Mobile Wallets Central to Universal Commerce
Commerce is no longer relegated to business hours or particular locations—it can happen at any time and in almost any place. A consumer can order a new pair of shoes or peruse options for cashing in credit card reward points from a mobile device whether she’s in bed, on a train, sitting in the lobby of her bank—or practically anywhere else. This phenomenon is referred to as Universal Commerce, and it’s becoming the norm. Moving forward, it seems safe to assume that consumers will expect increasingly convenient and integrated experiences to be available to them via their mobile devices, which will increasingly serve as mobile wallets. Merchants would do well to cater to this consumer preference, and to consider the various mobile wallet options that customers may use in the future.
The promise of mobile wallets in the context of Universal Commerce is discussed at length in a recent white paper from First Data, a company committed to delivering “secure and innovative payment solutions” for all sides of the transaction, including financial institutions, merchants and customers. This particular paper is especially concerned with how merchants can best position themselves for Universal Commerce. First Data concludes, “the emphasis right now should be placed on creating an optimal user experience,” and discusses the various mobile wallet systems that merchants can use to provide said experience.
So, what’s a merchant to do in order to be at one with Universal Commerce? Let’s first consider the mobile wallet options currently on the market. According to First Data, there are three main types:
- 1.The consumer has a device with both a secure element for storing the payment credentials and an NFC connection for sending payment information from the phone to the POS reader.
- 2.The consumer has a device with an NFC connection, but no secure element for storing payment credentials.
- 3.The consumer’s device has neither a secure element nor an NFC connection.
Some quick definitions: NFC stands for Near Field Communication, a technology that has been discussed often and at length on this site. Basically, it allows two-way communication between smartphones and other NFC-enabled devices—think of all those commercials with people tapping their phones together. The other component mentioned above is a secure element (SE), which is an area of the handset where payment account information for a mobile wallet is stored. This storage area is separate from the other information one keeps on a phone, such as contacts and photos. The secure aspect of the SE comes from the fact that only a trusted service manager has write access to the element. Therefore, someone cannot pick up another person’s smartphone and simply change the payment settings.
All three of the mobile wallet possibilities listed above have their pros and cons. For example, the success of Google Wallet has shown that the NFC and secure element combination is viable, but this configuration is more complex when it comes to infrastructure. Google Wallet also released a new SE-less version last summer, which stores information in the cloud. This is a great example of the second configuration option First Data mentions: an NFC device without a security element. This configuration allows for greater consumer choice and NFC-enabled phones without SE are more widely used than NFC-enabled phones with SE. But, this mobile wallet configuration can present challenges when it comes to connectivity—they need a WiFi or 3G/4G connection to deliver payment credentials to the POS. It will be interesting to see how this version of Google Wallet is received as it becomes more widely available. As for the third setup, where the device lacks both NFC and a secure element—think QR codes—security can be an issue, but it’s really easy to use.
This brings us to an important point: it is too early to know which mobile wallet setup or setups are going to gain the most traction with consumers moving forward. And indeed, it will likely be consumers—not merchants—who will be responsible for choosing which type of mobile wallet becomes the next big thing.
According to First Data, consumer decisions “are typically based on convenience, ease of use, and most of all, the benefits they’ll reap from using a particular wallet or payment type.” It is therefore imperative that merchants embrace mobile wallet technology and use it for their benefit by engaging customers in a manner beyond simply accepting payment. These additional services can include “offers, discounts, loyalty incentives… receipt management and location-aware services.” It is also imperative that merchants present multiple options for mobile wallet interactions by customers. If you decide to only deal with NFC-enabled devices with secure elements, you may end up missing out on business if customer preferences shift towards non-NFC devices, or NFC devices that lack SE.
That being said, NFC is probably a good bet as the technology is becoming increasingly popular and more widely available. As consumers, merchants and banks grow more comfortable with NFC, more attention is being paid to improving not only the technology itself, but also its security infrastructure. None of this guarantees that NFC will become the dominant technology in mobile wallets, but it’s certainly a promising sign.
Mobile wallet technology can go one or more of several different directions. In this time of technological growth and transition, it behooves merchants to embrace as many of these different mobile wallet setups as possible. To read First Data’s entire white paper, click here.
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