Wachovia: No Contactless
Published by David Evans on April 25th, 2008
Filed Under:
Mobile, Payments, New Business Models, two-sided market
As he said in an interview with American Banker (subscription required), Wachovia’s Steve Boehm is taking the sensible man’s approach to contactless: wait and see if it takes off and get on the bandwagon when it does. Contactless–like smart cards–is unfortunately a technology in search of a business model to support it.
Some banks and card systems have spent a lot of money and effort trying to roll out contactless payment in the United States. Unfortunately, whatever business case they thought they had for this technology hasn’t played out in the real world.
Merchants don’t see the benefits of spending money to upgrade to contactless. Without merchants on board, the millions of consumers with contactless cards in their wallet can’t really use the contactless feature. Indeed, I suspect most of these supposed contactless cardholders don’t even really know that their card has a chip in it; it’s just the same old mag stripe card they’ve always been using.
A recent Javelin report claims that the number of consumers paying with contactless will double between 2008 and 2013. Maybe, but Javelin has been systematically over-predicting the penetration of contactless. If contactless has a future, it is as part of a mobile phone solution, as Boehm notes.
But, in the United States, mobile phones as a payment device is years away–my optimistic expert friends say 5 years; my cynical friends say 10. Plus, with rapid advances in technology one can’t just assume that the RFID technology for contactless is going to be the way we’ll pay with mobile. So if I were a bank, merchant, or system, I wouldn’t be investing much in contactless until we’re closer to having a business case for it (transit systems in cities with high concentrations of riders is the exception to my rule).
What do you think–are investments in contactless like flushing money down the toilet, or a wise bet on the future?
I agree that contact-less has big issues which preclude success but I have a funny feeling that mobile payments might take a little less than 5 years.
I’m guessing that Steve will be doing it himself inside 3 years.
If anyone could use it with any phone on any network, it was safer than anything else, the merchant required nothing new, and could eventually ditch the eftpos - do you think it would take 5 years?
If it improved consumer privacy, lowered merchant loss and risk of data breaches, would it be popular enough to be adopted quickly?
If it cost less than existing transaction methods?
If it was really easy?
What do you think?
I’m thinking 2-3 years.
I agree that contactless via mobile phones has potential but will take many years for any significant mass of deployment given the capital outlay required, and breaking the “ckicken and egg” scenario: that is, mobile carriers need to see that there are abundant contactless POS terminals and economics to the carrier that make sense, and retailers need to see there are sufficient mobile carriers and mobile handsets enabled and economics that make sense for them to upgrade POS terminals. And in the middle of all that are the issuing banks that need to extract their value as well. I believe the issue is that having contactless mobile phones just to make a payment at physical store is a weak proposition. Often a key element to the business case for mobile contactless is for the ease and speed in high velocity outlets like fast-food, convenience stores, and the like. But with less than $25 purchases not requiring signatures on traditional mag stripe card swipes, that issue is already solved. Sure, there may be the added user convenience of not having to pull out a wallet and a plastic card to then swipe, and instead just tap their mobile phone. But the true potential and value of mobile contactless in the U.S. will be achieved only when we go beyond the payment and into a well-knit user experience that ties multiple elements together. The value to the user and ecosystem companies in doing things such as sending a mobile advertisement to the phone, which the user clicks on and gets a mobile coupon, which he/she then stores in a mobile virtual wallet, and then goes to a store buys the item, and uses contactless phone at checkout to simultaneously make the payment and redeem the coupon. Such a scenario has lots of value to the many moving parts in the ecosystem. Pinning contactless mobile potential to just the payment aspect is a weak proposition. Pragnesh Shah is President & CEO of Mobilians International, Inc. — an online and mobile payments company.
Mobile payments (and contactless) won’t really take off unless there are substantial financial benefits to merchants. That’s how we moved from carbon paper slips to electronic payment terminals. Make mobile payments and contactless cards much cheaper for merchants, and watch how merchants will push customers to use those payment methods over others.
In order to process payments, you need a scheme which is responsible for (among others):
1)setting up rules and regulations including financial risk management, security requirements, responsibilities of stakeholders, enforcement mechanisms etc
2)putting in place clearing and settlement infrastructures
3)designing interoperability tech standards that are needed to connect several players and have the resulting system run smoothly
4)laying down scheme’s audit and control procedures, including certifications processes, test platforms etc
Having mentionned that, 2 to 3 years seems a bit early to me unless existing schemes come on board …