Card companies see mobile payments as weapon in war on cash
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Card companies see mobile payments as weapon in war on cash

MasterCard has labelled cash its “number one enemy” and is devising ways to eliminate cash payments with a two-pronged strategy that divides payments into digital and physical components.

“Our future strategy is all about how we can help retailers capture sales and make the payment experience better than cash,” says Chris Kangas, head of contactless payments for Europe at MasterCard.

To simplify digital payments, especially for shoppers using handheld devices, it has developed MasterPass, a digital wallet that stores customer details, including card numbers and shipping addresses, in the cloud.

This eradicates the cumbersome process of inputting a 16-digit card number at the point of sale (POS), reducing the risk that sales will be abandoned before completion – especially useful for handheld devices.

The streamlining of this process is a tacit acknowledgement that, with so much shopping now done online, a new method of payment was needed that was designed with e-commerce in mind.

The MasterPass rollout is well under way, with Italy, Spain, the UK and Sweden among countries where it is already available, although MasterCard acknowledged it has plenty of work still to do in convincing retailers to make such payments available to their customers.

“We have to make greater inroads with retailers to put the payment button on their websites,” says Kangas.

“But we already have strong relationships with the right people, having been through a similar process when we were making Maestro available for internet payments. We are developing deeper relationships and understanding in the e-commerce space, but it helps that we already have a strong presence in this ecosystem.”

Chris Kangas, head of contactless payments for Europe at MasterCard

It is on the physical side that MasterCard’s war on cash is more relevant, as it works to push contactless payment. Along with Visa International, it has backed host card emulation (HCE) technology that it hopes will reinvigorate the fortunes of near-field communication (NFC) payments. Visa Europe, a separate legal organization from the international business, is less categorical in its endorsement of HCE and is avowedly “technology agnostic”, though it is also exploring the possibilities of this technology.

“Visa Europe believes in embracing multiple routes to market for mobile contactless payments, be it via Sim-based secure elements, embedded, accessory-based services or indeed HCE,” says Mike Gowar, senior manager of mobile strategic alliances at Visa Europe.

“We’re investigating the many opportunities that HCE opens up, and we’re developing the systems and standards to make sure those opportunities deliver secure, reliable payments services.”

It points to existing pilot implementations in Europe, such as at Bankinter in Spain, as evidence for the potential of HCE technology.

“HCE offers financial institutions new options to securely deploy mobile payment services,” says Gowar. “HCE also allows any NFC application on an Android device running the latest software to emulate a smart card, letting consumers pay using a mobile contactless solution on their smartphone.”

However, Visa accepts that challenges remain to ensure offerings meet the necessary compliance, security and reliability standards.

“Ensuring payment security is one of Visa’s highest priorities and security in cloud-based payments is no exception,” says Gowar. “Testing and development is still under way to determine exactly what security measures will be put in place before HCE-based services are offered to consumers.”

Unlike other approaches to NFC, HCE does not require collaboration between banks and third parties, either telecoms companies to build the secure element for payments directly into the Sim, or handset-makers to build the secure element directly into the phone.

Instead, HCE allows the necessary software to be downloaded onto the phone via the app store like any other app, with the secure element held in part on the phone within the app, and in part on the cloud.

This means banks do not have to work with the telecoms companies or develop payments platforms based on hardware they do not own, putting them in complete control of the payment process, much as they have traditionally been with their cards business.

MasterCard’s Kangas also expects HCE to appeal to customers. “The key advantage of HCE is that it works in a way consumers will be familiar with,” he says. “The average smartphone owner has 26 apps, each of them downloaded from the app store, and this would be another app downloaded in the same way.”

From MasterCard’s point of view, it is also a huge advantage that HCE allows it to offer contactless payments using existing infrastructure. It already has around two million contactless acceptance points across 63 countries globally that are compatible with both contactless card and mobile NFC payments.

“We didn’t want to touch the POS devices,” says Kangas. “They are one of our biggest assets and incorporating them one of our biggest challenges. It is very difficult for a new entrant to come into this space, considering the number of merchants and countries involved. We’ve been building that infrastructure for 10 years.

“In the longer term, we would like to see the convergence of our mobile NFC and MasterPass offerings into a single-wallet experience.”

The new payment platforms will also change the way consumers shop, says Kangas. He envisages a future where shoppers peruse shops with their phones in hand, scanning QR codes to have items delivered to their homes and allowing them to avoid busy checkouts.

However, the card companies do not see their forays into mobile payments as a threat to their existing businesses.

“Card payments continue to increase,” says Visa Europe’s Gowar. “Last year we saw POS spend on 500 million Visa cards across Europe increase by 8.5% to €1.4 trillion, exemplifying consumers’ increasing preference for electronic payments over cash, so we don’t expect card payments to disappear anytime soon.”

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