Mobile Credit Card payments – there’s an App for that…

There’s a great deal of debate in the Financial Services community at the moment about the potential impact of NFC or Near-Field Communication technology within mobile phones and how it will effect the payments landscape. The financial services players are generally scratching their heads and although they admit that NFC phones like the iPhone 5, the Nexus S and others are interesting – they don’t see the need for rapid response. After all, the lack of POS (point-of-sale) infrastructure that supports NFC is in itself a reason why a sense of urgency is not necessary. There’s plenty of time to worry about that later. Right?


There’s an App for that…

In July of 2007 Apple launched the iPhone (what we call the iPhone 2G generally today). Since that time I’ve owned each successive generation of iPhone and I now also have an iPad. So what’s the big deal?

The most impressive thing about the iPhone is not necessarily multi-touch, retina display, ease of use, or core functionality, but is unquestionably the iTunes platform that brought us “Apps”. Prior to the launch of the iPhone, we’d never even heard of Apps, and yet today, just 4 years later, here are the stats on Apps:

  • 350,000 Apps for Apple and close to 200,000 for Android
  • 10Billion downloads for Apple, 2.5Billion for Android Marketplace
  • 15.1Bn in Apps Revenue expected for 2011
  • Daily downloads 22million per day – Apple
  • New app submissions/day – 587 (100 games/488 non-games)
  • No of Active publishers/developers – 72,000 on the US store
  • 160m iTunes account holders (that’s 160m credit cards on file)

So from it’s humble start iTunes was always more than just a place to come and download music or TV episodes, it became the core delivery platform for a whole new category of software and user experiences. At 10:26 AM GMT on Saturday, January 22, 2011, the 10 billionth app was downloaded from Apple App Store.

10 Billion Apps in 5 years is pretty impressive

Now, before iTunes, the iPhone and “Apps” there had still been software – both for PC screens and for phones. Prior to the so-called ‘JesusPhone’, there were Java “Apps”, games and so-forth you could buy and download for your phone, but these certainly didn’t become ubiquitous, primarily because the usability wasn’t good enough and there wasn’t a marketplace that distributed these Apps.

So here we are, just a few years later and there’s probably not a single person in the US, UK, Australia, Germany or France who doesn’t know what an “App” is. Worldwide mobile application store revenue is projected to triple to more than $15.1 billion this year and reach $58 billion in three years, according to Gartner Inc. That revenue was $0 in 2007.

And yet, there are bankers out there that still persist in the belief that mobile payments via your iPhone will take years to ‘take off’. In a debate on this via Twitter over the weekend one of the typical quotes was “I can see it, just not for some time…”

Why the App is a great paradigm for NFC

The dominant position from the card issuers and traditional too-big-to-fail banks is that there is already an existing point-of-sale infrastructure in place in the USA, for example, that will take years to replace with NFC or contactless capable terminals. This naturally limits the adoption of contactless payments technology because even though someone has a contactless credit card or a phone enabled with contactless technology, it still doesn’t mean that they can pay – if a merchant can’t accept their payment then it is essentially dead before it starts.

In our Twitter debate over the weekend Rich Clow (@richclow) from Citi came up with a strong analogy likening the existing POS infrastructure to the ‘rail network’ that opened up the frontier of the US in the 1800’s. Without the ‘rails’, without contactless point-of-sale terminals, how exactly will customers make payments using their NFC phones? What’s the good of having a locomotive unless you have rails you can put it on? It’s an excellent point.

Is the lack of 'rails'/POS infrastructure going to limit NFC payments adoption?

Except … prior to 2007 there were no rails for Apps. The App didn’t effectively exist, but that didn’t stop Apple from creating the rails and the locomotive as part of the iPhone ecosystem at the time of their launch. Right now today Apple and Google are working on alternative payment schemes that will circumvent the traditional visa/mastercard POS systems and networks to enable both P2P payments and commercial transactions with merchants and retailers via phones. There may be some hook into the traditional payment networks behind the scenes, but all you’ll need to pay is an NFC phone and wireless network access.

How quickly will payments from one phone to another become ubiquitous? Answer: How long did it take Apps to become ubiquitous?

Put it this way – those out there that think this will take another 3 to 5 years to honestly compete with plastic mag stripe or chip and pin POS terminals, need to change their terms of reference. Apple and Google won’t wait for the rails. They’re going to jump straight to supersonic transport and the banks will still be waiting around for the train to stop at their station. Meanwhile, we’ll be choosing new payment networks as the paradigm for the next generation of commerce interactions.

Goodbye checks, goodbye plastic! If you’re a banker or card issuer, the sonic boom is coming your way…


  1. Rich Clow says:

    Brett– really good post- thanks.

    Here are a few more points for consideration:
    1) The payment rails analogy will still play out based upon the various tolls/timing/stops (hops) to fulfill. Credit card, debit card, chip/pin will continue to stay on “traditional”, while new P2P and closed-loop networks emerge

    2) The emphasis will be on stored value, not “card” transactions. This is what makes Mpesa universally acceptable– easy and relatively low cost to bring cash in/out of the network, and very “cheap and cheerful” to move within the network (p2p or purchases/bills).

    3) While NFC and “bump” types of money movement between 2 mobile devices is going to continue to lower the hurdles for merchants, there are still significant identity, security and fraud concerns. There needs to be some “killer apps” for identity management– both for device & users.

    So here’s the continuation of the metaphor. I commute to New York City often via train. I take NJ Transit to Penn Station. The same rails in Penn Station also serve Long Island Railroad & Amtrak. Transferring and changing destinations within NJ Transit for a different point of departure/arrival is easy and low cost. But if I want to ride from NJ to Garden City Long Island via LIRR, or NJ to Boston via Amtrak— there’s a totally different purchase process, fee and transfer. We need new, “light” rails for smaller transactions at high velocity with the same reliability. This will take some time to build and change behavior and there must be clear incentives.

    Merchants stand the most to gain, but have the hardest time navigating all the various POS and Payment network jargon. Don’t be surprised if we aren’t all harkening back to the 80′s early cable adopters being told to proclaim “I want my MTV”. The new cry for customers could be “I want my P2P”.


  2. Very interesting post Brett. I am not sure where to start.

    First of all, I should mention I was a part of the Twitter discussion you referred too ( ).

    Second of all I remember the “rail” comment from @rclow.

    Thirdly, I took his comment totally different then you did. What he said was the following:

    “the transformation is that device won’t dictate acceptance rails– more flexible payment networks will emerge @brettking @jjegher 2:11 PM Feb 26th via Echofon in reply to brettking” —

    I took that to mean acceptance will come with a more flexible payment network. In other words, what you said.

    In another part of our impromptu Twiter chat this past weekend regarding payments @rclow said the following:

    “agree- the key is making things simple for merchants- “so what” for them isn’t clear & there r 2 many options @dmgerbino @jjegher @brettking 3:33 PM Feb 26th via Echofon in reply to dmgerbino” —

    What was he agreeing to? My comment:

    “@brettking @jjegher @rclow Small Business needs to be convinced of the payments revolution. Some get it & use @venmo @paypal @blingnation 3:30 PM Feb 26th via Gwibber for Linux” —

    The US has millions and millions of smartphone users today. Basically none have a NFC chip. This year that changes. That is great. I love my EZPass. I can go through a toll with out stopping (why not at full speed, well that is another story). I used to love my Mobile (gasoline) SpeedPass when getting gas. The electroninc way of paying is convenient. Will all these users getting NFC phones we will be able to pay each other money just like people to today with @Venmo vis SMS or e-mail like OboPay or all the other Person-2-Person payment technologies out there.

    I came away from our tweetfest with the following open ended thought. What about the small business merchant’s? They already have POS equipment. What is going to get them to invest in new equipment? In this case, a new NFC enabled smartphone with an application that accepts payments.

    My take away was I agreed with Rich Clow and his comment above, repeated here:

    “agree- the key is making things simple for merchants- “so what” for them isn’t clear & there r 2 many options @dmgerbino @jjegher @brettking 3:33 PM Feb 26th via Echofon in reply to dmgerbino” —

    Can Apple do this with their iTunes infrastructure? Maybe.

    Can Google? Maybe.

    Can Isis? Maybe.

    What about the 100′s of firms who can also do this? Maybe.

    The thing is, the advent of the NFC enabled smartphones (dumb cell phones too>) will bring change. The payment system will no longer be ubiquitous. Now we have mag stripe cards of MasterCard/Visa/AmericanExpress/Discover over what the consumers and businesses basically see as one network.

    Simple is gone. We will now have a multitude of payment networks, RAILS, that both consumers and businesses will have to choose from. The small business will no longer be able to rely on cash, checks (if they still take them) or a credit/debit card POS terminals. They will now have to add other devices to supplement them in order to have a convenient means to accept payments from their customers. Crazy and exciting days are ahead.


  3. Jacob Jegher says:

    Great comments by all. Rich, I think your explanation describes it best. Brett, your thoughts and logic are interesting, however I think you are making some massive assumptions.

    I take partial responsibility for instigating this healthy and spirited Twitter debate. There are a bunch of different issues being confounded here. P2P payments and transactions at a merchant POS are two very different things. As an analyst, whenever I look at an issue I always peel back the onion in order to figure out what problem is trying to be solved. Merchants don’t have a problem receiving payments and consumers don’t have problems making them. Fancy technology is awesome, but that doesn’t mean it is going to change consumer and/or merchant behavior. Just because consumer smartphones will be equipped with NFC does not mean that merchants will be waiting in line to change their equipment.

    Here is a snippet of the Twitter debate:

    Jacob Jegher
    @brettking You are assuming merch will use phone in place of tradtnl POS. Not an easy sell and if it happens mass adoption will take time

    Brett King
    @jjegher No – what I’m saying is NFC P2P with phone will change behavior, forcing rapid POS infrastructure change
    25 Feb

    jjegher Jacob Jegher
    @brettking Not convinced, that’s still a far leap even for P2P. I can see it, just not for some time.

  4. In related news, on Monday, February 28, VeriFone Systems CEO, Douglas G. Bergeron, indicated that Merchant Buy-In Key to Success of Mobile Commerce.

    Bergeron outlined six key “rules” that industry participants need to adhere to in order to ensure success of mobile commerce:

    Rule #1: “Deployment and management of complex NFC technologies will require significant ongoing services from the retailer’s payment systems provider. Until retailers are assured of receiving real value from mobile commerce, service providers who stand to gain from either carrier fees, advertising revenue or transaction charges must be willing to bear the costs of this highly disruptive paradigm shift.”

    Rule #2: “Mobile commerce must add value to the consumer. Tapping a phone is a gimmick, no different from tapping a card or fob. In addition to providing the ability to pay for stuff by phone, service providers and retailers need to provide real additional value –- such as coupons, loyalty rewards and discounts — for consumers to leave their wallets at home.

    Rule #3: “Mobile commerce must be streamlined with existing POS services and managed well for the retailer. Retailers won’t tolerate the need for multiple methods of acceptance to accommodate what will become a wide array of mobile commerce schemes. All ideas, regardless of where or who generates them, must converge at a unified point-of-sale.”

    Rule #4: “Mobile commerce must go from zero to 90 mph in five seconds. Consumers will not embrace mobile commerce without the confidence that it is being widely accepted. If it only works at a few select retailers, it dies a quick death. Ten percent acceptance is not sustainable.”

    Rule #5: “Mobile commerce must be integrated with other forms of payment. Mobile commerce won’t lead to the quick death of plastic cards and must work with existing payment systems that are certified by all major processors and installed in the vast majority of large and small retailers.”

    Rule #6: “Mobile commerce must be ironclad secure. Security, both real and perceived, is imperative to the adoption and sustainability of mobile commerce. Even minor setbacks in security could compromise consumer adoption and stop the movement in its tracks.

    The entire article, which includes the above rules, can read at


  5. Marco Morana says:

    David, I think Rule#6 is going to be challenged by two facts driven by the adoption of this type of mobile wallet technologies:
    1) increase of the attack surface for hackers since they will be able to attack Financial Institutions (FI)s by attaching NFC at POS as well as the device (mobile wallet) itself
    2) The reliance on these devices on cloud services for ecommerce, payment processing outside the company premises and security controls

    In order to risk manage this; FIs need string controls around authentication and protection of data and transit. Also FFIEC should drive specific regulatory requirements for multi-factor authentication (currently, mobile is missed in FFIEC addendum for example).

    Also FIs that plan to adopt these technologies need to make sure the architecture and design of these is reviewed by security analysis experts in application security and security architecture. This is besides typical security assessments such as ethical hacking, source code analysis that is done today for high risk applications.

    Ultimately I think a mobile wallet could provide better security than magnetic strip card authentication but it has to be well thought off, being new does not always means more secure, as Cambridge researchers demonstrated on how easy is to break Chip and PIN cards by hacking into the EMV of the POS. This support the notion that security is only end to end from consumer to service provider and as good as the data is secure in transaction through the different channels and technologies.

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