smartphones. (Around a quarter of smartphone owners use mobile barcodes, a figure which is set to continue rising, reaching nearly 40% by 2014). In this survey, consumers said they would use the technology to access discounts, offers or coupons, whereas only 23 per cent of respondents said they would want to use mobile barcodes to actually complete a purchase.

Since the number of consumers using the technology is growing, it makes sense that the Open Mobile Alliance (OMA) has developed a standard for handling 2D barcodes that it hopes will direct mobile phone users to websites more easily. By standardizing the specification for encoding, decoding and the resolution of 2D barcodes, the OMA has said it wants to stimulate the usage of the codes. Hopefully, standards like this will help to protect consumers and reduce the inherent security risks of these payment solutions. For the consumer, such an initiative can only be of benefit to them.

Ultimately, it really all comes downs to the basic economics of supply and demand. Consumers do want to be able to make mobile payments, but the technology we need to provide a universal, seamless and secure service is still a good few years off. I am not saying that QR Codes and scanners are not a great bit of technology; they are. However, it is just not a viable long-term solution.

QR codes for mobile payments? Consumers are not yet sold on the idea (Image: Frank Edens via Wikimedia Commons)

Online retail sales increased by 14% last year to more than £50bn, with predictions that the growth will continue to hit high streets, according to a new report. The increasing popularity of mobile devices, combined with the growth of mobile-based retail sites, is directly related and affected by the increase in online sales generally. Mobile really is the “missing link” between online and retail stores. It is going to be key, and business is fully aware of this. The challenge remains, however, to find a solution that is reliable not only in terms of technology and security, but one which also meets consumers’ increasingly important demands for services that don’t add unnecessary complication to their already busy lives.

Danielle Dalkie is the co-founder of Waspit, an innovative mobile payments service that provides social banking for students. She is based in Rome and works with clients based in Italy, the UK and the US. Danielle has recently founded Network Roma, a LinkedIn group dedicated to facilitating networking opportunities and collaboration among freelancers and companies with a Roman connection.

Still confused by the plethora of mobile payment technologies out there? Check out The Most Important Mobile Payment Infographic Ever created by MobilePaymentsToday.com.

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Money in motion: how mobile payments technology is changing the face of retail

18 Jul

Danielle Dalkie is a Co-founder and Director of Social Commerce & PR at Waspit, the groundbreaking mobile payments service. In this series of blog posts for NetworkMilan she will be writing about mobile payments technology, social commerce and trends in the tech startup sector with a focus on the Italian/European market. To kick off the series she Danielle starts by looking at the big picture of what the mobile payments environment looks like from her uniquely well-informed perspective!

Money in motion: how mobile payments technology is changing the face of retail

Danielle Dalkie

Payments and mobile technology in Europe have always been ahead of the American market. I am not sure when the idea started that the US is better known for adopting technologies at an early stage: stateside mobile networks are about 10 years behind those of Europe – and their payment methods also lag those of the “Old World” by a decade, too.

US society still seems to be largely cash-based. Compare that with Europe, where today 6 out of 7 transactions are made using a card. But the difference goes even deeper. The technocrat government of Italy, in particular, has declared a war on cash: Prime Minister Mario Monti wants the country’s vast army of self-employed entrepreneurs, including landlords, plumbers, electricians and small businesses to stop making large transactions in cash, which critics say simply facilitates tax evasion. On 4 December 2011, the Italian government reduced the maximum limit for cash payment from 2,500 euros to 1,000 euros. The rationale for this reduced limit on movements of cash is that Italy desperately needs to increase its tax revenues and views its anti-cash measures as a means of cracking down on tax evasion, which “costs” the government an estimated €150 billion annually. However, with an eye-watering €1.9 trillion of public debt to its name, some commentators have described this kind of punitive measure as “too little too late”.

Against the backdrop of a general tendency towards the “cashless society”, the recent announcement by American Express that they have just released their roadmap for Europay MasterCard Visa (EMV) got me thinking about the state of the payments environment and how this technology could develop in the coming months and years.

Now, let me stick my neck out and say that I for one didn’t actually think the US should have made the switch over to EMV, since it has been used in Europe for the past six years and the technology itself – at over 10 years old – is well past its sell-by date. It would have made much more sense for the US to bypass EMV altogether and move straight to near field communication (NFC), which allows consumers to make electronic payments by simply waving their NFC-enabled phone near a payments terminal . Yes, EMV has security benefits, and it has helped to substantially decrease fraudulent transactions throughout Europe, but this should have been apparent to the US retailers and federal authorities 6 years ago. Why wait until now when more flexible and innovative technologies have superseded it?

One saving grace is that at least this switchover will force merchants to upgrade their terminals. Each of these upgraded system devices will also accept NFC and mobile transactions, which is a fantastic opportunity for companies operating in this space, especially startups and smaller, independent companies who (unlike the credit card giants) do not have the funds or capacity to influence terminal and Point of Sale (POS) technology or upgrades.

Waspit: social banking for students

The innovative startup company I have been involved with over the last 18 months, Waspit, uses MasterCard PayPass technology and will be accepted by card-capable merchants in the US by 2017, by which time the proposed switch-over will be completed. This is clearly great news not only for consumers but for mobile payment startups, such as Waspit, generally. With merchants on board, socially-oriented financial services like ours will be able to focus on winning new customers and offering a wider range of related services and benefits

However, not all mobile / NFC payments technology are problem-free. PayPass, for example, and other card networks for mobile and micro payments, charge merchants 0.15% plus 0.025 Euro in the interchange every time a transaction is made. This means that if you’re buying a relatively low-value item , such as a 2 Euro ice-cream, the merchant is not actually making a profit. These increased costs may force small businesses to raise prices, or face margins being squeezed as they are unable to compete with larger retailers who enjoy greater economies of scale. (The European situation could also be affected by the recent $7.25 billion settlement by Visa and MasterCard of a class action brought by retailers in the US over interchange fees.)

From the merchant’s point of view it makes sense to bypass the credit card networks completely and go with the closed loop solution. The market has woken up to this fact with every tech company and startup offering some sort of mobile wallet, or mobile payment solution. You can now buy a latte with your Starbucks app , and even use your PayPal account in selected stores. But here’s the irony: all of this cashless technology is supposed to be making life simpler – except it’s not!

Behind the scenes, the situation is even more complicated, with the reliance on technologies such as those of the Trusted Service Manager (TSM) and over-the-air personalisation. When NFC handsets go mainstream and there is no longer a need for plastic at all, that is the moment when we will truly be in the era of mobile payments. But at present TSM is also in a state of flux. The mobile networks themselves are going to be the main players, but will Vodafone, Three, Orange (3 of the main UK operators) and the others be more flexible than the credit card companies, who currently control the scene? And the system will still rely on the infrastructure of the credit card companies, so interchange is still a factor. It is going to take a lot of hard bargaining, regulation and hammering out standards the key players in the industry can all agree on. No-one can say for sure how the situation will pan out – or how smaller players are going to get access to the chips that are vital for mobile payments to become the norm.

Mobile payments

Consumers want to use electronic and mobile payments – and when the technology is fully rolled out I don’t think it will be hard getting them on board. However, in the industry we have been talking about this for a while. The flip side is that this is not good for merchants , especially small ones. Either the credit card companies need to come to the party or something needs to shake up the whole space. There needs to be more unity and maybe regulation, but this should not be dictated by the giants who dominate this space.

Consumers are clearly voting with their smart-phones: there is increasing demand and enthusiasm for making mobile payments more widespread and easier. Retailers – especially smaller, independent ones – could stand to benefit; and even government revenue-collecting agencies governments would welcome the introduction and greater use of this type of technology (with concerns over privacy being taken seriously, of course). There is also an urgent need for business itself, trade and consumer bodies, as well as national governments and the EU to co-ordinate their efforts to ensure that the consumer has a choice of easily accessible, safe and efficient payment methods to choose from. And, of course, there needs to be a level playing-field for innovative creative startups such as Waspit to develop services that give consumers the flexibility and freedom that this revolutionary technology could bring to people’s lives.

Read Danielle Dalkie’s next blog post on NetworkMilan – coming soon!

UPDATE (AUGUST 2012): Danielle has recently founded Network Roma, a sister group of the Milan Business English Network. You can become part of Network Roma by joining their group on LinkedIn.