Since the initial launch of NFC-based mobile wallets more than 10 years, no wallet solution has achieved mass market adoption. During this time, telephone companies, issuers, phone manufacturers and many other companies have dedicated significant effort, technology and marketing investments. None of them have attracted enough end users to launch the mobile payments revolution … yet.
In this blog, we will analyze the challenges the mobile payments market has faced so far, and whether wearables could prove a viable solution to overcome these obstacles.
Challenge: SIM card, secure element or phone manufacturer dependency
Existing mobile wallets always have been dependent on hardware, a secure element or an operating system. When NFC wallets were initially introduced, phone company-oriented wallets were popular but they still relied on the telephone company’s SIM card. It meant that, unless you were a subscriber of the relevant telephone company operator, you couldn’t use your phone for NFC payment transactions. As time went on, phone manufacturers such as Apple and Samsung developed NFC wallets, including Apple Pay, Android Pay and Samsung Pay. However, the user is still faced with same challenge of being totally dependent on a phone manufacturer to offer payment services in the wallet. For example, you must wait for Apple’s decision to support MIFARE transit transactions in your wallet if you want to offer this service to your customers.
Wearables might represent a promising solution, as any party can implement a wider option of services in a wearable device without being dependent on a particular phone manufacturer, telephone company or other third-party provider. In addition to offering payment applications, you can also provide your customer's options for transit, ticketing, loyalty and access control, among many other services. Wearable payments options are owned by the issuer, OEM or any other third party who wants to implement such services.
Challenge: Limited use cases
To attract the attention of consumers, it’s important to focus on the use case scenarios that truly highlight the additional benefits for consumers. Overall, consumers are unlikely to change their habits unless presented with a strong case for doing so. With only a few current features, mobile wallets are not yet attracting wide spread consumer interest. The consumer’s pain points must be addressed to overcome market indifference. Many current wallet options offer little or no value added services beyond the convenient payment feature. Some of the reasons for the slow wallet payment adoption include additional costly items, and lack of effective integration efforts and compatible business models between different parties. One timely example is how MIFARE-based transit ticketing and NFC payment technology would greatly benefit transit users, however, a majority of traditional wallets don’t support this feature yet. Some lack secure elements in the wallet device, which is required to complete MIFARE transactions. Other wallets have secure elements, but are not enabled for MIFARE transactions, mostly because the parties involved cannot agree on a business model.
Wearables could deliver a promising answer, as fully MIFARE4Mobile-certified NXP PN66T chips are equipped with embedded MIFARE DESFire emulation and payment applications. Additional services can be added, as the chip is a multi-application JAVA open platform. There are solution providers currently in the market to provide a back-end platform to integrate wallets with tokenization service companies for payment transactions, and service providers to offer different services in wearables.
Challenge: Ownership and business models
In existing wallets, where issuers, handset manufactures and telephone companies share the ownership of the wallet, it is not clear yet who owns the business transactions and what business model exists between all stakeholders. Generally, one company like Apple or a phone company offers the wallet, and issuers make their cards available in these wallets. However, some issuers now want to have their own branded wallets.
With a wearable solution, issuers or service providers can create their branded wallets in any operating system (IOS, Android, etc.) and they can design their own wearables, offering any service they want to their customers. In this flexible model, issuers don’t need to pay a provisioning or transaction fee to any other third-party wallet provider.
Challenge: User experience
Wearables offer an additional convenience that mobile phones currently don’t provide; they are truly ideal in on-the-go situations, and when it is not convenient to carry a mobile phone or wallet. For example, users can wear a payment ring in a swimming pool and make a payment with no phone, wallet or even battery needed. Having a built-in NFC chip in the wearable, the payment can still be completed just as it would be with an NFC phone.
Wearables also offer many non-payment features for health, fitness tracking, etc.
It is these kind of experiences and possibilities that set apart wearables in the payments industry and bode well for its growing adoption and acceptance in the years ahead.
About Cardtek Digital Enablement Platform
Cardtek Digital Enablement Platform helps issuers, wearable OEMs and service providers to enable payment and non-payment services in wearables. Consumers can easily on-board payment cards, transit tickets, access cards and any other services in the wearable devices.
Cardtek has implemented an entire payment system infrastructure, which is integrated into NXP PN66T wearable chips. The solution provides all the features in terms of securing provisioning of payment and non-payment cards, activation and deactivation of services. Cardtek also provides Mobile SDK for wearable OEM companies so that they can develop their own user interfaces on mobile phones. Cardtek’s solution is also integrated with tokenization services to secure provision tokenized payment credentials into the wearable device.
Please visit our booth #3026 at Money2020 to see our wearables demonstration.