The Intersection of Banking with Mobile Phone Technologies

The news just keeps getting louder about the intersection of banking with mobile phone technology.  The issues revolve around applications, who controls them, how they get onto your phone, how many people are walking around with 'smart' phones, etc., etc.  It is so reminiscent of the days 15 years ago when the rage was smart cards and how stored value or prepaid (there's little difference between these two terms) would require the security that only public key infrastructure or PKI could achieve. 

 

And what happened?  There was no one around willing to lay out the $3B to revamp the POS infrastructure.  The business case, security and all, just wasn't there.  And there was no infrastructure to support new technology at the POS.  I have to wonder if the same thing isn't happening again, this time with mobile applications.

 

With the smart card guys using every breach we experience in today's payment systems to support their efforts to establish contactless smart cards, using EMV's chip and PIN methods, how will these efforts be affected by attempts to marry these two technologies (payment systems with mobile)?

 

The mobile applications we have today (SMS balances) works because we use host-based systems.  What happens if the smart card guys actually realize the day?  Will balances kept on a card have a negative impact on innovations using mobile?

 

The real offering won't happen until we've installed apps onto our phones.  USAA recently announced an application for bill pay using smart phones.  You have to be approved and download the application to make it work.

 

Going back to the POS, I keep thinking about how NFC reminds me of the smart card days when no one wanted to ask the question, "So who's going to pay for replacing $3billion worth of POS infrastructure?"  This is still a pregnant question almost 2 decades later.  I remember we started talking about smart cards in 1990 at the MTA in New York City when we started asking ourselves if we could create a card program inside transit that would allow the cardholder to buy more than just a subway ride.  Now the question is being turned into one that asks whether our phones can get us into the subway or not.

 

EMV's solution of PIN and chip will require almost as much pain in terms of revamping our infrastructure.  And if we move to PIN and chip, what happens to NFC and those SIMs that are resident in our smart phones?  Will the SIM be capable of PIN and chip?  Will Verizon, AT&T, T-Mobile, Sprint and the other MNOs allow handset manufacturers like Nokia, Apple, Blackberry and others to provide downloads that will make their phones true banking end points in the network of terminals?  And where are the banks in all of this?  Don't we need them and their networks if we're going to intersect any type of technology with payment systems? 

 

And I think that may be the direction.  The solution is the one that sees payment networks and mobile network operators interacting in an online, real-time environment.  This might make the handset guys willing to work with whichever payment network(s) is first to develop a compatible environment. 

 

I sat through a webinar last week on these topics.  It seems the jury is a long way from bringing in a verdict.

 

Peter J. Quadagno

September 21, 2009

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