Obstacles to Implementation of Mobile Payment

The unexpected attraction to mobile payments increasingly appears to be the catalyst to finally moving away from the magnetic card payments to a payment system that is more fitting to current digital economies. Despite the new, exciting technology introduced in the mobile payment market, there are still questions regarding whether mobile payments are necessary and worth the change. At least four important challenges for the implementation of mobile payment services with the breadth of impact are addressed as follows:

1. System Interdependency

Mobile payments represent a complex business model with several players, whose success depends on joint actions of all the players together. For a successful mobile payment deployment, it is necessary to engage a wide range of stakeholders, including mobile network operators, operators, handset manufacturers, financial institutions including major banks and credit card issuers, commercial retailers and merchant stores, public transit authorities, government agencies, and the customer in the business model.

Mobile payments are characterized by a system interdependency challenge. For consumers to demand cell phones with embedded electronic wallets and for the mobile network operators to require this feature from the handset manufacturers, the consumers must know that there exist sufficient merchants’ POS terminals with mobile payments infrastructure. It is, however, unlikely for merchants and transit operators to deploy NFC-enabled payment terminals until a critical mass of users gives them confidence that their investments will be repaid. This kind of interdependency also makes it very difficult when it comes to profitability for each stakeholder since each of them claims for the ownership of customer base in mobile transactions. Wireless network operators believe they own the mobile subscriber relationships, credit card issuing banks insist they own the financial relationships with customers, and retailers contend that they own the customer relationships at the point of purchase. Each entity wants to lead in the mobile payments ecosystem and have dominant role in the value chain. As a result, the market has remained stillborn.

2. Interoperability between all participants

The lack of standardization has been one of the principal challenges to slow down the development of mobile payments. Different forms of mobile payments from contactless and mobile card readers to mobile wallets and payment apps actually slow down the development process together with conflicting agendas of different players involved, including financial institutions, mobile network carriers, merchants and handset manufacturers. The unique quality of each of the technologies is the main reason that mobile payments have not yet been widely adopted by users and merchants. Merchants are not able to support multiple device options and users are not willing to use different device options/ mobile operating systems. The lack of interoperability is, therefore, preventing mobile payment adoption and making the required scalability unachievable.

If electronic payment services are to be adopted more broadly, cards or mobile phones must be usable not only with their own systems or mobile networks but also with other systems not covered by the “parent” system. Interoperability, which is the ability to make a payment from any bank, on any mobile phone, using any carrier, is very important for the success of mobile payments. The only way to extend mobile payment business across all the markets is to ensure that the mobile payment experience can be delivered across multiple mobile devices, manufacturers and cellular phone carriers to accommodate the personal preferences of the consumer.

3. Slow market adoption for contactless mobile payments

Main reasons for the slow market adoption for contactless mobile payments are as follows: (i) no incentive for consumers to use contactless mobile payments as compared to other payment modes; (ii) difficulty for consumers to figure out which merchants accept this mobile payment format; and (iii) no promotional/ educational support by financial institutions or banks for the new payment approach that they will be safer with contactless.

In order to speed up the adoption of this new technology, it is necessary to prove to all stakeholders that the new payment system would prove faster at checkout, cleaner to handle and therefore a good alternative to cash payments at the counter. The only payment options available so far are signature-based credit and/or debit, replacing cash transactions that typically cost less than 5 cents to process with a signature-card transaction that costs $.15 to $.75 or more. This has not created any incentive to get merchant support. Additionally, merchants prefer equipment that looks the same and does not require retraining staff. Mobile stakeholders must work harder to identify a compelling need for merchants to accept contactless payments.

4. Security of mobile payment

Following the recent data breaches news from Sony, consumer awareness of security risks has increased very greatly. The technology that supports mobile payments will soon become widely available as several major smartphone operating systems have announced support for NFC. However, this new payment system will present an array of security requirements and challenges. Mobile contactless payment applications must be provisioned before they can be used. Typically, mobile payment applications will be provisioned over-the-air, which means that there will be many parties that have a potential involvement in the provisioning process. This, therefore, increases the risk profile and various data exchanges must be highly secured to ensure that there is no data being compromised. Although not necessary to do so, issuers are finding that Hardware Security Modules (HSMs), which generate and protect encryption keys, are necessary to address security and manage risk. HSMs secure keys and sensitive data, which avoid the vulnerability of keys stored in software. This ensures that sensitive data is never exposed and reduces risk for the service provider. Using HSMs can also greatly simplify the task of issuing payment applications to mobiles securely.

Encryption must be teamed with authentication to provide protection for data exchange and authorization. If a business wants to take advantage of the huge growth in mobile-based payments that is being widely predicted, security needs to be the foundation to minimize risk and increase market adoption.

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[ 1 ]. Contactless Mobile Payments by Stephen Ezell, November 2009
[ 2 ]. http://siteresources.worldbank.org/INTAFRREGTOPTRADE/Resources/UEMOA_payments_07_20_11.pdf
[ 3 ]. Slow market adoption for contactless payments by Darin Contini and Marianne Crowe, Federal Reserve Bank of Boston, Cynthia Merritt and Richard Oliver, Federal Reserve Bank of Atlanta, and Steve Mott, BetterBuyDesign
[ 4 ]. Slow market adoption for contactless payments by Darin Contini and Marianne Crowe, Federal Reserve Bank of Boston, Cynthia Merritt and Richard Oliver, Federal Reserve Bank of Atlanta, and Steve Mott, BetterBuyDesign
[ 5 ]. Slow market adoption for contactless payments by Darin Contini and Marianne Crowe, Federal Reserve Bank of Boston, Cynthia Merritt and Richard Oliver, Federal Reserve Bank of Atlanta, and Steve Mott, BetterBuyDesign
[ 6 ]. http://www.csmonitor.com/Business/2011/0503/Sony-data-breach-could-be-most-expensive-ever
[ 7 ]. ‘Provisioning’ covers the process of preparing and loading an application on a user’s phone with personalized account data. It also includes the deployment of unique personalization keys to protect the loading of information to the device and the transactions made by the payment application.
[ 8 ]. http://www.paymentssecurity.com/2011/05/security-challenges-in-the-age-of-mobile-payments.html by Steve Brunswick