Card Networks at the Heart of Mobile
Meanwhile, Visa's Gajda asserts, the card networks -- Visa, MasterCard, American Express, Discover, et al. -- will be at the heart of mobile payments in the future. "That's going to be the most consumer-friendly and scalable way for people to take their existing payment brands and relationships and transfer those over to mobile, rather than asking consumers to sign up for new payment brands, new systems and relationships just to make a mobile payment," he argues.
But some competitors disagree. "Credit cards as a payment source were really never engineered for an e-commerce environment or a digital environment," Econsultancy (econsultancy.com), an online community for e-commerce professionals, recently quoted PayPal senior director of merchant services Bill Zielke as saying. "They were engineered for the offline world, which is why they have the magnetic stripe."
Visa's Gajda counters that the card networks have innovated way beyond the magnetic stripe. "That's a historical view of the payments industry, particularly of Visa," he insists. In addition to several contactless payment trials that the network is involved in, Visa also is looking into virtualizing cards by linking the 16-digit cardholder number to a mobile phone number so that mobile phone users can pay with minimal typing, Gajda reports. "Visa has been leading the way in defining the standards around proximity payments and developing some of the underlying technology," he says.
The card network has been focusing on payments solutions for the BlackBerry and iPhone, according to Gajda, who adds that Visa is testing contactless payments in several markets (including New York and Los Angeles) using the DeviceFidelity microSD technology. (Because the iPhone doesn't have a memory slot, DeviceFidelity has developed a case for the mobile device into which the microSD chip can be inserted.)
The trials, which will last through the end of the year, involve four large issuers: Wells Fargo, Chase, Bank of America and U.S. Bank. Each issuer brings several hundred participants to the test. If all goes well, Gajda relates, Visa intends to make the offering commercially available by the end of the first quarter of 2011.
Gajda explains that Visa is focused on the microSD chip because no mobile device maker offers a phone with near-field communication technology. (Nokia canceled the one NFC phone it introduced in the U.S. last year.) Eventually, he notes, manufacturers are likely to introduce NFC phones, but that could take two to three years. In the meantime, "We think this is an opportunity to use the existing handset base as we watch the migration," Gajda says. "These trials will show us a lot about the convenience, the added security and the experience people can have by having payment capabilities on the handset."
In addition, microSD has become a standard for external memory, according to Gajda. And perhaps most important, he continues, the microSD chip can be sent to consumers with their mobile banking application and card information preloaded. In fact, this is part of Gajda's vision for mobile payments: Banks will mail out payment chips the way they mail out credit and debit cards today; the chips will be preloaded with customers' credit, debit and prepaid card information. For the trial, the microSD chips are being distributed through the four banks.
"If you bought a handset with NFC embedded, you wouldn't have any of that information," Gajda explains. "You'd have to go to a website or somehow download an application and specific card information into that application. MicroSD binds it all together and simplifies the customer experience."
PayPal Seeks Supremacy
As the dominant provider of online payments, PayPal already has a strong influence on customer payments, and the company has a good chance at dominating mobile payments, too. It has 87.2 million active account holders, 5 million of whom regularly use PayPal from mobile devices. The company handled $141 million in payment volume over mobile devices last year, and this year it expects its mobile payment volume to more than triple, reaching $500 million.
For PayPal, supremacy in the mobile payment market already "is a reality," contends Laura Chambers, senior director of PayPal Mobile. "We're doing a huge amount of payment volume. We're working with the best partners and have a fantastic experience for our buyers," she asserts. "When consumers are presented with a choice at checkout on mobile, they're picking PayPal a lot, and when they pick PayPal, they're much more likely to complete the transaction. If you take all the good stuff that works well for PayPal on the web, it's even better for mobile."
PayPal lets customers send mobile payments by linking to their bank accounts, credit cards, debit cards or PayPal balances (for instance, money received from a sale on eBay). The San Jose, Calif.-based company's app for the iPhone, BlackBerry and Android devices allows users to select payment recipients from a predetermined contact list (or enter a recipient's e-mail address or mobile phone number) and authorize payments using their PayPal account login details. PayPal then transfers the funds from the funding source to the merchant. "We ride on the rails of a lot of the payment funding sources and give people the choice to pay how they want to pay," notes Chambers.
PayPal views banks as partners, Chambers says. "Because we've made online transactions so easy and we let people fund payments with their bank accounts, we've helped banks come to e-commerce," she argues. The company even submitted recently a remote capture iPhone app to Apple for review that enables users to deposit checks into their PayPal accounts by submitting iPhone photos of them. Partner NetDeposit (Salt Lake City) created the remote capture technology.
PayPal also views the card networks as partners. "Credit cards are important to PayPal," Chambers acknowledges. "Like banks, we empower a lot of online credit card transactions."
But Chambers contends that the traditional credit card paradigm doesn't work well on mobile devices. "If you try to enter a credit card number, security code, and name and address on a mobile phone, it's incredibly painful," she says. "And people are also concerned about security -- where that information is going."
PayPal, Chambers explains, requires only a user name, password and PIN to send a payment, and it offers buyer protection -- if online or mobile shoppers don't receive any of the items they purchased, or if they receive items that are significantly different than described by the merchant, PayPal will reimburse them.