Near-field Communications

Mobile payments go mainstream – is it time to say goodbye to the plastic?

2015 will go down in history as the year in which mobile payments became mainstream. From first forays by the main mobile players (Google, Apple and Samsung) as well as payment providers such as PayPal, online services including Facebook and, indeed, financial institutions in preceding years, it was the incorporation of Near-Field Communications (NFC) into payment readers that released the flood.

The precedent has been set with contactless cards. Quite suddenly, it appears, people are moving from adamantly swiping and pushing their credit, debit and cards across and into readers, to looking confused and even frustrated if hovering an NFC-enabled card across a machine does not immediately result in a transaction. It is only a short step for the same to be done with a smart device, a phenomenon that is also moving from exception to norm.

This is not the place to get into the plusses and minuses of the different mobile payment devices and platforms — sites such as Tom’s Hardware have done an extensive job already. Though it is worth mentioning that Samsung has the benefit of offering MST (magnetic stripe technology) as well as NFC. To the lay person, this means that cards will be able to be used on traditional ‘swipe’ readers which widens the market considerably.

It is, however, worth comparing mobile payments with the traditional alternative, which is plastic. Smart device-based payments have the advantage of being just that: if a device can connect to the Internet and perform ancillary processing, this means the resulting transactions can also be smarter. For example, this enables security tokens to be generated on the fly on a per-transaction basis, creating a closed loop which makes fraud more difficult than with traditional cards.

It also means more straightforward recourse in the event of problems. If you forget your PIN for example, the traditional model means you may wait several days for a replacement. By post. With smartphones equipped with fingerprint recognition and other authentication, PIN problems become a thing of the past. Such smartphones also have greater protection against theft or loss; it is perhaps only a matter of time for an enterprising insurance company to offer a 24-hour global replacement service, onto which an entire mobile wallet can be restored from the cloud.

Mobile payments are highly popular in many parts of the developing world, even for people who do not have bank accounts (and who make use of ‘currency’ based on mobile phone top-ups). Right now the majority of mobile devices in emerging economies are traditional handsets, but as this picture looks set to change dramatically over the next 5-10 years as mobile internet growth follows the same path as mobile telephony.

While it is likely that we are at the beginning of the end for wallets stuffed with plastic cards, we are still at the start of mainstream adoption. Geographic roll-outs are still underway and mobile payments currently only work with smaller transaction sizes but no reason exists why things should stay this way as people, and indeed providers, become more comfortable with the technology. Already it seems strange that I can use my phone, via a banking app, to conduct quite sizeable transactions, yet until recently I couldn’t buy a coffee without hard cash.

The bottom line is, we are starting to feel the vibrations of a seismic change in the way we transact. As we make more use of our mobiles for financial transactions, it becomes highly likely that we will see new models emerge, such as exchange of cryptocurrencies like Bitcoin. For now we simply have to get used to the fact that the highly valuable, yet all too fragile piece of plastic upon which we all currently depend will soon be assigned to the past.