Mobile wallets: novelty or necessity?
Payment technology took this year's Mobile World Congress by storm, but is it a game-changer?
Walled gardens are not the answer
Another feature of the mobile payments industry is that, traditionally, it has been extremely fragmented. Individual partnerships between network operators and banks have created closed-loop systems, so that a consumer that signs up to use NFC with a particular operator and a particular bank cannot use the service in a shop with terminals provided by a different operator.
“The big issue so far with many telcos has been their desire to keep a level of exclusivity with their wallet,” says Dobardziev. “We see that as a false argument, because the value of the network grows in proportion to the number of connections you have. It was only when the mobile operators enabled interoperability in 1996-97 that you were able to send text messages to someone on a different network, and there was a huge pickup of services.”
This situation has finally started to change, with last year's announcement of a joint venture between Vodafone, O2 and Everything Everywhere. The mobile network operators are reportedly preparing to submit their plans for an integrated mobile payment system, code-named Project Oscar, to Brussels for EU approval this week. The operators say that the platform will be run independently and open to all.
In the US, there is a similar consortium of mobile operators known as Isis, which last week announced partnerships with three credit providers, representing about 100 million card holders. There have also been talks to form a pan-European platform for payments, according to the Financial Times. Telefónica, for example, plans to provide interoperable mobile wallets for customers in different countries that it operates in.
This does not only provide a better value proposition for end users, but also makes for a better business model for stakeholders, as it allows them to achieve big enough scale that the systems become profitable. As well as simple transactional services, they can then start offering additional products via mobile, such as savings and insurance.
Security: the big issue?
Building the infrastructure is only half the battle, however. The rest is winning over consumers, and that is no mean feat. As the Radius report reveals, the main barrier to adoption is security, and Google's recent acknowledgement of a major hole in its Google Wallet mobile payment platform has done nothing to alleviate those fears.
Last month, the company was forced to temporarily disable its Google Prepaid Cards, which allow users to upload money from any of their existing credit cards onto Google Wallet, to “address an issue that could have allowed unauthorised use of an existing prepaid card balance if someone recovered a lost phone without a screen lock”.
The incident attracted a lot of media attention but, according to Dobardziev, there are very few technical details left to address. The Google Wallet issue was fairly minor, he says, and could easily be resolved. The real security risk is the consumers themselves.
“You can make things as secure as you want from a technical perspective but you always have the human element, with people mislaying their phones,” he says. “So from a technical perspective they will be as secure as anything else, but perception will take a lot longer to shift.”
Diarmuid Mallon, head of product marketing global messaging and m-commerce at Sybase 365, points out that, in some cases, mobile wallets can even be more secure than cash.
“There’s no digital rights management on the coins and notes in your wallet or purse. If you lose your wallet and you’ve got £100 in there, then someone’s got £100, there’s no way you could claw that back,” says Mallon. “With a mobile wallet, there is nothing on the phone, so you report your phone stolen and immediately that phone is locked out from your mobile wallet.”