Lack of Standards, Security Biggest Barriers to Mobile Payments

What has prevented mobile payments from replacing cash and cards as the primary way consumers pay for goods on the go? One key hurdle has been the lack of standards around near-field communication (NFC), the technology most likely to be used to transmit payment information from mobile devices to merchant terminals.

There are many flavors of NFC. MasterCard (Purchase, N.Y.), Visa (San Francisco) and a number of top banks (including Bank of America, Chase, U.S. Bank and Wells Fargo) have been testing mobile payments using DeviceFidelity's (Richardson, Texas) In2Pay microSD chip, a memory card containing NFC technology that works with BlackBerry, Android and iPhone devices. In this mobile payments model, banks distribute to customers the memory chips containing their account holder data in the same way banks send out debit and credit cards. The scheme preserves the current roles of banks and card networks in payments.

The Mobile Carrier Threat

Meanwhile, mobile carriers want to control near-field communication and mobile payment fees by maintaining control over the memory card, or Subscriber Identity Module (SIM), containing users' credentials, according to Nick Holland, senior analyst at Boston-based Yankee Group. "There was an assumption made -- wrongly -- that mobile operators would control the SIM card and therefore NFC," he says.

Then there's an open standard, OpenNFC, that could allow third parties to access NFC capabilities on phones, effectively bypassing mobile-operator-led initiatives such as Isis, a joint mobile payments network formed in 2010 by carriers AT&T Mobility (Atlanta), Verizon Wireless (Basking Ridge, N.J.) and T-Mobile (Bellevue, Wash.). OpenNFC also does not require the NFC technology to be embedded in a chip, so card issuers and networks could send out virtual cards wirelessly to consumers' phones without having to mail out specialized chips.

"It's potentially a big fight," Holland says of the fray to control mobile payments. "The operators are running scared. This is a monopoly they thought they had -- the connection between the NFC and the SIM card."

Security Remains Consumers' No. 1 Concern

Once the NFC technology decisions are sorted out, the next obstacle providers will have to work through is consumers' concerns about security. According to a recent survey by Vancouver-based mobile solutions provider Mobio, consumers are intensely interested in making mobile payments.

Overall, 77 percent of the 1,085 respondents in North America said they would be interested in using their mobile phones to make a payment or purchase. The response was higher -- 84 percent -- in the 35- to 44-year-old age group and among Canadians (86 percent versus 72 percent of U.S. respondents).

Yet security concerns are top of mind for consumers. Asked, "Would you make a mobile payment if you knew it was secure?" 94 percent of survey participants said yes. Asked to identify the most important factor when making mobile payments, 73 percent cited security while only 8.5 percent said speed, 12.4 percent said simplicity and 3.3 percent said choice of payment type.

Nonetheless, the survey found a surprisingly high level of mobile payment activity in the U.S., given that mobile payments are not widely available in the United States -- 49 percent of Americans said they've used their mobile phones to make a payment or purchase in the past three months.