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September 2, 2015

Mobile Payments and Digital Wallets: Traversing Uncharted Territory

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We have surely come a long way from those good old days when we carried around wallets the size of a giant hamster. I could barely ever get mine to fit into my back pocket. It had everything that I’d ever need and mostly junk I’d never use – some cash, coins, my personal calendar, bus tickets, movie tickets from a year ago, scraps of paper with names and numbers of people I’d never meet again, business cards, gift coupons and even lottery tickets. In short, I was a George Costanza. But honestly, I just liked the idea of carrying around a wallet; it made me feel like a grown man.

Then came along those plastic cards – those pocket-sized demons that tempt you to buy things you don’t need. “I’m never shopping again. Oh look, shoes!” Credit/debit cards revolutionized the payment industry; heck, they created the industry. But these plastic cards came with a new set of challenges – the biggest one being security. Hackers have, over the years, successfully committed various forms of credit card fraud such as skimming, phishing mails/calls, counterfeits, account takeovers etc. Taking cognizance of this threat, the Europay Mastercard Visa (EMV) standard was introduced to help negate such security threats, with smartcard chip-and-pin security measures.


Saying that things have changed a bit today, would be an understatement. Mobile Payments (mPayment) also referred to as mobile money or mobile wallet has made virtual payments much more convenient and secure. According to Statista, the global mobile payments transaction value stands at $235.4 billion, out of which $74 billion comes from the Asia Pacific, $37 billion from North America and $29 billion from Western Europe.  The number of mobile payment users is expected to surge to 163.6 million users in Asia Pacific, 101.3 million users in Africa and 90.7 million users in North America, by 2016.

Some of the innovations shaping the Mobile Payments industry include:

  • Contactless Payments like NFC and BLE: With the number of Smartphones that are equipped with NFC (Near Field Communication) technology going up, this mode of payment is becoming increasingly popular among consumers and businesses. NFC payments are enabled only for in-store purchases, where shoppers can leverage the built-in software/hardware on their phones to make the payment by merely holding/swiping their device over the merchant’s NFC-enabled till. However it’s interesting to note that though Google has always been bullish about NFC, Apple only got around to implementing it with the iPhone 6 and 6+. BLE (Bluetooth Low Energy) on the other hand is a promising technology and is already supported by most Smartphones. Unlike NFC, BLE has the added advantage of being clubbed with other direct marketing and proximity marketing initiatives. The jury is still out on which of these two is going to be the dominant mobile payment technology in the long run.
  • Biometric Payments: The most common security threat to remote payments is identity theft. And most payment methods tend to fail in ensuring that users are truly who they claim to be. That is where biometric identifiers like fingerprint scanning, facial recognition, voice-based recognition systems, retina-based, skin-based or even mind-activity based recognition systems come into play. Although biometric based systems are currently found mostly in defense establishments, it is becoming increasingly popular with corporate entities and government organizations, which could result in far wider deployments.
  • Virtual Currencies: Also known as “digital currency,” this is mostly unregulated and limited to only scheme participants. The advantage for marketers leveraging digital currency is that it helps to lock-in users, which in-turn helps boost loyalty and builds a community of scheme participants. Having said that, digital currency is still in its genesis period and it will be a while before it manages to create any substantial impact.

Digital Wallet on the other hand is a piece of software that leverages the aforementioned technologies to help users make payments. It either stores the user’s card details or has a pre-loaded amount, which can then be used to conduct remote/in-app transactions via mobile or the Web. In some cases, banks even allow the digital wallets to be directly linked to the user’s bank account. The biggest advantage, however, is the fact that it stores the user’s personal (name, shipping details etc.) data at the first instance, saving them precious time during their future transactions. For merchants, adding digital wallet payment options could mean a lower abandon cart percentage.

Not all businesses have the means to develop mobile payment capabilities in-house, and hence it makes sense for brick and mortar retailers, and eCommerce players, to leverage third-party solutions. The largest promoters of mPayment today are financial institutions, followed by mobile device manufacturers, mobile network operators and technology companies. The major players in this space include PayPalApple PayAndroid Pay (erstwhile Google Wallet), Samsung Pay, CurrentC (built by America’s favorite retailers) and Square. Even social networks are trying their hand at mobile payments – Facebook introduced payments via messenger that allows users to transfer money to their friends and family from Facebook,  SnapChat introduced SnapCash in partnership with Square to offer a similar feature to its users, and Twitter is partnering with various services providers to offer innovative payment services on the platform.

The sheer volume of users embracing mPayment has exponentially grown over the past couple of years, but it will be a while before it becomes a norm. One of the biggest concerns with any mode of cashless/virtual payment is security, and mPayment though safer, may not be a 100 percent safe either. The risks vary from app to app, and provider to provider. For example, Android Pay has a single layer security protocol, which requires the user to enter a four-digit PIN during checkout, and Apple Pay has a thumb ID scanner instead. Having said that, the data is stored away in highly secure server environments and various service providers offer 24/7 monitoring and fraud protection services as well. But is this fool-proof enough to ward off hackers? We thought credit card security was airtight too, didn’t we? Look how that has worked out for us over the past couple of decades.

The good news is that mobile payment players are constantly looking to boost security – Google was one of the first to implement HCE (Host Card Emulation) which would allow the app on the phone to perform card emulation on the NFC till without having to rely on secure elements; others like VISA and MasterCard are following suit. However, the whole point of HCE is that the data (card details) is stored in the cloud instead of the user’s device, and that poses another challenge. We all know the Cloud isn’t entirely secure either, don’t we?! And that’s where other techniques like Tokenization come into play – it substitutes sensitive data with a token or a proxy, which makes no sense to anybody or anything, except for the authorized interface which requested the token.

The Mobile Payments and Digital Wallets industry is bursting with activity and will continue to witness significant growth in the years to come. But to sustain this growth story, a whole bunch of stakeholders need to be on the same page – merchants, banks, mobile device manufacturers, payment networks and mPOS manufacturers to name a few. As a merchant, what’s in it for you?  Well, if your business is turning to mobile payments only recently, then all of this can sound a bit overwhelming, but with right set of technologies and partners, mobile payments can augment your customer experience and boost operational efficiency. Who doesn’t want that, huh?! But the more important question you need to ask yourself is – Would you rather invest in upgrading your PoS hardware or turn away customers who insist on going digital?

While you ponder on that, here are some more interesting stats and forecasts –


Endeavour has helped various clients develop highly secure mobile payment/digital wallet apps. Following are case studies of two such solutions we helped build:

As managing director and a founding member of Endeavour, Rahul Aggarwal ensures that all internal functions at Endeavour run like a well-oiled machine. He plays a crucial role in identifying and grooming future leaders for Endeavour; he also works very closely with the marketing and sales functions, to align their strategies and objectives with the organization’s goals. This article first appeared on ThoughtWave.  Article used with the permission from Endeavour.