On the surface, the rise of Europay, Mastercard and Visa (EMV) and contactless terminals has been a boon to major US retailers. The transition has been a smart move in particular for true brick-and-mortar shops, who wish to stay relevant by offering customers a more secure interface that merges their physical shopping experience with their digital one. Such advancements are logical considering the need to be ever vigilant against identify theft as the borders between physical and digital commerce dissolve.
But that’s only part of the story. As fraudulent practices continue to become more complex, the need for increased security measures becomes more and more important. The mobile wallet provides a solution. And it’s these three tech innovations that stand the best chance to drive its widespread adoption.
Tokenization 2.0: a no-brainer for retailers
Tokenization is the process of replacing sensitive data with unique identification symbols. This isn’t a new technology; surrogate keys replacing real data elements have been around since the 1970s. Algorithmically generated reference numbers for single use (tokens) are the world’s current, simplest – and exceptionally secure – form of transaction security. When coordinated with a retailer’s physical, online and in-app experience, the wallet enables a single, secure, tokenized transaction.
Initially there were limitations with this technology. Early attempts found that replacing real card data with reference data is only as secure as the reference mapping itself, which continued to have security vulnerabilities, and the technology cost was more to produce than it generated in security.
Over the past few years, though, huge leaps have been made tokenization design. Old rudimentary mapping tables have been replaced with Secure Stateless Tokenization (SST) technologies that allow surrogate keys to be created in real time and without a database reference. This is exponentially more secure than their first-generation counterparts.
From a paytech perspective, the mobile wallet’s tokenization feature alone is enough to make it a no-brainer for retailers. No need to worry about skimmers (aka sniffers), those devices slipped onto POS terminals and into ATM slots that lift card data. Tokenization will help retailers drive down fraud numbers and give them reason to favor mobile wallets.
Biometrics: the new security standard
With liability reduced on the back end, next we have to look at the device at the point of sale. Passcodes and passwords were the initial technologies here, but parallel multiprocessing and other big-computing methods have made decoding them comically simple. In offline scenarios, six-character passwords can be cracked in seconds. Mobile device developers have attempted to combat this with wait loops, but even those can be broken in minutes.
Enter biometric identifiers, which increase security significantly. A few years ago thumbprints were the standard; now it’s facial recognition, and soon it will be retinal identifiers. Because they are not only reliable but also tangible, interactive, and easy to use, they reduce the risk of fraud and add value to the consumer.
Data-based decisions: knowing your customer in real time
Another benefit is that the mobile wallet’s single, consistent channel into the vast underworld of payment networks leads to simpler data sets – which in turn enables both retailers and consumers to make better decisions. Whether that decision is from a retailer looking for a new marketing campaign or from a consumer on how to track spending and rewards, the end result is the same: simple, real-time data at your fingertips.
Additionally, the better payment and mobile wallet providers have built single integration points with vast global payment networks. Anywhere in the world a transaction takes place, the API integration is the same. This way the retailer can capture cleaner data sets of payment trends, regardless of which card or device a single customer uses from one purchase to another.
Cash can’t do that. You could pull off something like this looking at physical card activity, but good luck if your consumer has five different plastic cards in his wallet that he rotates monthly. Crazy as it sounds, with a paytech and a good mobile wallet solution, this comes almost out of the box. The value proposition is clear.
Tech meets lifestyle
The case for the retailer to accept mobile wallets is clearly compelling. For the consumer, however, the benefits aren’t always as obvious – even when evolving lifestyles and expectations make it a logical choice.
Thanks to technology catching up to the consumer experience, it’s become common practice to coordinate life – everything from calendars, car services and grocery delivery to health tracking, stock trading and banking – through a smartphone. Although the US is known for innovations in the fintech industry, the market for the mobile wallet is immature compared with other parts of the world. China’s wildly popular WeChat Pay and Alipay (both Wirecard clients) have a combined 1.34 billion users worldwide and are accepted at POS terminals throughout Asia and Europe.
The facts suggest that much of the excitement around the switch to EMV has been fueled by data breaches at large retailers – leaving some consumers wary of new tech. Others would argue that consumers are simply unaware of mobile wallet’s advantages: that it speeds up transactions and is just as secure as an EMV card. In truth, there are two reasons.
Retailers lead with incentives
First, security proposition aside, US consumers haven’t been incentivized enough to use these new technologies. But your base plastics can’t store coupons or loyalty programs for you. It can’t tell you about special offers at nearby stores, and it certainly can’t generate real-time virtual rewards immediately after a purchase. The mobile wallet can, and it’s up to merchants to give customers a reason to try it.
US retailers have always used incentive structures to bring consumers around to new cash substitutes. Checks, which were first used in the 1680s for cash-strapped farmers and businessmen, didn’t gain widespread adoption until centuries later, when government entities got involved. Similarly, the early credit cards of the 1950s took decades to become the preferred payment form they are today. Now tens if not hundreds of incentive-based perks are standard on most credit cards. Similarly, the mobile wallet will mature as retailers erect better reward and loyalty frameworks for it. Expect adoption to grow exponentially when they do.
Second, retailers haven’t heavily pushed mobile wallets because they have yet to tap into their full potential. Beyond accepting them at checkout, retailers can become advocates, giving customers reasons to use them – and that it is about more than just efficiency. On a smart data platform, mobile wallets save shoppers money, deliver rewards, track purchases, predict what they’ll need and when, and much more.
The tech behind mobile wallets has created the most secure and convenient payment form we’ve seen, and mobile wallets’ potential is inspiring even greater innovation. Ultimately, it’s putting that tech in the hands of retailers that will drive adoption, deepen the merchant-customer relationship, and produce benefits we haven’t even thought of yet.
Mark Alsentzer is Head of Technology for Wirecard North America.
