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PCBB Banc Investment Daily October 08, 2014
Banc Investment Daily
October 08, 2014

Payment Security - A Journey In Time

The first immigrant landed on Ellis Island Jan 1, 1892. Her name was Annie Moore, she was 15Ys old and she had just arrived in the US from Ireland. From that point forward, Ellis Island in NY was the busiest immigrant inspection station in the US until 1954. Like Annie, upon arrival immigrants had numerous required steps to gain access to their American dream (including a ticket of health and a sponsor's letter of invitation). The final hurdle was a visit to The Money Exchange. There, people would use gold, silver, or foreign currency concealed within the soles of their shoes or the hems of their skirts, to purchase means of transportation to their final destination. Only then were they allowed to depart Ellis Island.
Fast forward to the 21st century and an immigrant could replace that hidden treasure trove with a mobile phone. Flash a smartphone at a payment terminal and voila! It's done...or maybe not. It's a great idea, but with the exception of Starbucks, mobile payment readers have yet to be widely installed.
There has been plenty of recent buzz about Apple Pay, the mobile point of sale app that Tim Cooke, Apple's CEO recently revealed. Its success is not by any means a slam dunk though. The technology for Apple Pay is hardly new, it uses NFC technology which dates back more than a decade. Competitors such as Google already incorporate NFC into their devices and yet few consumers use the technology due to a shortage of readers on the other side of the counter. Merchants and big banks alike have quietly resisted this mobile revolution. Tim Cooke claims that he has enlisted well known retailers like Macy's, McDonald's, Walgreens, Subway and Whole Foods to accept the new payment method. It's a start, but in the end merchants signed up so far only represent 220K US locations, a small percentage of the 9mm merchant universe. Right now NFC technology is deployed among fewer than 10% of merchants, according to information technology research company Gartner.
As with the bigger stores, Mom and Pop operations are reticent to spend $500 on the necessary readers and software. They are not alone; Walmart, the world's largest discount department store will not turn on NFC machines either. Walmart decided that they prefer the Merchant Customer Exchange and it plans to roll out its own mobile wallet in 2015.
In the absence of merchants united behind a common technology, Apple Pay and Google Wallet may struggle to gain traction. Furthermore, there is the customer's dilemma. Will they jump at the opportunity to pay bills using their phones? A recent survey conducted by Creditcards.com suggests that 62% of Americans never use their phone to make a purchase and 64% of adults 65Ys and older don't intend to in the foreseeable future. Even 30% of the millennial generation is resistant.
Millennials love their pet phones and use them while shopping. But mostly they use them to compare prices because there is still doubt over the security of mobile payment. Every day seems to bring an announcement of another enormous data leak and this does not help matters.
Fortunately the giants of Silicon Valley are working feverishly to improve the technology. The next Google Android operating system slated for release in October will have encrypted data by default. Google already offers encryption as an option but most consumers haven't activated the feature. Going forward encryption will be automatic, making it difficult for thieves to read data on a stolen phone. Revelations surrounding National Security Agency spying activities caused the tech giants to develop systems that protect customers from snooping strangers. This all still has to shake out, but no matter how it ends up it is probably better than stuffing coins into your shoes.