Should mobile payments be handled in-app, or by the bank?

For the past five years, mobile payments have been trumpeted as ‘this year’s big thing’ – but finally, this year, the claim is being substantiated. For me 2014 marked a watershed, when the idea of using a mobile phone to pay for actual goods in a shop became truly mainstream.

But why is now the time for mobile payments? I’d argue that the sudden mass progression

Should mobile payments be handled in-app, or by the bank?

in the mobile payments sphere last year was driven by the clever ways mobile apps have built payments into their user experience – so people can pay for everyday things such as taxis, parking and coffee, with total security – without having to think about it – writes Dan Salmons, Managing Director, PayPoint Mobile and Online.

Starbucks is now using mobile payments in its retail coffee shops, while other ‘every day’ transactional applications such as Uber and Hailo have reached critical mass.  Our own parking platform PayByPhone is another example where customers can pay for parking on their mobile without having the stress of worrying about whether they have change or if they’ve put enough in the meter.

And the reason for their successes? They use the mobile device to bring demonstrable, functional value to consumers with a seamless payment experience. In all these cases, organisations have set up the purchasing process to enable people to conveniently pay, with total security, in just one or two steps. All of a sudden, it made the daily things we do very simple and much more convenient.

This approach sits in stark contrast to the first iterations of mobile payments – where the payment process was mainly governed by, and tightly integrated with, the banks.  Strategists and developers working on new mobile commerce models therefore face a choice – do they gear their payments process to fit in with banks’ systems, or do they follow a more ‘app-centric’ approach?

The “bank-centric” view

The bank-centric view is broadly analogous to the way we pay today – your money lives in a bank, and banks issue (and indeed own) your payment cards.  Banks’ security and data protection are extremely tight.  This sense of security will appeal to many customers, building up their sense of trust and loyalty.  Research keeps telling us that for many people, security trumps convenience when it comes to money matters.

The corollary of this view is that the payments piece is likely to be a bolt-on to the end of the experience, rather than an integral part of it.  Why?  Because bank-centric payments are far harder to engineer into the code base of an app: just look at the unbranded 3D secure payment screens you often see in the payments process for many websites. These extra steps inconvenience consumers and increase the likelihood that they do not convert.  While the banks are undoubtedly investing heavily in a more joined-up experience for customers, they have some way to go before they can deliver the sheer flexibility and convenience which many apps demand.

The “app-centric” view

This view holds that the user experience is paramount, so nothing must get in its way.  Apps designed this way put the consumer experience first – and the payments process sits inside it: the payments piece is engineered into the app.  Though this approach requires careful business planning (and technical engineering) it should lead to higher conversion rates.

The obvious headache here is data security.  With fraud losses on UK cards having jumped 15 percent year-on-year between 2013 and 2014, pressure on organisations to keep customer card data safe will remain intense.  For app owners, this means making absolutely sure that no sensitive payment data at all is stored anywhere which isn’t governed by PCI DSS protocols – and certainly not on the mobile device itself.  So achieving this level of app-centricity in payments, in a secure way, requires a very considered approach to the interaction between mobile apps, the server-side applications that support them, and the payment platform itself.

We’re seeing some real innovations here.  One approach uses a PCI-compliant card ‘locker’ that stores card details separately to the app, but allows it to call them up on demand, so apps effectively ‘remember’ card details.  Another area we at PayPoint are very interested in is on the integration of cash payments and mobile apps.  Many people are still far happier paying in cash than using cards, and with a network of 27,200 payment terminals across the UK we are doing a lot of work to help brands offer the full range of payment possibilities.  I can’t imagine any acquiring bank opening its doors any time soon for consumers to make cash payments to its merchant account holders.

The app-centric approach focuses the mind on other areas too.  Routing payments intelligently to maximise acceptance rates and reduce interchange charges is vital for any app with an international user base.  Unlocking some of the deeper capabilities of mobile devices, from the NFC chips most now contain, to combining social networking and mobile commerce, also requires a level of integration between payments and apps that banks alone would never be able to achieve.  Yet businesses serious about leveraging the possibilities of mobile commerce will need these sorts of capabilities to make money.

Mobile commerce has developed considerably over the past 12 months, but we are still only scraping the surface of the huge possibilities on offer. The companies that are going to be the most successful will be those that can offer the consumer an end to end seamless payment experience – handled in the most secure fashion possible. The winners in mobile commerce will ultimately be the ones who give their customers an ‘all in one’, safe but customised experience, which m-commerce providers are in the unique position to provide today.

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