Mobile Payments: What’s Here and What’s to Come?

March 10, 2015

This past week, the mobile payments space got a lot more interesting and a lot more crowded. Mobile payment technology generally works via either NFC (Near Field Communication) or MST (Magnetic Secure Transmission) technology within your phones — and upcoming smart watches — to allow you to quickly make payments in stores and with online retailers without having to reach for your physical wallet. You can store any number of debit, credit, and loyalty cards on your phone for use while making mobile payments, although there are now a number of different implementations of this technology.

Consumer choice is a wonderful thing, but it can also be a headache for anyone trying to make heads or tails of all the differences between the rival services. Which one may be the easiest to use? What security considerations are there? Is your personal financial information potentially safer with one company and implementation over another?

We’re going to take the time below to run through the top mobile payment services currently in existence, and also those just announced at the past week’s Mobile World Congress. Let’s try to make some sense of all this, shall we?

Apple Pay

Upon its debut this past September, Apple Pay was only supported by six card-issuing banks. As of today, there are now 2,500 banks that support the service and over 700,000 locations you can use the payment service at, whether we’re talking brick-and-mortar retailers or Coca-Coca vending machines.

Apple Pay utilizes now familiar NFC (Near Field Communication) technology to communicate with payment terminals. You pull out your iPhone (or in April, your Apple Watch) and flash it in front of a supported payment terminal with your finger on the iPhone’s Touch ID button. The phone scans your fingerprint to ensure it’s you actually using the phone, and the payment is authenticated. That simple.

In the case of the Apple Watch, the process is slightly different. If the watch is already on your wrist, that means you’ve already authenticated the device by putting it on and entering your passcode when prompted. Whenever you remove the watch from your wrist, the watch is aware via the sensors on its back and requires the passcode to be reentered once it is strapped back on. In short, there’s no need for Touch ID when using the watch to make a payment: if it’s on your wrist, it’s already good to go. Just place the watch in front of the terminal, and voila! You’re in business.

Aside from the biometric security offered by Touch ID, Apple Pay’s system is a departure from systems like Google Wallet in that it offers tokenization.

Tokenization

Tokenization ensures your credit card number isn’t shared all willy-nilly all over the place. Instead, it is replaced with a randomly generated number during the payment process. This token is only used for one transaction before it is discarded. This infuriates hackers and ensures merchants and Apple never see your credit card number.

Tokenization is an actual security improvement on current card-based payments, and has in part been instrumental in Apple Pay’s early success. With this in mind, are other mobile payment services now using or planning on using tokenization?

Google Wallet/Android Pay

The answer to the above question is, “Indeed!” Google Wallet is a mobile payment service for Android phones that has existed since 2011, but it lacked the security features of Apple Pay and subsequently failed to take off. Now, Google announced at last week’s Mobile World Congress that Android Pay is a new open-source platform for mobile payments that anyone can build upon.

What does the impending arrival of Android Pay mean? Android Pay will make use of tokenization just as Apple Pay does, and in the future will also support biometric scanners a la Apple’s Touch ID. This should serve to alleviate many of the security issues that plague Google Wallet. However, we won’t have specifics on the system, including its availability, until Google I/O in May, and it’s still a little unclear why Google is having Google Wallet stick around and how it will complement Android Pay in the future.

Samsung Pay

Samsung announced its intentions to enter the mobile payments space at Mobile World Congress recently, as well, but they’re developing an entirely separate solution from Android Pay that uses a different payment system than either it or Apple Pay. So, how does it work?

Samsung Pay for the Samsung Galaxy S6 and S6 Edge utilizes both NFC technology and MST (Magnetic Secure Transmission). This means the payment system can make use of existing magnetic stripe readers when a NFC-enabled terminal is not present. Specifically, Samsung is using acquired technology from LoopPay that replicates the magnetic stripe signals found on your physical debit and credit cards. This means it can theoretically be used at as many as 90% of American retailers that currently make use of magnetic stripe technology, which makes it far more compatible with existing payment terminals than Apple Pay and Android Pay.

So, what’s the downside? While Samsung’s system supports both the Galaxy’s fingerprint reader and tokenization technology, their decision to reimagine and tweak “legacy technology” in MST may turn some off from using the service. Despite the claimed implementation of tokenization, it raises flags regarding security until we learn more about Samsung’s methods. Also, it’s currently unclear whether the Samsung Pay-enabled smartphones will require a keyfob, special case, or other hardware accessory in order to properly interact with mag stripe terminals, as was necessary with the LoopPay technology prior to Samsung’s purchase.

This is Great, But What About Accepting Payments?

Apple Pay, Google Wallet/Android Pay, and Samsung Pay are a look into the future of making mobile payments, but what about the “now” of ACCEPTING credit and debit card payments via your mobile device? PayPal and Square, among others, offer compelling solutions, and we’ll cover those next week here on #TechTuesdays.

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