Digital dollars

At first, mobile banking simply enabled users to check their account and transfer money, but it’s being extended with apps that allow consumers to pay for goods in stores

Electronic banking has come a long way in a short time. In 2012 alone, the American Bankers Association found that some 62% of US adults preferred to bank online rather than via ATMs or in branches – an increase of 36% on the previous year. But if you think that's impressive, wait until mobile banking really takes off.

It’s already popular: in December 2012, Bank of America reported that 12 million of its customers had signed up to its mobile banking services, available via browser, text and mobile app. By comparison, five years after launching online banking in 1995, it had only two million customers using internet services – which still made it the most popular bank in the US for internet customers.

But we’re only just scratching the surface of what mobile banking can do. Right now, most mobile apps focus on showing the balance of the user’s checking account or finding the nearest ATM, but smartphones are capable of much more. People can use them to send money securely, and even as an alternative to debit and credit cards.

Many banking apps now include the ability to make payments, usually – for security reasons – only to people or organizations the user has already dealt with. But some organizations are looking beyond that. Chase’s QuickPay app, for example, enables mobile phone users to send money to any phone number, even if the recipient doesn’t bank with Chase. Anyone who has used eBay will already be familiar with PayPal’s instant, global money transfers; they’re now possible on the PayPal app.

Names not traditionally associated with finance are getting in on the act, too. Apple uses its iTunes accounts as a payment system for in-app purchases for items such as books and music downloads. Merchant Customer Exchange (MCX), a group of US merchants that collectively operates more than 75,000 stores and processes more than US$1 trillion in payments annually, is developing smartphone apps that will enable consumers to pay for items at the checkout.

New payment technologies
Near-field communication (NFC) technology, which is becoming increasingly widespread in a range of fields from transportation to ticketing, allows companies to create innovative new services using Android or Windows phones. The strength of the technology is that it can be used to make small payments with strong enough encryption that they’re accepted by banks.

In October 2012, a mobile commerce scheme called Isis launched in Austin and Salt Lake City. Bringing NFC technology to smart cards, Isis is a joint venture between AT&T, T-Mobile and Verizon that enables customers to use their cards at in-store readers. Instead of swiping or inserting the card into a payment reader, they can literally “wave and pay” – pass their card in front of the machine and walk off. (For larger payments, they also need to provide additional authorization such as a PIN.)

The next step for schemes like Isis will be to make even the card optional. As Randy Vanderhoof, President of the Smart Card Alliance, explains: “Mobile payments are likely to grow quickly, aided by the rapid rate at which consumers replace their mobile phones with newer technology.”

Indeed, ABI Research says that a minimum of 285 million NFC-enabled devices will be shipped in 2013, and by 2014 more than 500 million such devices will be in use worldwide. As a result, Forrester Research predicts that mobile payments in the US will reach US$90 billion in 2017.

There are two big challenges for mobile payments: support and security. Apps that enable consumers to transfer higher-value amounts will eventually appear, but they will have to be even tougher. They might employ multiple security systems including private networks, digital signatures and even external devices that require customers to provide an EMV-enabled chip and PIN card and its accompanying PIN to generate a one-time approval code.

With mobile money, the trick is to balance security with convenience. Safer than Fort Knox and easy as pie: if apps can deliver this mantra, digital dollars will be big business indeed.

The contactless challenge

Gemalto recently held a ‘contactless challenge’ in the US: two bloggers (one based in Austin and one in Salt Lake City) spent a week using Isis contactless technology to pay for a range of goods and services. To find out how they got on, read the Gemalto blog

First published on June 17, 2013
Last edited on September 29, 2015
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