Case Study 9-1

Mobile Payment Challenges

nts using their mobile phones.

es have struggled to get consumers to make merchant payme

lleriges
attempts in the United States to achieve this goal provides insights into the many
cha
. must be overcome. Most large mobile payment initiatives have focused on using
mobile phones as
that . . ‘
e wallets that store CFEdlt- and debit-card information and having them communicate
directly wrth
rminals. Many of these implementations use tokenization technology so that the
wallet
nt identifier. rather than the account number itself.
Softcard. which was originally called lSlS, was of the first major initiatives and
was dnven by a pint
pg of three large telecommunication network operators. It was designed for NFC—
enabled smartphones
g system and was offered to the general public starting in 20l 3. and then
uding a relatively small number of NFC-enabled
NFC-enabled POS terminals at merchants and
e to complete transactions. Softcard had limited
uired a special SIM card to be used in the phone, making setup relatively
Mam count”
Ramlning vanous
“,‘llel
Mel-chants POS te
transmits a pioxy accou
'i’eflt'ul
running the Android. operatin
discontinued in 20 | 5. It encountered several challenges, incl
phones being available and purchased by consumers, lack of
r approach to Softcard. supporung
ing system. its success was limited
it competed with Softcard
complicated.

Google Wallet was launche

card transactions using NFC-ena
by some of the same factors as for Softca
d around the same time and used a simila
bled phones running the Android operat
rd, plus it was hampered by the fact that
' were unwilling to sell phones with Google Wallet installed
, Google bought some of Smartcard's technology and the
plications onto Android smartphones new»
ts into another semce
9" them. Ultimately, when Softcard closed down
carriers behind Smartcard agreed to preload Google’s wallet ap
Purchased by customers. Subsequently, Google shifted NFC—based mobile paymen
caller: Android Pay and reserved the use of Google Wallet for peer-to-peer
payments.
Apple Pay was launched in 2014 she ‘d Pay. and addressed some of the usabilzty.

rtly before AndrOi

:i'all‘erlgeg that its predecessor had encountered. One big difference with Apple
Pay was that poor to
., l“: launch, Apple had enlisted hundreds of
banks, including some of the largest, to support and promote
lified the card enrollment process for users It
came transactions at P057
1
_ d with having to type a PlN on the prior»: t.
:gléhOlrflze transactions. Unlike the Android NFC implementation that pnovrded
applications men ‘ififfis‘ {e
to Oillvones secure element and NFC capability, . .. ted access to these
con'ipwients on its phones
able by the Apple wallet and Apple-owned applications. lhat is to say. no
thiittparty mobile “gag, new
use the phones' NFC capabilities. Banks whose cards were enrolled into Apple. Pa)
ates-o he; to gas
i”‘EEr . .
Change 1’(565. which were assessed on each card transaction. l0 Apple. ‘ ,
which used Magnetic Secure transmission mill} techimkagy
ed in its newer model phones. MST allowed the phone to be placed near the POS
tenwui and
' ' ‘ ”dear, Thus. it could won: With the vast mason“
{Cavitirwexfl(Continued?

of exrsting merchant POS terminals. and did not I‘EQUWE them to be NFC enabled, l—
lowgvef, Sari . "
only was supported by a subset of Samsung's smartphones. P” '5‘
Separately a conso'tium of maior US-based merchants pulled together to create its
Own "WE
payment service called Cun‘entC that would link to customers bank accounts. rather
than card km.
This approach w0uld enable the merchants to avord havmg to pay interchange fees to
credit and debit WU}
issuers on CurrentC transactions. Two years after its launch and followmg a beta
test the Currentc m
was discontinued Prior to CurrentC's demise, one of its maior retail backers.
Walmart. launched its m .
mobile payment application called Walmart Pay. Walmart Pay used the mobile phones'
camera We
capture a picture of the QR code displayed on the POS register display. making it
compatible with bow, 05- _
and Android devrces and eliminated the need for those deVices to be NFC enabled.
Also. it could be M
to muttiple payment methods such as credit debit. prepaid. and gift cards. .
More recently banks have also moved into the mobile wallet space. with Wells Fargo
launching its own
Andmod-based mobile wallet solution that uses NFC technology. JPMorgan Chase also
launched its own Chase
F‘ay mobile payment application that uses QR codes and could be used at a number of
large US median;
Ciearty. there has been a lack of cooperation between the major market
participants. whidw has led“,
fragmentation of the mobile payments market in the United States. The complexity
and differing objm '
o.‘ the participants in the mobile payments ecosystem make it difficult for any one
solution to gain mm
cntical mass to provide ongoing growth Key areas of conflict between participants
include how revenue ‘
for "10%)“? payments will be divided and who controls the relationship with
consumers. tt has yetto be _
seen whether. at least in the near term. mobile payments in the United States will
gain sufi‘icient traction
or v.19". fizzle out Banks and other institutions investment in mobile payments may
end up being a wayto
defend against other competing initiatives, rather than having a chance to become
successful in flieirm
right
THE lack of clear direction in the market has not in any way helped mobile payments
mbve tmd
urge—scale adoption. A 20 l 5 survey of North American consumers found that only |
8% of consumers m
a mobile pAyment on a weekly basis and that usage had declined from the previous
year at large retain
grocery stoma, restaurams. and convenience stores. Furthermore. mobile payment
services such as Apple 9‘)“ “
which were. initially launched in the United States. have also faced challenges
expanding into other (outfits '
it is uncertain where mobile payments are headed but lack of a dominant solution.
an uncertain business C359-
and a lack of compelling reasons to use them. are ongoing problems that have yet to
be overcome
Scorch-s: Mail. Cede “Wt, Android Pay ‘iNili Succeed Wl'iere Google Wallet Failed."
Wired. lune 2, 20 l 5. httsz/Vii'ww.wiedcafll’ml5“e ' *
ifflfflld-{Jéxy~fllil> sucteed—godgiewallaviailedl. Fugue. Davxd, "Haw Mobile Payments
Are Failing—and Credit Cards Ne WW ‘ ’
Soariui'ir, Amen/.02. i'euuary l 20l S. husziwwwscientificamencari.com/anicle/pogue
—how-mobile-paymemsamvw
dea:egemrig-iietieriucbk i3. Hem, David, "Some Bankers See Apple Pay As a
Threat”Ai1iencari Banker. October 21 20H?“
Usees/red/iicseaiddMashhfxrapbool/oaza/Uji 603 l 9 l 35527Iindex ritml, "Mobile
Payment App Backed by Target and WW” I g
93”” H {WWW WW E 1991? hm”“Wufit.tQflt/20 l UWOE/wgefl<walnian4nobile-Pa‘irrrientsl;
Tabtxhi. Himko. 'WW W“
timer Meme Paying-iii: Buit'm'a' New iuri Times. December It). ZOiS
imin’wwwnyumescmVZ’OlSillllmnesswmy
1C1“€Tiw""?UDJI€'pc/Ihtliii {luflfleiflHU'I)i/pqnne1";r;;8¢ernczrt35: sway walnwttmn;
Siegel. Matt. WY “rm and 5“ w ‘
”£4”! Dal/3: Ml flash by Struggle Outside UL- heuteisi june 21. 20 l 6.
htth/wwwreuters.c0ii\ianidejus~we~l13 7‘
vuww,weélistargz,_coi'r; «was .9 ibixfz'f. pin

Questions
' (5'30“; could dim? consumers to increase their use of mobile payments! i
' { WOU‘d 1*” '6 WWW-i 081%: be for small~ and i‘i'iid~sized iinanual institutions
to an”? m "‘9”? i
zl'itS iriai’lret? What approach-:5 might they use? _ . i
. rev-United States, how might goiiernments intervene to hetp i'nobile W "M!“ W
"' ' “ ” " ' *“ ‘ti,’ adoption problems? ,
' ‘ doption of i'i‘iobile payn'ients?