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Finextra Readers,

A very detailed article in Payments News I saw today which comes to very, very similar conclusions, but with much more detailed analysis:

http://paymentsviews.com/2012/09/24/the-state-of-payments-us-market-2012/

BK

All,

I've said that behavior is rapidly building around cardless payments whether online or in a retail setting. This leads to the inevitable conclusion that consumers who are coming into the workforce today are very comfortable with mobile wallet solutions that exclude plastic, and that this will drive improvements in in-store and merchant solutions that don't require plastic.

For now we still require the PANs and networks that enable the payment value chain, but once you remove plastic, the 'value' of the network and card issuer is challenged. 

NFC would have retained the psychology of the 'swipe' and reinforced the traditional rails, but removing the swipe as a paradigm by creating non-plastic, non-card wallet solutions has increased the likelihood of disruption to the networks in the value chain.

You guys, while passionate about your own use of cards, are not representative of the customer of 2020. Your behavior is not a driver of innovation in the industry - it reinforces existing rails. All well and good if you are a consultant to Mastercard, or you prefer the current paradigm. Customers opening accounts now have no loyalty or perception of cards as better - they don't understand why they can't pay with their mobile everywhere already.

That gap between customer behavior and the capabilities of the rails/system is growing. Keeping that status quo guarantees you are disrupted when the opportunity arises.

Watch this space - by 2016 you guys will be converts...

BK

Nick,

I did read your LinkedIn post and I read the thread. If you re-read my article I'm actually saying that the card networks have opened the doors to competition because they didn't make an orderly transition to NFC, but that by no means indicates the card will survive. 

While cards are the incumbent and dominant, if you look at transactions globally using card networks, the majority of those transactions are already 'cardless' through e-commerce and direct debit. So even if you factor out NFC your argument still doesn't stack up in the real-world as it stands today.

BK

We're seeing a significant increase in social engineering and malware. There's not much banks can do to stop their customers being stupid and giving away their PIN or password, but multi-factor along with good analytics should prevent out-of-band attempts in most cases.

We need to step-up our capabilities on understanding customer behavior in respect to technology use, so we can predict when our customers' accounts are being compromised by fraudulent activity.

I do think it is important to point out that NFC and RFID are two different technologies, and failure points on RFID have little to do with NFC security issues.

BK

Ketharaman,

It is interesting that while technically possible to skim RFID contactless cards, in the 15 years of the successful operation of the Octopus card system in Hong Kong, there has not been a single recorded instance of the fraud you mention that represents a 'clear and present danger'.

I'd be more worried about the current fraud with mag-stripe that is readily recorded and in the billions, compared with a technology that while it could theoretically be compromised, is labelled by the industry as 'fraud-proof'.

I don't think using the library RFID example has any redeemable merit when RFID contactless technologies used specifically in payments scenarios in UK, HKG, Singapore transport systems have been successfully deployed for over a decade without any of the fraud instances or dangers you have identified.

Sorry - I just think that this is not a reasonable argument. The tech is well proven, and this is counter-productive. In the case of Octopus 15 years and $12.8m of daily transactions conducted securely over contactless technology with zero fraud instances is a pretty tough record to poke holes in.

BK

Ketharaman,

You better start telling the 110 million PayPal customers, and the 2 million Square merchants they've got it all completely wrong...

This whole pay in real-time thing is obviously just a conspiracy to create massive risk in the system and displace honest banks trying to make an honest living.

BK

AP,

I agree systemically there is some challenges to a seamless payments world, my point is that it is not the incumbents rushing to that new world. The problem with incumbent systems and inertia is that the imperative to change is often slowed by hubris over the embedded nature and success of the existing system (see Bookstores, Record Stores, Kodak, US Postal Service, Blackberry, etc).

In this case, the problem is that the organizations who are experimenting and succeeding in payment alternatives is not the incumbents. Thus, the likelihood of incumbents in the market spontaneously responding to user experience opportunities when they think the existing system "works just fine" is very slim. Whereas, the likelihood of some new start-up or a new collective group trying unseat the incumbent with a better user experience is ever more likely.

What we've learned from the disruptors in other industries is that an exisitng system never protects you from disruption when it comes to innovation and improvements in CX. 

The momentum in these alternatives has got to that tipping point where the 'swipe' can no longer win outright. It all adds up to more choice for consumers, more fragmentation in the market.

BK

Alex P,

Here's my counter.

The two most successful payments experiences from a consumer experience side in the last decade are PayPal and Square. Both put any card based initiative to shame. Both charge clients directly at a premium, both have improved on the customer experience. Thus, consumers will adopt in droves and pay for the privilege of simpler payments experience.

Name any other merchant acquisition program that has grown 2 million merchants in 2 years. Name any other bank or network driven payment initiative that has grown as fast as PayPal since 2000.

Then throw into the mix the Starbucks App. 

Nothing the banking industry as a whole or the card networks have done in the last decade has had anywhere close to the consumer adoption of the three examples I've just given. The current system success is down to inertia - it's not enough to sustain consumer experience long-term.

BK

Alex P,

Consumers care about being able to pay and to get money from A-to-B in real-time. They don't care about who does it, as long as it works. 

The system right now is too complex for basic P2P and the disruption opportunities at the Merchant end of the payment system are obvious. The industry won't move forward by hanging on to complexity around clearing, settlements, etc - why? Because it adds zero value to the end user experience.

This is perhaps one of the biggest reason why the rails themselves are under threat. Not interchange - experience.

The trick is to get rid of the friciton. That adds HUGE value. So the industry needs to stop fighting to protect the value chain that adds no ongoing value to the consumer experience.

BK