Is Lack of Security Holding Back Mobile Wallets?
By all measures, online purchases via mobile devices is on the rise. Statistics from IBM Digital Analytics show that online sales via mobile was up 27.2 percent during the 2014 year-end holiday shopping season.
Yet the uptake of mobile wallets to pay for offline goods is significantly lower – Javelin Strategy Research found that mobile POS (Point of Sale) proximity payments made up just 0.01 percent of total retail volume.
So people will use a mobile device to shop at Amazon, but not to pay for items right in front of them. Is the lack of security holding back the adoption of mobile wallets?
Apple’s Apple Pay is now pre-installed on iPhone 6 and 6+ devices, and is accepted in 220,000 stores and by dozens of major banks. Lagging behind,Google Wallet is accepted by 158 of the top online retailers as well as scores of offline merchants such as coffee houses and grocery stores (source: Internet Retailer). Softcard (Isis Wallet) rolled out a pilot in mid-2012 that attracted even fewer users. All three of these mobile wallet solutions use the NFC (Near Field Communication) chip in the mobile device to communicate to the POS system that accepts payment. Security is obviously compromised if the phone were to be stolen, but hackers can also intercept the NFC transmission and capture the wallet information without even touching the device.
To add an extra layer of security, mobile wallet designers are requiring some type of additional authentication to complete a payment transaction. One of the secure authentication methods that is gaining traction is biometric authentication — like a finger-print reader. Biometric identification techniques also include facial recognition, voice recognition, and the most sci-fi of all, eye-scan recognition. Biometric identification is by its nature unique and difficult to copy or steal — unlike knowledge-based identification such as passwords and PIN codes.
Although biometric authentication technology has been available for many years, it took the launch of Apple iPhone’s finger print reader in 2013 to bring the technology mainstream. Now other mobile device makers including HTC and Samsung are including finger print readers as well. Uniform standards are beginning to take shape in order to allow a payments ecosystem to form around these authentication methods and to bring down the costs for merchants to accept them.
If mobile payment methods are made sufficiently secure, mobile wallets may ultimately find adoption far beyond purchases at the café. A secure (and easy) authentication method for mobile wallets would allow them to be used for electronic ticketing like bus fares and parking garages, for larger purchases like home furnishing, and even for official government IDs like driver licenses and passports.
Solving the security challenge will allow mobile wallets and mobile payment apps to finally flourish.