Less than two weeks ago, I wrote about digital payments. That article looked at the surging movement toward replacing those credit card machines with — well, all manner of different alternatives. And therein lies the rub. Many players are all angling for a crack at this potentially lucrative opportunity. The piece ended with a warning about the danger of consumers having too many options.
Indeed, since that story was published, another blockbuster announcement came out. This time, it’s a new consortium called Merchant Customer Exchange (MCX) that’s planning to introduce yet another mobile payment option. MCX isn’t live yet, and according to The Wall Street Journal report that outed the initiative to accept payment by smartphone, it doesn’t even have a CEO.
Who else is involved in the mobile payment business? Who isn’t? Banks, credit card companies, computer makers, smartphone vendors, telcos, startups and retailers are all throwing solutions at the wall and hoping one will stick. Here are a few of the more notable efforts:
- Apple’s (NASDAQ:AAPL) EasyPay, barcode scanning/mobile payment system ties into a user’s iTunes account. Apple retail store customers bypass checkout lines by scanning items and paying from their iPhone.
- Google Wallet. Using a wireless near-field communications-equipped (NFC) smartphone running Google‘s (NASDAQ:GOOG) Android, users pay for products at suitably equipped retailers, some of which offer a tap function that lets shoppers simply bump their phone against a terminal to pay.
- Square offers plug-in credit card readers that allow small retailers to swipe customers’ cards through a smartphone. It also offers wireless payment, and Square just signed a deal with Starbucks (NASDAQ:SBUX) that will let customers at 7,000 locations pay for their coffee by simply holding up a smartphone running Square’s app.
- MCX. The newest (big) kid on the block and not yet live, but the consortium of companies behind this system — including the nation’s biggest retailer — gives it instant cred.
- PayPal account holders can pay with their smartphone at a variety of retailers, including Home Depot (NYSE:HD).
- VISA (NYSE:V) offers PayWave. It’s not on mobile phones yet, but it allows users to wave their VISA credit card or keyfob at 32,000 retailers instead of having to swipe.
- Intuit (NASDAQ:INTU) already offers GoPayment smartphone-based card readers for retailers (similar to Square’s), but is also working on an NFC system to let Android smartphone users pay wirelessly.
- ISIS is the mobile wallet brainchild of three telecom giants: AT&T (NYSE:T), T-Mobile and Verizon (NYSE:VZ). NFC-capable smartphones are used to pay at a variety of retailers. Like many cellular upgrades, ISIS is being rolled out by city, not by retail chain. It’s currently live in Austin, Texas, and Salt Lake City, Utah.
- Mastercard (NYSE:MA) offers PayPass Wallet, which is currently available only through online retailers. A credit card “tap and go” NFC solution (similar to VISA’s) can be used at many bricks-and-mortar retailers.
Got all that? Beyond the sheer proliferation of options, another challenge facing digital wallets and mobile payment is security. For example, Google Wallet uses a PIN system that was compromised earlier this year. Hack the PIN, and the hacker gains access to the Google Wallet — which can compromise all of a user’s credit cards, not just one.
Apple has been stealthily putting the pieces in place to take a run at possibly bringing its digital payment mainstream. First, it announced Passbook, a feature coming in iOS 6 that’s being promoted as a digital wallet for gift cards, admission tickets and passes. But not payments — yet.
Then came news at the end of July that Apple was paying $350 million to buy AuthenTec, a firm specializing in mobile payment security, including biometric technology such as fingerprint sensors.
It doesn’t take a cryptography degree to see where Apple’s ambitions lie. It’s a relatively small step to evolve Passbook into a true digital wallet, tied to credit cards or a bank account. While mobile payment through an iPhone would be dead easy, thanks to Apple’s considerable expertise in user experience, it could also become the platform that puts consumer fears about the security of mobile transactions to rest. After all, Apple just bought a biometric tech company.
Of course, there needs to be some gear at the point of sale to accept this payment, and hard to believe, but not everyone carries an iPhone. And that takes us back to square one.
Consumers and retailers became comfortable using credit cards, and then debit cards, because they were convenient, they seemed relatively secure (at least at the time) and they became nearly universally accepted. Carrying two or three credit cards and a debit card is easy. Carrying an iPhone, an Android phone and trying to keep track of which cards and accounts are associated with which digital wallets (and which might offer a loyalty bonus for a specific purchase) is a nightmare for consumers.
It’s also an unpleasant scenario for retailers, who would rather simplify their point-of-purchase systems instead of having to accommodate a bigger range of payment methods.
To really fly, mobile payments and digital wallets need two things: some semblance of a standard and solid security. Whoever eventually solves those two problems is going to win big.
As of this writing Brad Moon doesn’t own any securities mentioned here.