Authentication & Security

10 questions I have been asked about the Payments Industry

MEDICIFounder and Chief Strategy & Innovation Officer

Today I thought I will ask you some of the burning questions that I have come across. They were asked to me directly or otherwise. Please feel free to add, comment and pitch in, to answer them.

1. Is bitcoin a system, an economy, a payment network, a tech stock, a currency, a Ponzi scheme, an autonomous digital corporation? 

Well, a friend of mine who happens to be a payment expert believes its a bit of everything but a Ponzi scheme. As a currency it enables you to pay somebody or receive payments even across borders, has an ATM and you can get a Bitcoin loan. As a payment network it allows transactions to be processed online and in real time. Its traded and has gone up by more than 600% this year so its provides an alternative investment to stocks.

Its an economy for some because it is enabling geeks, gamers and developers to transact amongst themselves only using Bitcoins. Some of the latest offerings include playing games such as Counter Strike and receiving Bitcoins as prize money. Another game that offers Bitcoins is the popular MMORPG Casino game Dragon’s Tale . The game uses Bitcoins instead of casino “chips”.

2. If mobile payments is doing well, why is the ATM growth still good? 

According to a report from RBR the number of ATMs is set to grow from 2.6 Mn 2012 to 3.7 Mn ATMs by 2018 globally.

I think any transformation takes time. It took us hundreds of years to go from cash to plastic. Its definitely going to take much lesser time going to cashless and cardless regime. Each and every part of the eco-system believes in the potential and payments was the third largest Mobile category in terms of VC deals in Q3, 2013.

The entrepreneurial ventures are coming up left, right and center. But in a country like US where there are more than 14,000 banks and credit unions, its going to take time to get mobile payments to big numbers. Cash, Mobile, other means are going to co-exist. But its written on the wall - the world will move big time to mobile payments.

3. Can software make things as secure as the hardware does? 

This is not a debate about whether Hardware is dead or not. This is specific to payments industry. It looks like Google wants us to believe that software can be as secure. Recently it made a move away from secure element - to the host card emulation.

In the case of Google Wallet, Card Emulation represents routing communication from an external contactless terminal reader directly to the embedded secure element, dis-allowing visibility by the operating system completely. Only the secure element and the NFC controller are involved.

Host Card Emulation (or Software Card Emulation) differs from this such that instead of routing communications received by the NFC controller to the secure element, it delivers them to the NFC service manager – allowing the commands to be processed by applications installed on the phone. With that, the approach allows to break dependency on the secure element by having credentials stored anywhere – in the application memory, in the trusted execution environment (TEE) or on the cloud.

HCE allows for the following: it reduces the gap between merchants and card issuance, brings the topic of closed-loop and contactless in focus, and more tactically – allows for an easy deployment scenario that does not require them to change the software inside the terminal.

A report from NFC times however questions the security of payment services using HCE on NFC enabled phones. HCE works by emulating an ISO/IEC 7816 smart card that uses the contactless ISO/IEC 14443-4 (ISO-DEP) protocol for transmission. Emulation is not the same as applying ISO/IEC 7816 protocols, and there are still major questions about just how secure HCE really is.

HCE technology may open up the market for wider NFC app development, but it may also lead to significant security issues as a result of its open development and emulation approach.

The answer so far (and I am learning more about it) is I don't know! I really dont know if software today can provide the security that hardware does. But what I know is that if all the payments moved to a software/cloud based approach than it would.

4. Are beacons BLE concept going to kill NFC?

Its a promising concept. Apple with its iBeacons for store payments and Paypal with its Beacons and some startups are beginning to experiment with it.

The internet of things community also believes that BLE is a very potent concept as talked about by the smartwatch guys Pebble. NFC is having a hard time and maybe BLE was the alternative call payment industry always wanted to make.

5. Is there nobody who can challenge Paypal, are the payment startups or other tech firms coming up by the day not able to match up?

There is plenty of payment disruption that will definitely reach huge scale. Its happening at/by following firms (we can't cover all, but these four are cut out for growth)

Apple - iBeacons, 500 mn+ Credit cards on file, mobile devices with Autofill

Google - Wallet, checkout and more

Square - Mobile - Enabling Technologies Card Reader, huge volumes and Square Cash

Dwolla - Pay by so many modes and get credit as well 

6. Whats going to be our best bet at authentication, which body part in the future will be used the most?  Our Fingerprint, our Retina or our Face

Apple, Danal and worlds largest identification program (Aadhar of India) that will eventually enable payments, believes its fingerprint.

Some companies believe its Retina.

But Paypal and Finnish company Uniqul are backing face recognition as well.

Payment pundits argue fingerprint technology involves touch and can sense whether the cells are alive or dead (using change in skin layer colors) while face can be faked to a large extent. Retina and face both are non-touch and happens at a distance.

7. Is Starbucks the only merchant or retailer interested in mobile payments while others just don’t see it?

While Starbucks is way ahead and doing millions of transactions every week. There are others whose numbers will start looking big. Here are examples of some other retailers/merchants using mobile payments.

Disney:

Disney recently launched a wearable wristband called MyMagic+ which can be used to buy gifts and services, order photos, serve as parking ticket, room key and book tickets for events. It is made up of a heat resistant, waterproof material and can be used to access credit card, park ticket, room key, Fastpass tickets, hotel check in, financial transactions, etc. The band communicates through NFC technology with hotel doors, payment terminals and the scanners installed at the theme park’s entrances and rides.

Uno's Chicago Grill: They started testing tabletop payment solutions in 2010 and decided to deploy Ziosk's pay-at-the-table tablets shortly thereafter. Now, Ziosk tablet technology is available in the top-performing Uno Chicago Grill locations throughout the country (as well as Chili's, Red Robin and Applebee's locations).

8. Does the cost of beating the fraud outweighs the cost of the fraud? 

Thats a remarkable question. I would need some help to answer that. All the fraud detection and prevention techniques, the hardware and software being purchased runs in such huge dollar figures that it can (maybe) shy away the total amount of fraud losses that have happened.

Total Fraud loss in global payments = $11.2 Bn in 2012 up 14.6% from 2011 according to Nilson Report.

Market size for Fraud detection and prevention systems and other costs - ??

While the above can go either way, does not mean we stop looking at means to improve the system. Feedzai and other firms such as ReD and NICE - Actimize are building amazing fraud detection and prevention systems.

9. Is mobile payments really about mobile?

Maybe not. Its about the easiest way to pay using any device. First it was about mobile card readers and apps, QR codes and NFC. It was also about iPad pos and tomorrow payments would happen through google glass, smartwatches and wearables. Many newer small businesses are mobile – think food trucks or art galleries. Having the ability to take payment via mobile device is becoming important. but it doesn’t mean just mobile as such. It could be any device.

10. How would the World Change if you could easily send A Penny to anyone across the world?

Yes the Nano payments are coming (can't tell you much now). The biggest innovation will come from the way we can transact efficiently at the lowest denomination level. The prospect of sending very small amounts, perhaps a penny is so exciting. It could shake up the payments industry and the entire infrastructure of world economy and create business models that would have never existed. Of course there are ways to send dollars, just not efficient ways to send pennies.

Amit Goel

MEDICIFounder and Chief Strategy & Innovation Officer

“Amit Goel is the Founder & Chief Strategy & Innovation Officer for MEDICI. Amit’s vision is to build a strong FinTech market network that involves financial institutions, banks, startups, investors, analysts & other key stakeholders across the ecosystem – helping each one of them in a meaningful way by removing the asymmetry of information and providing a platform to engage & transact.\ \ Amit is passionate about bringing actionable FinTech-focused insights, innovative products & services for the FinTech ecosystem. Some of his work involves startup scores, bank scores/assessments, predictive viewpoints & other innovations that have helped MEDICI’s customers and the ecosystem. He has been named amongst the Top 100 FinTech thought leaders/influencers in the world & Top 10 in Asia multiple times by reputed agencies, consulting firms as well as financial institutions. Amit has built MEDICI (formerly LTP) as a new-age, tech-enabled advisory/research firm, which is now considered the #1 global research & innovation platform for FinTech in the world.\ \ Amit has been writing pioneering viewpoints on financial technology space that have been ahead of the curve since 2010. His data-driven predictions have helped the customers as well as the ecosystem. His past work experience includes a strong background in strategy & market analysis and advisory to clients (from big business houses to Fortune 500 firms) in payments, commerce, financial services & IT/technology. In the past, Amit had also founded a successful consulting & research practice called GrowthPraxis and has worked at Boston Analytics, Frost & Sullivan, and Daimler Chrysler in strategy & research.”