Unlike their Canadian counterparts, US banks have held back from launching own-brand mobile wallets for proximity payments. But the mid-2016 launch of Chase Pay may well force them to offer mobile wallets or risk losing customers to JPMorgan Chase. Robin Arnfield reports
"Canadian banks have a lot of momentum in payment-enabling their apps for proximity payments using NFC," Derek Colfer, Visa Canada’s Head of Technology and Digital Innovation, says. "CIBC was the first Canadian bank to launch a mobile wallet in 2012, followed by RBC, Scotiabank, TD and Desjardins Group."
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By contrast, US banks were held back by Softcard (originally Isis), a mobile payment JV between US telcos AT&T, T-Mobile and Verizon. "US banks were slow to get off the ground in developing their own wallets, as originally the only way they could do so was through Softcard, whose owners controlled access to their customers’ handsets," says Colfer. "Prior to Google buying Softcard in February 2015, US banks couldn’t get their proprietary payments apps onto customers’ smartphones."
HCE
Despite the advent of Google’s HCE (Host Card Emulation) software, US banks have partnered with Apple Pay, Android Pay and Samsung Pay instead of launching their own mobile wallets. Meanwhile, the Canadian banks have yet to make any announcements about support for Apple Pay, Android Pay and Samsung Pay.
HCE stores mobile wallet credentials in the cloud for Android devices instead of on a smartphone’s secure element, meaning banks don’t need agreements with telcos to put their credentials onto customers’ handsets.
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By GlobalData"RBC was the first bank in North America to launch its own native mobile wallet using HCE," says Julie Conroy, research director at US-based consultancy Aite Group. "So far, in the US only Chase and Capital One have opted for native mobile wallets. There are US banks that want the consumer to stay in their own banking app and not to open up another bank’s mobile payments app. But we haven’t seen much traction with Apple Pay and Android Pay yet, so a lot of banks will sit on the side-lines to see what happens with Chase Pay after its launch in mid-2016."
The "Pays"
Richard Crone, CEO of US m-payments consultancy Crone Consulting, estimates that Apple Pay has won 12 million monthly users globally since its October 2014 launch, and Android Pay has won five million monthly users since its September 2015 launch.
Samsung says five million registered users processed over $500m using Samsung Pay in the first six months since its August 2015 South Korean and September 2015 US launches.
However, transaction volumes are low for Apple Pay and Android Pay because, unlike Starbucks’ mobile wallet which combines payments and loyalty, they don’t give consumers a compelling reason to change their payments behaviour. "Once Apple Pay and similar schemes offer the ability to redeem rewards and loyalty points at the point of sale, they will see significant growth," Conroy says.
"In the US, a significant challenge is the relatively low distribution of NFC-enabled terminals for accepting Apple Pay, Android Pay and Samsung Pay," says Thad Peterson, a Senior Analyst at Aite Group. "NFC terminal distribution is increasing, however, and, as NFC achieves critical mass, we will see a more rapid uptake in usage of these schemes."
Samsung Pay offers merchants who haven’t upgraded their magnetic-stripe-only POS terminals to NFC/EMV the ability to accept mobile payments using Magnetic Secure Transmission technology. This sends magnetic signals from the customer’s device to the terminal’s card reader. "Samsung Pay is doing very well in the US because of its use of mag-stripe acceptance technology," says Crone. "Its usage reviews are pretty good, and consumers use it at a lot of places."
Canada
One difference between Canada and the US is the Canadian FIs’ and telcos’ collaborative approach to developing an open mobile payments environment.
Canada’s three largest mobile carriers, Bell Mobility, Rogers Wireless and Telus Mobility, operate the EnStream mobile credentials management partnership. Canadian issuers using EnStream to load customers’ credentials onto their handsets include Montreal-based Desjardins, Canadian retailer Loblaw’s banking subsidiary President’s Choice Financial, and Scotiabank, along with the Ugo and Suretap mobile wallets.
Ugo, which is provided by UGO Mobile Solution, stores consumers’ TD and President’s Choice Financial credit cards, gift cards and loyalty cards on NFC-enabled Android smartphones connected to the Rogers, Bell, Telus, Koodo Mobile or Virgin Mobile networks.
Suretap is owned by a partnership – also called Suretap – between Rogers, Bell and Telus, each of which offers the mobile wallet. As of March 2016, Suretap had been downloaded almost one million times. Over 20 popular loyalty programmes, including seven of the top 10 Canadian programmes, can be stored on Suretap, along with CIBC and Rogers Bank credit cards. "Still to come are debit cards, coupons and other offers," Suretap says.
Mobile Payments Reference Model
In 2012, under the auspices of the Canadian Bankers Association, the Canadian banking industry published the Canadian NFC Mobile Payments Reference Model, a set of voluntary, open guidelines for the development of secure proximity mobile payments.
BMO Bank of Montreal, CIBC, National Bank of Canada, RBC, Scotiabank and TD published the Payments Security White Paper in July 2015, which outlines the principles for securing mobile payments in Canada, including open mobile wallets containing cards from multiple issuers.
"Canadian banks are focused on protecting consumers in the payments ecosystem," says Hisham Salama, TD’s associate vice president of emerging payments. "You have to look at the safety and soundness of any products offered to consumers, starting with identity and verification for customers trying to digitise plastic cards."
RBC
RBC is leading the way in offering wallets providing added-value compared to plastic cards.
"We constantly look for ways to improve our mobile payments platform so it provides choice, convenience and flexibility," says Linda Mantia, RBC’s executive vice president of digital, payments and cards. "In Autumn 2015, we rolled out beta mobile gift card capabilities in RBC’s mobile solutions. This means clients can load, purchase, gift to another individual and redeem gift cards using the RBC Mobile app. We’ll be adding digital receipts to the RBC Mobile app soon, allowing clients to have all their receipts at their fingertips so they can track their purchases to reconcile their receipts with banking statements."
Mantia says contactless cards are an efficient, secure and simple way to pay at the point-of-sale. "So, for mobile payments to take off, they should offer clients more than what they’re already carrying in their wallet," she says.
In March 2016, RBC updated the RBC Wallet for Android as a stand-alone app giving clients access to the wallet without having to use RBC’s mobile banking app. Customers can also use an Android widget to select their card and pay with one tap from the home screen without having to sign in.
RBC’s mobile payments are powered by RBC Secure Cloud, which keeps sensitive customer data secure in RBC’s HCE-based cloud, not on the customer’s smartphone secure element. "Secure Cloud is based on (proprietary) tokenisation technology, where the secure token is a representation of a card and is used at the point-of-sale to facilitate a payment, but the secure token itself doesn’t contain sensitive client data," says Mantia. "That data resides with RBC’s Secure Cloud instead of on the mobile device and isn’t shared. This technology is more secure than existing credit and debit cards."
Secure Cloud works with multiple mobile devices and platforms, as well as existing contactless-enabled POS terminals. "We’re also well positioned for how payments will be transformed with the Internet of Things," Mantia says.
RBC has been experimenting with biometrics technologies such as wearables. In November 2015, it participated in a pilot involving the Nymi Band, a wearable authentication device that uses the uniqueness of the wearer’s heart to authenticate transactions.
"We’re investigating these technologies with our clients’ needs in mind, while ensuring the safety and security of their personal information," says Mantia. "The pilot showed that early payment technology adopters valued the concept of wearable payment devices. It aligned with our mobile strategy of providing choice, convenience and flexibility to our clients while moving all the security into the background. Wearable, biometric payment technologies have the potential for seamless secure payment authentication, as they can assure issuers that both the payment information and client are present during the transaction."
Scotiabank
Since October 2015, Scotiabank’s My Mobile Wallet has supported credit and debit card purchases on both Android and BlackBerry devices.
Scotiabank customers with eligible Android smartphones from Rogers, Bell, Virgin Mobile, Telus and Koodo can tap their phone to pay for purchases up to the contactless limit of C$100 ($76.53) at Interac Flash (Canadian contactless debit cards) or Visa PayWave-enabled terminals.
Customers can store their Scotiabank SCENE loyalty card in their mobile wallet to earn and redeem SCENE points at participating merchants.
TD
In March 2016, TD became the first Canadian bank to use the HCE-based Visa Tokenization Service in its new Android mobile payments app.
"The app has been very well received by customers," says Salama. "This is a testimony to the seamless experience we designed using Visa’s network-based tokenisation service, which makes it easier for people to use mobile payments. Also, while the payment app is part of our banking app, you can make quick payments using an Android widget without firing up the whole app.
Canadian credit unions
From Spring 2016, Canadian credit unions will be rolling out mobile Interac Flash payments using Canadian debit scheme Interac’s Token Service Provider platform.
The first four credit unions to launch the mobile payment service are Affinity Credit Union and Conexus Credit Union in Saskatchewan, First West Credit Union in British Columbia, and Meridian in Ontario
The US
"In the US, mobile payments are being led by retailers, not banks," says Crone. "Retailers such as Starbucks, Dunkin’ Donuts and Subway have been very successful with mobile payments. Starbucks says 21% of its sales come via its Starbucks mobile payment app."
One way banks can play in mobile payments is to embed their payments credentials inside a retailer’s own app. "But issuers need to ensure their branding isn’t subsumed inside the retailer’s app," Crone says. "There need to be embedded links between the bank’s mobile banking and payment apps and retailer apps. A bank’s mobile banking app can use presence detection to detect when a cardholder is in a Walmart store, for example, and offer a link to the Walmart loyalty app for shopping, while providing the bank’s payment app for the actual purchase."
Research by Celent shows that most US banks are more likely to engage with third-party wallets than explore their own HCE wallets. In November 2015, Celent surveyed 42 US banks and credit unions for its "US Financial Institutions and Digital Payments: Digital Research Panel Series Part 3" report.
Celent Senior Analyst Zilvinas Bareisis says 61% of respondents already support Apple Pay and the majority of the others are planning to join the scheme.
"When we asked the FIs about HCE, just 5% said they offer HCE wallets, 17% plan to do their own HCE wallets and 32% are considering them," Bareisis says. "But 46% said they have no plans for HCE. The paradox is that when we asked what they were worried about in digital payments, they all talked about the need to be top of wallet and not lose control, and all agreed that banks should provide their own branded wallets."
Chase Pay
The rollout of Chase Pay by Chase, the largest US card issuer, will awaken the bank-branded mobile wallet market, says Crone. "Chase Pay will spur every bank that wants to keep their customers to offer a bank-branded wallet," he says. "Banks need to have a plan for mobile payments. Signing up for Apple Pay or Android Pay isn’t a mobile payment strategy, but will actually erode the bank’s franchise and brand value over time. Most importantly, banks offering a mobile payments capability will have a platform for providing personalised services such as customised credit offers when the customer is in the store making a purchase."
Chase’s QR-code based mobile wallet will be accepted at US merchants belonging to the MCX (Merchant Customer Exchange) mobile payments alliance as part of MCX’s CurrentC wallet.
Chase is partnering with 17 technology vendors so merchants who aren’t Chase Commerce Solutions merchant acquiring clients can participate in Chase Pay. From Autumn 2016, Chase Pay will also be accepted at the 7,500 company-operated Starbucks locations in the US
"Market research surveys show that consumers prefer to get a mobile payment capability from their primary FI, and Chase is playing into that," Crone says. "Chase knows that the number one reason for switching banks, after fees, is mobile capability. Five years ago, Chase was one of the first banks to launch mobile RDC, and every time its RDC ad played on national TV, it opened up 10,000 new accounts. Over half US millennials will move their primary banking relationship to get a mobile payment capability from a bank."
Chase plans to prepopulate all its 94 million credit, debit and GPR prepaid cards in Chase Pay. "Chase Pay will be accepted by the 49 major retailers such as Krogers, Walmart and Wendy’s which belong to MCX and account for over $1 trillion in annual spend. It will offer on-us transactions which are cleared through Chase’s own processing network and have fixed-fee pricing with volume-based discounts plus zero merchant fraud liability and zero network fees. This means merchants are motivated to accept Chase Pay’s lower-cost transactions."
"Chase did a deal with Visa according to which it carved out a portion of VisaNet called ChaseNet so Chase can process transactions in an Amex style closed-loop environment," says Bareisis. "Because Chase Pay encompasses both issuance and acceptance through Chase’s merchant services business, it’s a unique proposition that not many banks can replicate."
Chase Pay’s benefit to consumers will be the ability to activate offers and redeem rewards from within the wallet. "Chase will be the only wallet provider able to offer seamless rewards and offers integration," Crone says. "I estimate that Chase will see revenues of $300 per active Chase Pay user per year from merchants whose offers are activated."
Although its default option is QR code payments, Chase Pay will support NFC payments for Android devices as well as Bluetooth Low Energy beacons which detect a mobile wallet user’s presence. "BLE can be used for applications such as paying for take-out food at drive-ups," says Crone.
CU Wallet
US credit union service provider CU Wallet has developed the white-label CU Wallet app which credit unions can issue using their own brand. CU Wallet has 120 credit union participants, which together represent over 10 million members.
"The CU Wallet application is already live," a CU Wallet spokesperson says. "Two early adopter credit unions have launched the app and are testing with friends, family and employees in preparation for a full release to membership. A third credit union is on the cusp of doing the same, and a dozen or so others have signed contracts and are in our deployment pipeline."
Currently, CU Wallet supports QR code transactions using technology supplied by PayPal subsidiary Paydiant which also provides MCX’s platform. "We will soon support NFC for contactless payment through our recent partnership with MasterCard through integration with the MasterPass digital wallet," the CU Wallet spokesperson says. "We have also partnered with two national merchant networks, Empyr and Relevant Solutions, with a third that will be announced in the coming weeks, to provide consumer value through national and local discounts and card-linked offers."
MCX
Walmart, Best Buy and Target launched MCX in 2012 in order to develop a retailer-centred mobile payment system focused on loyalty and rewards that would cut the cost of card acceptance in its members’ stores.
MCX subsequently launched the CurrentC mobile app which, as of March 2016, is in pilot mode in Columbus, Ohio with retailers such as Kmart, Sam’s Club, Sears, Walmart, CVS/pharmacy, Target and Wendy’s. MCX’s members collectively operate over 110,000 locations.
"CurrentC provides consumers with multiple ways to pay, including chequeing accounts, Chase Pay, gift cards, and retailers’ private-label credit and debit cards," an MCX spokesperson says. "CurrentC combines these payment accounts and consumers’ loyalty cards, automatically applying coupons, promotions and loyalty rewards at checkout in a single transaction."
MCX’s prospects are uncertain due to the fact that many of its original members no longer have exclusive agreements to accept CurrentC, which means they can accept other m-payment methods such as Apple Pay and Android Pay. Another potential drawback of CurrentC is the fact that only Chase-issued cards linked to Chase Pay can be stored in it.
Walmart Pay
In December 2015, Walmart launched its QR code-based Walmart Pay mobile wallet which it plans to roll out to its 4,600 US stores during the first half of 2016. Walmart Pay works on iOS and Android devices which have downloaded the Walmart mobile app, and accepts any major credit, debit and prepaid cards as well as Walmart gift cards, Walmart says.
Walmart has a head start for Walmart Pay as it already has 22 million Walmart mobile app users. The app lets Walmart customers look at and activate in-store offers and store a shopping list.
"What Walmart is doing is cross-populating the payment credentials customers use in Walmart.com and allowing them to make purchases in physical stores with the Walmart app," Crone says.
