Brian Day, TMG: "Although Apple Pay is the mobile-pay darling of the moment, card issuers should keep their options open"

Apple made a sizable splash in the US when it announced its mobile payment solution, Apple Pay. Indeed, the solution provided the ideal blend of three existing technologies – near-field communication (NFC), biometrics and tokenization – in a completely new and functional way. Yet the innovation may have clouded the payments vision for some. Blinded by the brand glitz and consumer infatuation with the iPhone, some issuers may be too focused on Apple in the near term. That’s because there is at least one very strong competitor with the potential to change everything: Google.

Especially when pressured by Apple devotees, if they’re not careful, financial institutions may find themselves with a bit of tunnel vision as they develop their mobile payment strategies. It’s important to consider, however, that although Google’s Android-powered devices may not have garnered the same market reaction or movement as Apple Pay has, they still hold a lot of sway with consumers.

Why Android is behind
While Apple’s payments roadway has been somewhat cemented (at least for the time being), Google’s remains fragmented. Today, Google Wallet and SoftCard offer a way forward for US consumers looking to make payments from their Android devices. That said, neither has the brand stronghold on Android users that Apple Pay has on its loyal fans.

Apple’s and Google’s battle for mobile pay business is an outcropping of each ecosystem’s overall make-up and business philosophy. Whereas Apple’s iOS is tightly controlled, Android’s remains characteristically open. Naturally, this creates fragmentation. Buoyed by nearly boundless autonomy from Google, phone manufacturers, app developers and even end users/consumers are free to create their own solutions for the Android marketplace. This may sound like a positive, particularly to those passionate about open source and free-market innovation. Yet for payments, it’s not necessarily a strong benefit.

Challenges and opportunities for Android
American consumers have been conditioned to expect a few payment options that work nearly everywhere they need them to. Cash, cheques and plastic cards get you just about everything you need. With Android, too many options exist. iPhone users, on the other hand, have one very strong option, Apple Pay. As we’ve seen before, too many choices can actually inhibit market acceptance.

This is not to say Apple Pay will work everywhere. In fact, there are some analysts that believe the retailer consortium Merchant Customer Exchange is working to block NFC in major retail stores throughout the US. There are even talks of a class-action lawsuit in the works.

One hurdle Android may have successfully cleared is control over the secure element hardware located in Android-powered devices. Whereas wireless carriers at one time owned the manner in which cardholder credentials could be securely stored, Google has circumvented that power with its enablement of host card emulation (HCE) in all Android KitKat devices.

In a traditional NFC-based payments app, card credentials are stored on the phone itself. With HCE, the credentials are stored securely in the cloud, which allows users to access them virtually anywhere. This creates a really nice user experience where all consumers need to do is tap the phone, which knows to initiate the authentication process by accessing the cloud.

Another big winner in Google’s HCE game is the card issuer. Those old handset roadblocks created by the wireless carriers had kept NFC-powered mobile wallets off issuers’ radars until now. With the introduction of HCE, however, issuers can insert their customers’ credit and debit accounts into payment apps created by third-party developers. Consumers, too, will be excited by the technology, as it allows them to make mobile payments with their most trusted card accounts.

Tokenization enters the picture
Although not new, Apple shined a significant spotlight on the concept of tokenization, which adds another layer of security to its mobile wallet app. Now many consumers are familiar, at least in a basic sense, with the technology. Given the increased awareness of the technology and the industry consensus around its predicted effectiveness in minimising digital payment fraud, it’s only a matter of time before the major card networks in the US require all mobile transactions to be tokenized.

This likely scenario is expected to inspire more Android mobile wallet developers to build tokenization into their apps. How it plays out with existing Android wallets, like Google Wallet and Softcard, will be interesting to follow.

Globally, Google has the majority market share in the smartphone business with its Android-powered devices. So, although Apple Pay is the mobile-pay darling of the moment, card issuers looking to link their portfolios with mobile solutions have to keep their options open. The best mobile strategy for a US credit union or community bank, therefore, is a nimble one.

About the author
Brian Day is a senior product manager for US payments processor The Members Group (TMG). He is a business professional with a strong background in business process analysis, product development and project management. As a senior product manager for TMG, Brian Day leads development and execution of strategies for mobile, rewards and ACH lines of business. He can be reached at briand@themembersgroup.com or on Twitter at @TMGBrian.

Company description 
The Members Group (TMG) is dedicated to creating customized, technology-driven card processing and payment solutions for credit unions and community-based financial institutions across North America. Innovations in fraud management, loyalty programs, alternative payment systems and analytic reporting, and the competitive advantages they create, have helped TMG forge a new standard in offering cutting-edge credit, debit, ATM, prepaid card products and a P2P payment solution. For more information, visit www.themembersgroup.com.