Mobile payments – paying for your transactions with your cell phone – have long been held up by pundits as the next wave of financial transactions: the potential for increased security beyond credit cards and the possibility of increased sales is definitely present. However, the adoption of mobile payments have been held back in the past due to the lack of agreement between the competing interests of retailers, mobile phone carriers, hardware manufacturers, and mobile OS developers. With the entry of Apple, Inc. into the mobile payments space, suddenly the situation has been turned on its head. We now have a mobile payments vendor with significant vertical integration, a large affluent user base, substantial market breadth, fanatical focus on end user experience, and the will to enforce its desired business model. Given this new development, now is a great time to re-evaluate the state of competition in the mobile payments space to see who may come out the victor in this space. Please note that NetWise Life is NOT tied to any one particular vendor and is as unbiased as humanly possible. To help establish our “impartiality”, please note that our reviewers have used and enjoyed many devices over the years, including Android phones and tablets, Windows tablets, Windows Mobile phones, Windows Phone devices, Blackberry phones, PalmOS devices, and Apple iOS devices. Now that the intro is out of the way, let’s take a look at the current situation…
Mobile Payment System Success Criteria
The success of mobile payments is inextricably tied to four factors:
- Ease of use for the consumer.
- Breadth of Integration with retailers and banks
- Breadth of availability on mobile devices
- Real or Perceived security of the solution
1. Ease of Use for Consumer
Apple Pay is extremely easy to use. In fact, it has fewer steps to make a payment than either SoftCard or Google Wallet, both of which require that you unlock both your phone and your mobile wallet, either before or after tapping the phone to the payment terminal. SoftCard in particular sometimes “forgets” which card you have selected, requiring the user to select the card again. Apple Pay on the other hand requires merely the placement of a finger on the fingerprint TouchID reader and a tap of the device to the payment terminal.
Google Wallet / SoftCard
These systems are more difficult to use than Apple Pay. Without Secure Element support, Google Wallet requires that the app be opened once a day so that it may communicate via the net to Google to verify credit card Tap and Pay authorization. As such, users will often find themselves holding their phone in the checkout line, then needing to manually unlock the device’s screen, find Google Wallet, and unlock it to continue the process, adding considerable time to the purchase, and frustration for the people in line behind the Google Wallet-using customer. For SoftCard, unlocking is often necessary due to app instability.
The CurrentC system would require not only unlocking phone, but finding the QR displaying app; an app that may be buried within multiple screens or folders. In addition, the CurrentC system is not available at this time, allowing the Apple Pay system to expand and grow in market penetration for some time.
2. Breadth of Integrations and Partnerships
Many large retailers support Apple Pay at launch, with 34 confirmed at launch. Unfortunately, due to retailer concerns about visibility into customer buying habits and continuing to pay credit card fees, many other mainstream retailers, such as Wal-Mart, CVS, Target, and Best Buy, have specifically chosen to run with the more retailer-friendly CurrentC system. This may have a moderate short term impact on the sheer number of Apple Pay transactions, but on a long term basis, retailers that support Apple Pay will see a benefit in terms of sales volume.
Google Wallet and SoftCard
Google wallet and SoftCard both use the same NFC terminal tap to pay system as Apple Pay; in fact have been in operation for much longer than Apple Pay, but have not received the same level of public awareness. This does however mean that the retailers that are supported for Apple Pay will be supported by both of these Android-friendly solutions. The converse is also true: those retailers who push CurrentC will not work with Google Wallet and SoftCard. Unfortunately, due to the lower discretionary income of Android consumers, it is likely that the lack of support for Apple Pay (i.e. NFC transactions) by large, mainstream retailers like Target and Wal-Mart will impact Google Wallet and SoftCard adoption rates and transaction volumes significantly.
A number of powerful retailers such as Rite Aid, CVS, Kmart, Sears, Target, Walmart, Best Buy and 7 Eleven are pushing the CurrentC standard. As such, they will not support Apple Pay, Google Wallet, or SoftCard. Fortunately for Apple, and by association Google and SoftCard, other than Walmart, these stores are beset by slowing revenues and store closings, so the resulting impact on overall Apple Pay or Google Wallet / SoftCard-based mobile transaction volume is somewhat muted. In addition, Apple Pay users, with their higher discretionary income and affinity for Apple products, have the means and at least a small motivation to avoid these retailers altogether, pushing their purchases through the more up-scale retailers that support Apple Pay.1
1There have been several demographic studies which have indicated that Apple iOS (iPhone and iPad) users tend to be both younger and more affluent than users of Android and other mobile OS platforms. This is likely due to the higher cost of iOS devices causing users to self-select toward a more wealthy customer base. Please see this comScore study for more details: Android vs. iOS: User Differences Every Developer Should Know
Due to the more secure, one time code-based transaction model inherent in Apple Pay, banks must specifically create support for this system; it is not enough to merely add a credit card into your iPhone. Ergo, for Apple Pay to function, the banks themselves must enable and integrate Apple Pay capabilities into their transaction process flows. Apple Pay supports the second broadest range of banks at this time, including most major credit cards and most national banks. Regional banks and credit unions have been slower to adopt Apple Pay, however, most are currently detailing plans to support this system. As banks preserve their pre-existing merchant fee revenue streams by using Apple Pay, it behooves banks to support this system: much more so than competing solutions from CurrentC. As such, it is anticipated that a significant majority of financial institutions will support Apple Pay in the next 12 months.
Google wallet is supported by the broadest range of credit card issuers. The reason being is that Google will store the credit card information for any card that a Google wallet user wishes to use with the system; all transactions are routed through Google. This means that any valid credit card, including but not limited to, any valid American Express, Visa, and MasterCard credit card will function with the Google Wallet system.
Unfortunately, SoftCard’s model is beset by the difficulties of most all other mobile systems in terms of support by financial entities. For example, due to the need to route transactions through the carriers, it is necessary for financial institutions to specifically enable support for SoftCard in their systems. As such, a very limited number of credit cards are currently supported by this solution; a much more limited selection than Apple Pay. American Express has been a prominent proponent of the solution. Unfortunately, American Express is not as widely accepted as Visa or MasterCard. A small number of other banks have also announced support for the solution, usually for only a subset of their credit card offerings.
This solution, when launched, will have the smallest number of financial institution partnerships compared to all other mobile payment solutions. In fact, the only partnerships announced so far with financial institutions are those financial institutions that serve as the store credit card arms of larger retailers, such as Sears. The saving grace of this solution, is the fact that it directly integrates with bank checking accounts. As such, it will be unnecessary for CurrentC to develop the same level and intimacy of partnerships with financial institutions as compared with other mobile payment solutions.
3. Breadth of Device Availability
Device availability is critical, as it allows for a much broader number of customers, pushing high volumes of revenue through payment systems and enabling greater retailer sales.
There have been millions of Apple Pay capable devices sold in the first few weeks after the launch of the device. This has resulted in a small, but rapidly expanding growth in the number of Apple Pay capable devices. Due to Apple’s market penetration overall, the relative affluence of Apple users, and the rapidity with which Apple has previously pushed the latest devices to their customer base, it is likely that the volume of Apple Pay transactions will, within a few months, exceed that of Google Wallet and SoftCard combined.
Google Wallet / Softcard
Google Wallet and SoftCard are hamstrung by the fragmentation of the Android hardware and software platforms. For example, for many years Google was unable to push Google Wallet Tap and Pay onto phones, as the mobile carriers restricted Google’s access to secure element on Android phones. Google finally gave in and created a software cloud-based approach, with the attendant security risks, called Host Card Emulation, which allowed Google Wallet to become available on many more devices. However, due to the hardware and software fragmentation of Android, potential users are still very minimal: Google 4.4.x KitKat (a small percentage of Android phones are upgradable to KitKat) and only those Android KitKat devices with an older NFC chipset will even have NFC drivers that are capable of using the new Google Wallet protocol (HCE). SoftCard also suffers from the same issues with device support, although less so, as the carriers sponsor and take a financial cut from SoftCard transactions, ensuring that SoftCard users can at least access their phone’s secure element.
Of all the payment options, CurrentC will have the largest potential market share as it would require only an app to be installed on almost any device that can display QR codes today. This means that not only iPhones, but Android, Windows Phone, and Blackberry devices would be compatible with this payment system as soon as the apps are released on each platform. Unfortunately, CurrentC is not yet out with release estimated in Q2 2015, giving Apple Pay a significant head start.
4. Real or Perceived Security of the Solution
While Apple has been beset by a number of press accounts of security breaches, in reality those breaches have been tied to a combination of two complementary factors: Apple’s cloud systems are prime targets for attackers due to their market size and penetration and the poor security practices of individual users including, among other factors, simple passwords, password reuse, etc. As such, Apple Pay is more secure than standard credit card transactions due to the following factors:
- Apple Pay stores the credit cards of users on an encrypted, isolated, “secure element” inside of the phone itself.
- No credit card information passes through retailer systems for any transaction, only a fake credit card number, combined with a one time use code that is useless to anyone after the initial transaction.
- Any credit card transactions with Apple Pay are still subject to credit card fraud protection.
This system does not make use of a one time use code for transactions. Instead, is uses a virtual Mastercard credit card number which is given to the retailer. Unfortunately, that number is valid for more than one transaction, creating a situation where one’s actual card number may not be compromised, but where additional, unapproved charges may be made on that card by way of the virtual card. As such, this system is less secure than Apple Pay and about as secure overall as CurrentC. Another security consideration with Google Wallet, is that due to the design of the system, it is necessary for Google to keep and store all credit card information for each card that a person would like to use in their Google Wallet app.
This system will also use one time codes to access funds. However, those funds will be withdrawn from BANK accounts for the most part, unless tied to a STORE-based credit card. Store-based cards are used by a much smaller segment of the population compared to bank-issued cards. The zero liability protections that apply to credit cards in many cases do not apply to bank checking accounts. As such, those protections against liability will not apply to users of CurrentC. Ergo, in reality, Apple Pay and Google Wallet will be more secure mobile payment solution overall than CurrentC. Some might say that users will ignore security concerns if the convenience of purchasing their items from their preferred store (e.g. Wal-Mart) is important to them. That is not likely to be true, as in these situations, security-conscious users will instead either pay with cash or bring their business to another retailar. In sum, users are intelligent enough to understand the importance of security, especially when it concerns their own money, and will take it account.
Given the balance of these factors, Apple Pay is more than likely to be the successful payment system for the future, with other phone vendors attempting to leverage the success of Apple Pay to enable their own NFC-based payment systems. CurrentC will likely become a spectacular failure due to its potential and perceived security issues, roll out delays, and non-support by major banks and credit card companies. Google Wallet, once Google is able to push through the refresh of Android units with new hardware and software, will see modest transaction volume. However, due to the more problematic user interface model, and the relatively lower purchasing power of Android users, Google Wallet will be dwarfed in terms of transaction monetary volume by Apple Pay. Therefore, the lion’s share of the profits in mobile payments, at least in the United States will likely make their way to Cupertino and the hands of Apple’s banking partners.