Mobility

The liability shift and its impact on mobile payments

Here are potential innovations to watch this year in mobile payments, and credit card payments in general.

This is going to be a major year for innovation in mobile payments, and credit card payments in general, as the fundamentals of credit card-based payments are being shaken by the "liability shift" that occurs later in the year. Essentially, "liability shift" places the burden for fraudulent credit card charges in the hands of merchants and issuing banks that don't implement new technology to accommodate chip-based credit cards that offer superior fraud protection versus magnetic stripes common in the US. The motivation behind this policy is fundamentally that the US has become the global capital for credit card fraud, with a predicted $10B US in losses due to fraud in 2015. There are several broad trends and technologies to watch in 2015 as the payment space evolves.

New payment networks

One option for increasing security, lowering merchant costs, and "owning" customer data through the entire payment process is skipping the traditional credit card networks altogether. PayPal is an obvious example of a new payment network, and the company that got its start making payments online has made a strong push into retail stores and physical payments. Like PayPal, MCX, an alliance among several major merchants, essentially links a payment account to a consumer's checking account, skipping the likes of Visa, MasterCard, and American Express. Both allow payment via mobile apps, and both suffer from a limited number of retail outlets where they can actually be used.

As traditional payment processors and merchants come to terms with the changes wrought by the liability shift, and with increasing demands for mobile payment capabilities from consumers, additional new payment networks seem likely. Whether these networks will be controlled by merchants like MCX or new entrants like PayPal remains to be seen.

New payment devices

The mobile phone is still a relatively new payment device, and it's unclear whether it's the ideal way to pay for goods and services, or if another device will soon supplant it. Apple is headed for a hybrid approach, allowing its forthcoming Watch to work with Apple Pay installed on a phone. In this scenario, Watch will handle communication with a payment terminal, while the user's phone handles communication with payment processors. Other upcoming products range from phone cases that add payment capabilities, to devices that look like traditional credit cards, but can "change personalities" to present different accounts to a payment terminal.

The rise of the QR code

QR codes are not exactly a new technology, but while this square jumble of boxes failed to gain the traction its creators envisioned, it's experiencing a rekindled interest as a payment method. Technologies like Apple Pay and Google Wallet require specific capabilities from a user's phone, capabilities that are far from widespread at the moment. QR codes, on the other hand, can be generated on nearly any device and read by relatively low-cost scanners that many merchants already have installed. This is essentially the technology used to pay with the popular Starbucks app. Essentially, the app communicates with a payment network, and the network provides the phone with a code. That code is also provided to the merchant's point of sale terminal. The QR code is displayed on the device's screen and scanned at the point of sale, where matching codes allow the transaction to proceed.

Use of QR codes can transcend the various payment technologies, so my QR code-driven payment might be processed by PayPal, or using Google Wallet's backend, making this one of the more flexible options versus relying on a device with specific hardware and software.

What's missing?

While promising technologies to facilitate mobile payment abound, one of the major obstacles is the very real risk of consumer confusion. Not only will there be a proliferation of new devices, but even a specific device will have multiple ways to pay for a transaction. Physically, a consumer might tap their device on a terminal in one store, show a QR code to a cashier in another, and facilitate the entire transaction in their mobile browser in another store. Keeping track of which apps, hardware, and process are used to facilitate a transaction will be confusing for consumers and front-line retail employees, as will deciphering which banks, cards, or checking accounts ultimately provide the money, and which consumer protections, interest rates, and loyalty programs apply to the transaction.

Ultimately, this is likely to be a year of experimentation for banks, card issuers, merchants, and consumers. Like it or not, consumers, merchants, and their employees will be faced with learning a different way of paying for transactions as EMV (also known as "chip" cards) roll out due to the liability shift, providing a way for all parties to introduce additional disruption. Hopefully, 2015 will provide clarity as to what works and what doesn't, and allow development to focus on advancing the state of mobile payment.

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About Patrick Gray

Patrick Gray works for a global Fortune 500 consulting and IT services company and is the author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companion e-book The Breakthrough CIO's Companion. He has spent ...

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