MasterCard announced earlier this week that it would partner with with ISIS to help foster the growth of NFC-based mobile payment solutions in the U.S. ISIS, formed in November last year by Verizon Wireless, AT&T and T-Mobile, intends to deliver a complete mobile wallet solution that ambitiously aims to replace cash, credit cards, debit cards, coupons and more with one comprehensive mobile solution. So we know about ISIS and now we know MasterCard is on board, but MasterCard is hardly a newcomer in the contactless payments space. BGR recently had a chat with MasterCard’s Senior Vice President of Mobile, James Anderson, to discuss the past, present and future of mobile payments here in the U.S. Of course NFC-based contactless payment solutions are at the forefront of discussions surrounding the mobile payment space right now, and who better to discuss NFC with than the man recently named Vice Chairman of the NFC Forum? Our full Q&A with Anderson can be found below.
BGR Interview is a series of interviews and conversations with executives, influencers, tastemakers and innovators, covering the mobile and consumer electronics industries.
You’ve recently been named Vice Chairman of the NFC Forum and you’re becoming a recognized figure in the space. Do you think mobile contactless payments are ready to take off in the U.S.?
I really feel that it’s less a matter of whether the U.S. will be receptive but rather when the technology will hit critical mass. Right now the United States is leading the industry in mobile innovation, and as part of that, payments are becoming very interesting to a number of players. A recent study by Juniper has forecasted that NFC payments will reach $50 billion by 2014. They also predicted that the United States and Western Europe would represent the majority of the market.
Our own research shows that U.S. consumers are ready now. A recent survey MasterCard commissioned revealed that 63% of respondents between 18 and 34 years old were ready to make payments with their cell phones. US consumers are already making purchases via the internet on their mobile phone; contactless will be an extension of that action.
As of March 2011, the CTIA said cell phone penetration now sits at 96% in the U.S. Why has it taken so long for companies to focus on phone-based contactless payments here?
MasterCard has been at the forefront of making mobile phones into contactless devices. Over a decade ago, we worked with Nokia to embed a PayPass chip into phones. We conducted the original contactless payment trials in Orlando and Dallas, working with national merchants at over 80 locations.
Since then we’ve been working, through our own efforts, and through bodies such as the NFC Forum, to line the right players up, behind a common technical approach, supported by open and global standards. We believe now that the right pieces are in place. One of the biggest drivers of interest in the last few years has been the rapid adoption of smartphones. Back in 2001 futurists were talking about the coming power of mobile devices accessing the Internet, but the actual user experience was a long way from the vision. Now in 2011, with the launch of iPhone and the rapid adoption of the Android Operating System, the dreams are turning into a an everyday reality and people are used to the idea of being able to do almost everything on their mobile devices. That creates a very healthy environment to introduce mobile payments, because there is a ready consumer appetite for doing more on the mobile device.
Are cell phone companies adding a layer of complication by coupling NFC with software solutions? How are these solutions better than integrating something like MasterCard’s PayPass, which doesn’t require a battery or on-board software, into cell phones?
I think I’d position that question this way, “How do you compare the advantages of mobile contactless versus card-based contactless payment?” Card-based contactless payments add speed and convenience to the existing user experience of paying with cards. MasterCard has been the leader in deploying PayPass cards to consumers with more than 90 million in circulation. Mobile contactless takes the speed and convenience to the next level, by embedding the capabilities into a device consumers have with them at all times and places. In addition, since it is a computing and communications platform in one, developers and providers can create much richer payment experiences for their customers when they are working with the mobile platform, than is possible with cards.
How do we get around the dead battery issue? Is it overblown?
This is an area where a contactless card currently has an advantage over a phone. A card does not need power because it receives power from the POS terminal. A phone could be configured to perform in the same way — but you would lose many of the features that make it desirable to do a transaction on the phone, such as the control that comes from entering a code before a transaction is completed. Since these control features are important to consumers, MasterCard’s current recommendation is that phone be configured not to perform a transaction when the battery is dead. This recommendation might be modified as consumers gather more experience with the technology.
Security seems to be a major concern. Why do you think this is the case?
Security should always be a concern of consumers when they think about payments. After all — we are talking about money. The good news is that we’ve developed mobile contactless payments with security right at the center; we are not retrofitting it to an existing system. If we were not confident that the system is secure we would not be associating the MasterCard brand to it.
The security can be thought of as layers that protect the integrity of the transaction, and by extension protect the consumer.
(i) We chose NFC technology as the basis for mobile contactless payments because of its very short range (less than 4cm). We wanted to make sure that consumers still made conscious decisions to pay — we don’t want payment happening accidentally.
(ii) We built into the PayPass protocol technology that generates dynamic data every time a transaction is made. This dynamic data means that in the event transaction data is captured by a bad actor, the data has no value.
(iii) We require that the PayPass application on the phone be housed within a tamper-resistant chip known as a Secure Element. It’s the same type of chip that is found on EMV Chip and PIN cards in many parts of the world, and has proven to be a very robust way to protect valuable assets in a highly distributed system.
(iv) Developers of wallet software on the phones often provide an option for consumers to enter a code prior to accessing the wallet.
(v) Once a transaction is made it traverses the MasterCard network, the same network that supports billions of card transactions today, and the consumer is afforded the same protections (e.g., zero liability guarantee) as card-based transactions.
Bottom line: we’re glad when people want to talk about security because MasterCard’s been working on making mobile payments secure for more than 10 years.
Are security concerns the biggest barrier to widespread adoption?
I don’t think so. Today, the fact that consumers can’t walk into a store and buy an NFC phone is the biggest barrier. The great news is that with announcements from industry leaders like Samsung and RIM, that story is going to change very quickly in the next year.
Google used an NFC chip from NXP with built-in security in its Nexus S 4G smartphone. Will similar solutions become an industry standard?
Different companies have taken different approaches to enabling a phone with a Secure Element. In general, network operators prefer to install the payment application in the SIM card. This is the architecture that we just deployed with Orange and Barclaycard in the United Kingdom. Other companies have opted to use an embedded Secure Element (where the Secure Element is added to the phone and is not removable like a SIM. We support that architecture as well as you have seen with the Google program. We embrace solutions that meet our security requirements and that deliver a good user experience. We expect both architectures to continue into the future.
Tell us about MasterCard’s involvement with Google Wallet. Is Google’s product going to be a catalyst in the U.S.?
The founding partners of the Google Wallet — MasterCard, Google, Citi, First Data and Sprint — are in a unique position. With Android, Google has the largest market share for smartphone operating systems in the United States, they have a vast database of information, amazing partnerships and now, working with Citi, MasterCard, First Data and Sprint — a real ecosystem to make contactless mobile payments a reality. All of us understood that we needed to collaborate to make this happen. For MasterCard, we already bring an existing expertise and an infrastructure that has been built on 45 years of transactions and the MasterCard PayPass acceptance network. By using that, consumers will be able to tap and pay at more than 125,000 merchants in the U.S. and more than 300,000 globally. We believe that the combination of our network with the other founding partners’ expertise will help speed up the mobile payments industry in the United States.
It has been rumored for quite some time that Apple is preparing to enter the contactless payment space, perhaps as soon as September when it is expected to launch its next-generation iPhone. As much power and momentum as Apple has, do you think it will become an instant market leader?
Apple is a major technology player with a lot of influence and if they adopt NFC it would be further validation of the technology.
Have you had any discussions with Apple regarding contactless payment solutions?
MasterCard has a 45 year history of innovation in payments and are confident that we will be at the center of delivering the next generation of mobile payments to consumers around the world.
We have partnered with mobile carriers, handset manufacturers and financial institutions globally to launch numerous NFC-payment trials, PayPass mobile payment tags, person-to-person money transfer services, and iPhone/Smartphone Apps that are helping deliver a rich mobile commerce experience for consumers.
Talk to us a bit about interoperability standards. Are we in a place where POS systems and other components are standardized to the point where compatibility of upcoming solutions is a non-issue?
MasterCard is a strong advocate of globally interoperable standards which is why we have invested in PayPass. All existing PayPass merchants around the world are able to accept payments from an NFC phone loaded with a PayPass application. We are working closely with all involved stakeholders (payment terminal vendors, merchants) to increase the number of point of sale terminals able to accept PayPass payments — be they from a card or a phone.
Last but not least, of course: is plastic dead, and are cell-phone based contactless payment systems its executioner?
Plastic is far from dead. We see co-existence of the different form factors for a long period of time. Cards have served the payments industry very well in providing a low-cost platform for the delivery of electronic payment services to a mass market, and displacing cash. The good news is that we are able to carry forward all the strengths of card payments, and make the experience better by embedding it in the mobile phone.