Fed’s Industry Workgroup Reflects on Last Two Years of Mobile Payments Marked by Fragmentation and Increasing Channel Convergence
A report on the U.S. Mobile Payments Landscape - Two Years Later, released by the Federal Reserve Bank of Boston in conjunction with the Federal Reserve Bank of Atlanta, examines changes in the evolution of mobile POS retail payments over the past two years, characterized by an expanding fragmented market environment and frequent technology innovations.
These technological innovations are driving increased convergence of the POS, online and mobile channels and the merging of technologies, such as NFC and cloud, with payment platforms and new payment methods. The report stems from ongoing meetings of the Mobile Payments Industry Workgroup (MPIW) convened by the Federal Reserve and updates the original paper from 2011.
"There have been some notable changes in the mobile payments area in the last two years," said Marianne Crowe, Vice President of the Payment Strategies Group at the Federal Reserve Bank of Boston and co-author of the report. "For instance, the mobile device has become a pivotal driver in creating a dynamic marketplace that is bringing diverse companies and sectors together, both as competitors and collaborators and across traditional boundaries of industry and technology."
The report points out that competition and collaboration have been essential to moving the mobile payments industry forward, as marked by collaborative efforts among large banks and mobile network operators, card networks, retailers, mobile solution providers, and innovative start-ups. In some instances, stakeholders are experimenting with multiple approaches to see what consumers will use, and what merchants will accept.
These new business models have changed the dynamics of the mobile payments ecosystem, calling for a re-evaluation of the MPIW's original strategic principles. While innovation is encouraged in the mobile payments marketplace, various developments have gained importance such as the role of nonbanks, unresolved security and privacy issues, and the increasing role of data monetization. In particular, the report notes that participation by nonbank stakeholders, like mobile solution providers, raises new risk considerations.
The report also encourages security providers to anticipate risks and incorporate automated mitigation tools where feasible, such as preloading mobile antivirus software on phones, and leveraging the ability of mobile phones to share real-time data (e.g., location and customer-entered authentication). The existing security attributes of mobile devices have the potential to make the mobile channel more secure than the online channel against fraud and to repel fraud attacks.
"As this ecosystem matures, it will challenge new entrants in their ability to achieve scale and sustainability, while technology will continue to proliferate and drive improved efficiencies and innovation," said Crowe. "The need for interoperability, industry guidance, and standards will become even more critical to ensure a secure and cost-efficient ecosystem."
The summary report is authored by Marianne Crowe, Susan Pandy, Ph.D., and Elisa Tavilla of the Federal Reserve Bank of Boston and Cynthia Merritt of NACHA-The Electronic Payments Association (formerly of the Federal Reserve Bank of Atlanta). The report is available on the Bank's web site (www.bostonfed.org) at the following link: http://www.bostonfed.org/bankinfo/payment-strategies/publications/2013/mobile-payments-landscape-two-years-later.htm