The move to adopt mobile payments is progressing at a slow pace, largely because lack of a steady framework across shopping channels is slowing the adoption of mobile payments technology in North American and European markets.
However, the same cannot be said about Asian markets, where mobile payments technology appears to be taking off. A recent survey by KPMG found consumers in China are embracing the push toward mobile payments at a much faster rate than consumers in the U.S. and U.K. KPMG’s annual China’s Connected Consumers Survey found that about 90 percent of 2,560 respondents made at least one online purchase using a smartphone compared to 74 percent of U.S. consumers and 74.6 percent of U.K. consumers.
PYMNTS recently spoke with Sy Choudhury, senior director of product management for wireless technology company Qualcomm, about the roadblocks that are delaying the adaptation of mobile payments systems and what lessons mobile payment and mobile POS (mPOS) providers can learn from China’s example.
Baby steps toward mobile payments
One reason Chinese marketplaces have seen a strong uptick in mobile payment transactions is because retailers and consumers are using the technology for relatively cheap transactions such as purchasing a beverage at vending machine or buying a newspaper from a small merchant. Choudhury said these smaller-level transactions help boost consumer confidence in the technology.
“That small transaction comfort level really was the inflection point to which now we see a lot … of much higher-dollar transactions happening through the mobile payment,” said Choudhury.
While consumers in North America and Europe are starting to become aware of services like Apple Pay and Samsung Pay, Choudhury said the trend is considerably further ahead in Asia where consumers are widely aware of the potential of mobile payments technology.
“The consumer in China today in most of the tier 1 and 2 and 3 cities is comfortable using mobile payments, specifically with a fingerprint biometric,” said Choudhury.
Choudhury also points out that a similar trend is under way in India, where the government decided to remove 500- and 1000-rupee notes from circulation.
“In India, much like China, there’s kind of a leapfrog effect of not using credit cards with point-of-sale terminals but instead using mobile phones with an mPOS system,” he said.
Like China, India’s mobile payment transactions are more likely to occur with smaller merchants. Carefully observing the experience of these two large Asian markets could offer guidelines for merchants and banks in the U.S. and Europe.
“It’s really the smaller retailers or the smaller transactions that I believe will get end users … the end customers to get more comfortable with using the whole mobile payment system,” said Choudhury.
Offering consumers a chance to make inexpensive purchases is a significant step toward helping mobile payments technology move forward. But Choudhury noted another equally important step is improving security for digital transactions.
While fingerprint scanners on smart devices are widely available and can provide peace of mind for consumers that their data is secured, Choudhury said additional security layers are necessary to keep the mobile payments interface secure for consumers and other parties.
“Consumers think because something has a fingerprint scanner on it or a fingerprint sensor and an associated chip device that it’s secure,” said Choudhury. “The reality is the fingerprint scanner is nothing more than a small photocopier.”
While many smartphones come equipped with fingerprint scanners, Choudhury said introducing more layered security into consumer devices will go a long way in helping markets adapt to mobile payment systems. In June, Qualcomm announced its Snapdragon 820 processor would become the first mobile system on a chip to receive FIPS 140-2 Level 2 hardware certification that adds an advanced layer of cryptographic authentication to protect biometric data.
Securing the mobile payment interface requires three steps, Choudhury said. The first is to ensure that biometric data, like fingerprints and iris scans, are connected to the payment system on a chip in a secure manner. Second, an authenticator code on a secure environment is necessary for the hardware itself. Choudhury pointed out that Qualcomm’s Snapdragon processors do just that. Finally, the end-to-end transaction should be secured through tokenization.
“The way we look at security is you have to have a layered approach,” he said.
Fingerprint sensors have become more prevalent in smart phones and mobile devices over the years. Choudhury said the rise in this technology has made the mobile payment experience simpler for consumers by allowing them to use their fingerprints to authorize payments instead of remembering and typing in passwords.
Looking ahead, he expects device manufacturers and payments providers to incorporate additional biometric levels of protection such as iris or retina prints, which provide more unique features of a consumer than fingerprints. And these changes could arrive sooner than later. Choudhury expects to see a surge in eye-based authentication arrive on the market by late 2017 or early 2018 around the holiday season.
Choudhury also predicts secure voice authentication, or a voice print, will become more prevalent as a biometric safeguard. This technology reads a consumer’s voice patterns to authenticate transactions.
By 2018, Choudhury anticipates that multifactor authentication will become more common to make mobile payments even more secure for larger payments. In the not-too-distant future, he anticipates smartphones and smart devices having more than one layer of authentication for larger purchases.
Choudhury said Qualcomm has spoken with various payments partners about building multifactor authentication into smartphone devices. Several companies plan to incorporate new business rules to allow larger payment transactions to take place once about 30 percent of smartphones and devices on the market are equipped with more than one strong authentication mechanism.
“Multifactor authentication is definitely something we see as a trend in the future,” he said, while cautioning that it may be more than a year before the trend is in place. “But again … we’re looking at a 2018, 2019 type of timeline.”
Choudhury said he hopes to see more usage of mobile payments in the future and believes consumers will put more stock in their smart devices over the wallets as the technology continues to advance.
“It marries the reality that most people value their mobile device more than their wallet with the fact that most people need their wallet around,” said Choudhury.
In order for the technology to be adapted smoothly, device manufacturers will have to spread authenticator technology in their products at a quicker rate and make sure they are affordable for a wider base.
“The fear is that manufacturers don’t adopt and spread the technology in their lower-tier devices quickly enough,” he said. “Manufacturers, both on the phone side and the mPOS side, have a part to play here in that they need to make cost-efficient devices at all tiers, not just the high tiers.”
As the technology becomes more widely available and added security measures are put in place, perhaps mobile payment technology could face greater acceptance.
To download the December edition of the PYMNTS.com mPOS Tracker™, click the button below…
About the Tracker
The PYMNTS mPOS Tracker™ is your go-to resource for staying up to date on a month-by-month basis. The Tracker highlights the contribution of different stakeholders, including institutions and technology coming together to make this happen.