Mobile Payments

Mobile Payments

Christopher Da Silva, Monica Fino, Michael Salvatore Gambino

Ruben Haggai, Maya Moukarzel, Marina Pascual, Lakshay Suri

Technology & Innovation Management

259694

Professor Alvaro Arenas Sarmiento

IE Business School

Submitted December 19, 2014

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Statement of Authorship

“We confirm that this work is my own. Additionally, we confirm that no part of

this coursework, except where clearly quoted and referenced, has been copied from

material belonging to any other person e.g. from a book, handout, or another student.”

Group H, Section 3

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Table of Contents

List of Tables & Figures .................................................................................................... iii  

Section 1: Introduction ........................................................................................................ 1  

Section 2: Bluetooth Low Energy (BLE) v. Near Field Communications (NFC) .............. 1  

Mobile Payment for BLE .............................................................................................. 1  

Mobile Payment for NFC .............................................................................................. 2  

Section 3: Top Influencers in the Mobile Payments Market .............................................. 2  

Google Wallet ............................................................................................................... 2  

PayPal ........................................................................................................................... 2  

MCX ........................................................................................................................... 3  

Section 4: Apple Pay ........................................................................................................... 3  

How To Use Apple Pay ................................................................................................ 4  

For Customers ............................................................................................................... 4  

For Retail Stores ........................................................................................................... 4  

Privacy and Security ..................................................................................................... 5  

Advantages And Disadvantages For Customers ........................................................... 5  

The Retail Sector Perspective ....................................................................................... 5  

Opportunities ........................................................................................................... 5  

Weaknesses ............................................................................................................. 6  

Apple Pay v. CurrentC .................................................................................................. 6  

Analysis of Apple Pay .................................................................................................. 8  

BCG Matrix .................................................................................................................. 8  

Ansoff Matrix ................................................................................................................ 9  

Section 5: Conclusion ......................................................................................................... 9  

Looking Forward .......................................................................................................... 9  

References ......................................................................................................................... 11  

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List of Tables & Figures

Table 1. SWOT .................................................................................................................... 8  

Figure 1. Comparison between BLE and NFC ................................................................... 1  

Figure 2. Apple diagram for developers ............................................................................. 4  

Figure 3. How Apple Pay stacks up to the merchant customer exchange (MCX) ............. 7  

Figure 4. BCG matrix ......................................................................................................... 8  

Figure 5. Ansoff matrix ...................................................................................................... 9  

Figure 6. Forecast: U.S. mobile in-store payment volume (Heggestuen, 2014b). ........... 10  

Figure 7. Population willing to use Apple Pay ................................................................. 10  

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Section 1: Introduction

The method of paying for goods and services is transitioning, as the world mitigates from credit cards and cash, to applications (Apps) accessible through the users smartphones. This evolution was only possible because of universal mobile platforms and always-on Internet connections (Rogers, 2014).

The main topics discussed throughout the research report are the technologies being adopted, the main players within the industry, and the opportunities for implementation. To align these points, Apple Pay will be studied.

Section 2: Bluetooth Low Energy (BLE) v. Near Field Communications (NFC)

BLE and NFC are two wireless communication technologies currently being installed in the majority of current smartphones available to customers.

Figure 1. Comparison between BLE and NFC  

Mobile Payment for BLE

When entering a store, the customer’s payment App senses a BLE beacon. The App responds by "checking-in" to alert the retailer's POS of the customer's presence. At checkout, the customer informs the clerk to post the sale to their mobile payment account. This is detectable on the clerk’s POS terminal and the customer also provides

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identification for validation of the transaction. To implement the BLE beacons, the retailer needs to install an infrastructure in order to change the checkout process.

Mobile Payment for NFC

At checkout, the customer informs the clerk that they wish to pay for the sale via credit card. Subsequently, the customer opens their mobile wallet, selects a desired card, and subsequently taps their smartphone on the retailer’s NFC tag. This solution only requires that the retailer have a contactless payment terminal. All other infrastructure remains unchanged (Stemle, 2014; van Klaarbergen, n.d.).

Section 3: Top Influencers in the Mobile Payments Market

Google Wallet Today, people instinctively go online to pay bills. Google Wallet’s line of thought

is exactly that. The concept is to let customer’s pay instantly across all Google services, like Chrome Store, Youtube, Playstore and even within Apps.

Since consumers get more frequently frustrated with long checkout processes and even abandon their virtual shopping carts before completing the checkout, Google Wallet will be use its new Instant Buy. Instant Buy enables users to shop in seconds wherever they see the “Pay with Google” icon. Google has partnered with Braintree, Shopify and Freshbooks to help merchants with the migration. Google also synced Google Wallet with Gmail so that users can send money with Gmail. They can click an icon and attach money, similar to attaching a document to an email (Google, n.d.a; Google n.d.b.).

PayPal

EBay’s PayPal understands that security and convenience are the most important concerns in customer’s minds on whether or not to use mobile payments. The company generated $14 billion in mobile transaction volume in 2012, which proved their judgment right. They have an alliance with Jamba Juice, an App that lets customers pay for their goods ahead of time, so that they can pick the goods up at the store without waiting in line.

People can begin shopping in closed stores by using large touchscreens in store windows to select their products, have them delivered by courier and pay with PayPal. The company is incentivizing merchants to trade their old cash register systems and start using “PayPal Here” or a POS partner solution through its “Cash for Registers” program.

Payments gateway Braintree is also worth mentioning, since PayPal acquired it for $800 million in September 2013. Braintree provides online and mobile payment processing for more than 40 million consumers and 1000’s of e-commerce sites and applications. It has reported handling over $10 billion in payments and has expanded to Europe and Australia. The reason for Braintree’s success is that there is a gap between the consumer and the merchant, which Braintree fills in very well (Braintree, 2014; Rao, Perez, Lunden, 2013).

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MCX MCX, Merchant Customer Exchange, is a consortium with over 70 of the largest

retailers in the US, including Walmart, Target, 7-Eleven, and Sears. This consortium developed a merchant-owned mobile payment system called CurrentC. Their goal is to create a mobile wallet by combining payments, loyalty, rewards and promotions that will allow each merchant to control its own data. Third parties will not have access to customer information. The wallet will be cloud-based and instead of partnering with major payment networks, such as MasterCard or Visa, MCX will use direct debit payments. MCX retailers are likely not to support competitors such as Isis, Google, and Apple. To pay through this method, the customer scans the QR code through the CurrentC App, introduces a password, shows the QR code to the cashier, and attends for the transaction to be confirmed.

The merchant’s involved process more than $1 trillion in payments and the App will be available on every smartphone in the US. This will give MCX the unique opportunity to offer a mobile commerce solution (NFC World, 2014; PR Newswire, 2014).

It is important to refer to other important industry leaders besides Google Wallet, PayPay and MCX. For example, Square, created in 2009 is now valued at $3.25 billion. It is a card reader that plugs to the smartphone. Every person, from taxi drivers to garage sales can sign up, download the App and pay a rate of 2.75% per swipe.

Moreover, there is Visa’s digital wallet, called V.me, available since 2012. Visa has already got an advantage; it the physical POS where people use their credit cards. Furthermore, MasterPass, MasterCard’s digital wallet, is another member that participated in this concept. MasterPass permits users to save thier personal information and payment methods in the cloud. It has also formed a relationship with VeriFone, a POS solutions leader. Interestingly, it seems that all these key players are somehow linked to each other, such as Softcard, formerly known as Isis, a joint venture between AT&T Mobility, T-Mobile USA, and Verizon (Kellex, 2012; Mobile Payments Today, n.d.; Richter, 2012).

Section 4: Apple Pay

The implementation of Apple Pay as a new payment method for the retail sector represents a new challenge that brings great opportunities for businesses but incurs drawbacks. Further analysis of Apple Pay in the retail sector will follow.

On October 20, 2014, the mobile payment service, Apple Pay began in the U.S., solely for the iPhone 6 product line. Apple has an international rollout plan for the future. The service allows iPhone users to pay for purchases with a "one-touch" technology using NFC in conjunction with Touch ID and Passbook.

This new payment method is a very profitable source of income for Apple as they charge banks 0.15% of all the transactions (15 cents for every $100 purchase) (FT Reporters, 2014).

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How To Use Apple Pay Apple has created, what the company considers, as an effortless experience for the

user. This payment method displays Apple’s characteristics of simplicity and usability. The process is simple, quick and convenient.

Requirements:

• iPhone 6 or iPhone 6 Plus (Apple Pay in stores and within Apps) • iPad Air 2 or iPad mini 3 (Apple Pay within Apps) • iOS 8.1 or later • Touch ID or passcode on user’s device • iCloud account • Credit or debit card from a participating bank

For Customers

Apple Pay is a preloaded App in all iPhones, to store one’s regular purchases. The customer has to add their cards (credit or debit, etc.) to Passbook, which stores their preferences. They can add cards using the iSight camera or by entering information manually. Ultimately, the bank has to decide whether to approve the use of this card for Apple Pay.

For in-store payments, the customer has to hold their iPhone within an inch of the NFC reader and put their finger on the Touch ID. Automatically, the customer will receive a banner alert confirming the payment. To pay for goods or services within Apps, one must select “Buy with Apple Pay” or “Apple Pay” buttons as a payment method (Apple, 2014a).

For Retail Stores

The usage of Apple Pay in stores becomes complex, as businesses need a compatible hardware and software such as NFC tags and payment processors. These processors constitute the software part of the installation as they decode data from the iPhones and submit it through the processor’s Application Programing Interface (API). Authorized.Net, Chase Paymentech, CyberSource to name a few are the processors supported at the moment (Grubbs, 2014).

Figure 2. Apple diagram for developers

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Privacy and Security The main concern for both the retail sector and customers about payment methods

is security. When a payment is completed through Apple Pay, a unique Device Account Number (DAN) is assigned, encrypted and stored in Secure Element, a specific chip in the iPhone. Any personal card information is neither shared with merchants, stored in Apple servers nor in the cloud. In addition, Passbook solely stores recent purchase information. After 2/3 workdays, this information disappears from the device (Apple, 2014b).

Nevertheless, there are concerns with Apple Pay. Data about the particular goods and services purchased, time, location and value of the purchase item is available to Apple, card providers and merchants. A possible concern is only if this information is bought by data-brokers for data-matching purposes. However, data brokerage is a legal activity and they don’t deal with personal data (Stilgherrian, 2014). A data-broker collects information and sells it to companies that use it for defining marketing strategies based on consumer behaviour (Sirota, D., 2014).

What is certain, for now, is that most sensitive information, such as financial data (credit or debit card information) and personal data are hard to steal or hack, since it is only stored in the device after being encrypted.

In case the Apple device is lost or stolen, a convenient method is applicable where users can remotely block Apple Pay through the App “Find My iPhone”, clicking the Lost Mode. Alternatively, a user can also call the bank to suspend or remove cards from Apple Pay. Furthermore, every transaction requires users’ fingerprint (Touch ID), impossible to replicate if the device is stolen (Apple, 2014b).

Advantages And Disadvantages For Customers

One of the principal advantages for customers is the usability. Apple Pay is easy and quick to adopt since it does not require any special account to preload money, scan a code or open an App. The customer needs to hold their phone near the NFC reader. In addition, the security aspect for customer’s financial and personal data is not shared with stores, since this data is hidden and encrypted. Consumers can likewise block or suspend the service easily in case of loss or theft.

One of the main disadvantages of Apple Pay for customers is that customers need to acquire the latest iPhone version, potentially complemented with iWatch in order to use the service. Another inconvenience is that it is only available in the US for now and it cannot be used at any MCX retailers (Gap, Wal-Mart, 7 eleven). Last, loyalty and gift cards are not included within the payment methods and Passbook does not include a map, at this time, displaying stores accepting Apple Pay.

The Retail Sector Perspective

Opportunities Passbook is used to digitally store boarding passes, movie tickets, coupons, and

similar paper items, therefore, an opportunity arises for the retail sector to include an “add to Passbook” option on retailer’s Apps. With this feature, merchants can send coupons and promotional offers to their customers and even a business can track the

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customer through the App and send special offers, if an iPhone owner has the location option active and they are in the nearby surroundings (Heitzman, 2014).

The window of opportunity also lies on improving the payment method through security enhancement and ease of use, which ultimately can drive consumers to adopt this innovative technology. A customer may be more willing to pay in an App if the only requirement is to click on the “buy with Apple Pay” button and press the touch ID, rather than having to insert their credit card and punch-in their security code. This would reduce lines in stores, save time for customers and encourage them to buy more. In addition, offering several payment methods always increases customers’ convenience (Gravity Payments, 2014).

One of the factors for customers for choosing a certain store could be whether if they accept Apple Pay. The necessary technology is now ready, affordable and easy to use, and customers appear to be willing to use it. If mobile payments go viral, accepting payments through Apple Pay, Apple can provide businesses with a competitive advantage (Nuckles, 2014).

For businesses, it is more convenient and less expensive to accept NFC technology rather than other types of mobile payments. In fact, many businesses have a POS terminal equipped with NFC readers; hence merchants are not inclined to inject additional investment to support Apple Pay. Other types of mobile payments, such as the QR codes, require a specific technology (QR scanners) to implement this payment method (Bertke, 2014).

Weaknesses

To implement NFC readers may have a high initial cost, specifically for small and medium-sized businesses. The adapted POS terminals can cost between $300 and $500 each and as the vast majority of smartphone users are not iPhone 6 users, retailers question the immediate need.

Employees need to be trained extensively to feel comfortable with the technology. In addition, from a customer viewpoint, scepticism to purchase through mobile payments may evolve if the merchant is struggling. For small businesses, additional effort is needed to create awareness. For example, a customer may believe it is possible to pay through Apple Pay in a franchise but not in independent stores.

The increase in the number of different methods adds complexity in business payment management, which requires an extra investment in the administrative and accounting side of the business as a retailer will have to continue supporting traditional payment methods too (Nuckles, 2014).

Apple Pay v. CurrentC

MCX’s retailers disconnected their NFC readers in order to block Apple Pay payments in their stores to protect their investment just after three days from its launch into the market. For MCX, CurrentC is a key tool that allows retailers to save a large amount of money in credit card fees and more importantly, collect customer data in order to create patterns of customers’ behaviour.

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In terms of user experience, according to surveys conducted by the Business Insider, Apple Pay wins in usability. The payment process is quicker and easier while CurrentC is aimed at helping retailers to save cards fees and collect data.

Apple Pay is focused on improving customer payment experience. Numerous devices however, support CurrentC, since a customer can use this payment method with any smartphone, Android or iOS (Constine, 2014). In addition, through CurrentC, customers can add retailer loyalty cards or gift promotions as payment methods, an option unavailable with Apple Pay (Patrizio, 2014). Regarding security and privacy, although both CurrentC and Apple (iCloud) having faced potential hacking attacks, Apple Pay is considered to be more secure because of the key security features implemented (Perez, 2014).

Apple Pay has a wide presence in the U.S. with over 200’000 locations, while CurrentC, limited to MCX retailers, has 110,000 locations. It is predicted that Apple Pay will have a global presence in a near future, while CurrentC will be limited within the U.S. For these reasons, Apple Pay wins in merchant infrastructure (Heggestuen, 2014a).

Figure 3. How Apple Pay stacks up to the merchant customer exchange (MCX)

In the following years, it is predicted that mobile payments will be the main form of payment, enhancing its market penetration. However, current and future predictions point towards Apple as the leader in mobile payments (Clark, 2014).

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Analysis of Apple Pay Table 1. SWOT

Strengths Weaknesses ü Brand equity ü Usability & convenience ü Loyal user ü Security ü NFC Technology ü No additional fees ü Merchant Infrastructure

× Only for iPhone 6 line × Expensive for small businesses × No gift & loyalty rewards × Training costs for businesses × Complexity for management

Opportunities Threats International Expansion New source of income for Apple Ability to change customer

behavior Time-saving for customers &

retailers

! CurrentC ! Google Wallet ! Hackers

BCG Matrix

The industry growth rate for mobile payments is forecasted to be high. At this moment, the market share for Apple Pay is low as it was launched in October and solely in the U.S. Hence, one can categorise Apple Pay as a “Question Mark” product. The goal for Apple is to turn Apple Pay into a “Star”.

Figure 4. BCG matrix

               

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Ansoff Matrix The mobile payment market is a present market and Apple Pay is a new Apple

product. Hence, from Apple’s perspective, it is considered to be a product development. Figure 5. Ansoff matrix

 

 

 

 

 

 

Section 5: Conclusion

In recent news, there have been interesting speculations news regarding important developments within the mobile payment industry and how it will reshape the entire purchase process. The main question that remains is whether these developments are the catalyst that will drive people to go mobile.

Apple Pay has generated a lot of interest. The NFC-compatible system allows iPhone 6 line users to make payments at more than 200,000 retail locations in the US. However, CurrentC, MCX’s mobile wallet, control one in five retail dollars spent in U.S. stores and will continue to refrain from adopting Apple Pay . Hence, it is forecasted that a legal or competitive battle occur.

Looking Forward

The boom in mobile payments is at the introductory phase. In-store payments are projected to grow at a five-year annual growth rate of 154%, which translates into $1.8 billion in 2013 to $189 billion in 2018 according to Business Insider.

It is projected that Apple Pay will succeed to bring mobile in-store payments to the mainstream market with Apple’s adoption of an NFC-based system for the iPhone 6 lines. Although, they are uncontrollable variables that may influence these figures, Apple’s unique loyal customer base fan will introduce further mobile payments into a large scale.

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Figure 6. Forecast: U.S. mobile in-store payment volume (Heggestuen, 2014b).                                

Merchants and customers are becoming familiar with mobile payment technology, begin to consider it trustworthy and see its potential. It is still at the initial phase, but a snowball effect is expected. Similar to credit cards when it was first introduced, it had a small target base and has become the main for of payment. To summarize, mobile payments will be the future of payments (Woolsey & Gerson, 2014).

Figure 7. Population willing to use Apple Pay

 

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Apple. (2014b). Apple pay security and privacy overview. Apple Pay. Retrieved from http://support.apple.com/en-us/HT203027

Bertke, R. (2014). 4 ways adopting Apple pay can benefit small business. Entrepreneur. Retrieved from http://www.entrepreneur.com/article/237719

Braintree. (2014). A paypal company. Instant Sign-Up. Retrieved from https://www.braintreepayments.com

Clark, S. (2014). MCX prepares to open its wallet to NFC and bank cards. NFC World. Retrieved from http://www.nfcworld.com/2014/10/31/332370/mcx-prepares-open-wallet-nfc-bank-cards/

Constine, J. (2014). CurrentC is the big retailers’ clunky attempt to kill Apple pay and credit card fees. Tech Crunch. Retrieved from http://techcrunch.com/2014/10/25/currentc/

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Rao, L., Perez, S., & Lunden, I. (2013). Ebay’s paypal acquires payments gateway braintree for $800m in cash. Tech Crunch. Retrieved from http://techcrunch.com/2013/09/26/paypal-acquires-payments-gateway-braintree-for-800m-in-cash/

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van Klaarbergen, S. (n.d.). Mobile payment transactions: BLE and/or NFC? UL. Retrieved from http://newscience.ul.com/wp-content/uploads/sites/30/2014/04/mobile_payment_transactions_ble_and_or_nfc.pdf

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