The Expert's View

Security to Determine Mobile Wallet Winner

Banks Will be Among the Winners - Here's Why
Security to Determine Mobile Wallet Winner

Whether you agree with Apple being credited for inventing the mobile wallet, you have to stand in awe of the media frenzy they have created around mobile payments. This will clearly benefit all of the players in the game. Back in September, Apple CEO Tim Cook promised that the company's upcoming mobile payments offering "will forever change the way we buy." It would have been more accurate if he had said that Apple would forever change consumers' awareness of mobile payments.

Banks, along with others in the mobile payments food chain, have been working and waiting for mobile payments to gain traction for several years. Earlier introductions from Google, Softcard (at the time ISIS) and others garnered significant industry media attention when they were announced, but the hype never converted into more than a trickle of commerce when the applications were pushed out to main street. That's all changed now - so the story goes.

Banks, along with others in the mobile payments food chain, have been working and waiting for mobile payments to gain traction for several years. 

Analyst estimates of the mobile payments business remain quite conservative. The consensus for two years out from now is still south of $100 billion per year. While this may seem like a large amount at first glance, when you consider that it will amount to only about 2% of the approximately $5 trillion of total retail transactions, it makes you wonder what the Apple Pay media frenzy is all about. I imagine that the belief is that those who will grab the early ground will have a good opportunity to hold it over the next decade as the market shifts to broad utilization of mobile payments.

Who Are the Players?

Here's a review of the contestants for your future mobile wallet. The most talked about contenders at present are Apple with Apple Pay and the much-misunderstood and ever-changing CurrentC from MCX. In all of the media hoopla about Apple, many journalists seem to have lost sight of the current mobile payments leader.

Through the past five years of mobile payments trials, one winner has already established their position as front runner and that is Starbucks. Immediately following their launch, Apple was able to make a boast that one million credit cards had been collected in the first three days of service. I'm not impressed - that's only one-third of one percent of credit cards in the U.S., and Apple's number hasn't changed much in the past four weeks. Apple's accomplishments are dwarfed by Starbuck's seven million weekly transactions, mobile payments growth of 50% annually, and the startling fact that the company conducted 90% of all mobile payments made in 2013 (Starbuck's provided numbers).

As Starbucks CEO Howard Schultz related, the secret to their success is their loyalty program, which they are extremely good at. I know another group that also knows exceedingly well how to execute winning loyalty programs - and it's not Apple or MCX. In a brutal, survival of the fittest environment, banks have learned how to establish and leverage customer loyalty better than anyone. Even if you wanted to argue that some retailers are as skilled as banks at executing customer loyalty programs at retail that still leaves Apple out of the hunt.

The Security Factor

That leaves the deciding factor as security. It is of paramount importance to consumers and no one comes close to approaching the success of banks in securing consumers and their assets.

There is an industry-insider argument raging at present about which security technology method is more secure, Google's Host Card Emulation or Apple's Secure Element? I won't address this issue because it would consume this column and users will never understand the difference between the two technologies - they just want to know that they are safe. Reputation trumps all of the techno-babble that can be thrown at consumers. In the end, consumers still trust their banks with their money and they trust banks far more than they do any other institution.

Apple's security woes may be just beginning. While they seem to have successfully deflected responsibility for the Celebgate celebrity photo leak by blaming their users (who could expect Apple to block an attack using methods from a decade ago?), now hackers have outsmarted Apple again with the Masque Attack which allows hackers to bypass iOS security protections against malicious apps simply by giving their malware the same name as an already approved safe application. Yes, I really am J. Edgar Hoover.

That leaves us two primary contenders - banks and retailers. When we stack up retailers against banks on the security scoreboard, it ends up a very one-sided affair.

For the retailers, we have Staples, Home Depot, Target, Neiman Marcus, Michaels and others with a combined total loss of more than 130 million records including credit and debit card information. For banks, which are attacked more frequently and more severely than retailers, JPMorgan Chase lost addresses and phone numbers, but that's it, and I would characterize that as a successful defense against an attack. Consumers know that banks are overwhelmingly more effective than retailers in providing protection against breaches and hacking attacks.

As a side note, Apple also loses out on platform support as well. Banks' and retailers' mobile apps work with both Apple and Android. Apple is locked out of more than half of the market simply by their platform limitation.

Banks Have Already Won

My last argument in favor of banks as the eventual winner for the mobile wallet is supported by a March 2014 report from the Board of Governors of the Federal Reserve. Their survey revealed that concerns about security were a common reason for not using mobile payments. Banks are the most secure, stable, and trusted service provider. When consumers do make the leap or trust required to start using mobile payments, it will be with their bank. Banks already have fifty-one percent of smartphone owners using mobile banking and this number is growing fast. For tens of millions of consumers already using their bank's mobile application, they are just a simple feature addition away from mobile payments.

Gunn has 10 years of experience in the IT segment. He is a Vice President and security expert at VASCO Data Security, an international provider of authentication and digital signature solutions serving more than half of The Global Top 100 Banks.

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