Mercator Perspectives

MasterCard, mFoundry, and a Bank's Way to NFC

The mobile wallet and the NFC secure element are two of the hottest properties in payments. Unlike actual real estate, the exact location and the route taken to each, remain in constant motion. It's a little like pinning down an electron's location.

The mobile wallet may come in many forms - from the cloud as with PayPal (pre-loaded on a handset, distributed by payment service provider) or an entity like Google (outside of the traditional payments industry). Mobile gateway providers are building wallets. Isis is building its wallet with mobile expert C-SAM. Starbucks has its own, single purpose wallet, also built by mFoundry. There will be plenty of wallets to choose from and that will be a problem as consumers struggle to figure out which one to use, when, and at what locations. And, worse, what to do when one doesn't work. Unlike our payment cards, ubiquity of acceptance for the coming snowfall of digital wallets will not be a universal feature.

But the critical challenge, once NFC phones appear in volume, will be getting consumers to payment-enable those NFC chips, to actually connect their phones to specific payment credentials. And that's where the MasterCard - mFoundry announcement gets interesting. By embedding MasterCard's PayPass software libraries into mFoundry's mobile banking applications, the two companies have created a new activation channel for millions of accountholders. With it, a financial institution can encourage its NFC-armed accountholders to turn on NFC contactless payments via either the mobile and online banking interface. Just as FIs encourage customers to turn on bill payment via the online banking relationship, these same banking interfaces will be used to encourage accountholders to make payments via NFC –a feature of their smartphones. A simple opt-in choice and the credentials will be provisioned on the handset via the over the air provisioning processes conducted by trusted services managers. Expect to see encouragements like "If your smartphone has NFC, put your credit or debit card into your phone and enjoy the convenience of contactless payments" next year when this capability goes live.

This approach has many advantages. The financial institution is a trusted source. The feature is an extension of what has fast become a familiar application, mobile banking. The FI is able to encourage incremental usage of its own cards over other issuers' offerings. The consumer doesn't have to enter her card number on any device. There is no need to swipe a card through a merchant's reader.

Of course for the FI there are, at least, a couple of new fees to the mobile operator for its provisioning and encryption key management services. There's a fee for the initial load of the payment credential and a monthly fee for rental of the secure space on the handset that stores the card credential. At least, from the FIs perspective, the mobile operator won't participate in interchange revenue.

Other variations on this provisioning theme are possible. Imagine a large FI reaching out to a specific mobile operator to preload its mobile banking app or a mobile wallet variant on the MNO's smartphones. To reach the underbanked and underserved, prepaid mobile operators like Virgin Mobile, Cricket, Metro PCS, and others could offer prepaid financial services, and NFC-based payments connected to a prepaid account, to their customer base.

For financial institutions who have been deafened by the mobile wallet buzz, this mobile banking-based avenue to NFC activation of their own products must sound like music coming out of the noise.

From the AllThingsD article discussing the MasterCard - mFoundry announcement:

Consumers will most likely recognize mFoundry for developing the Starbucks mobile application, which displays a bar code that can be scanned at the register to make payments from a prepaid account.

MasterCard’s SVP of Mobile James Anderson he was more interested in mFoundry’s relationships with 600 banks and credit unions.

For the past five years, the company has been focused on the mobile banking space, by developing applications for banks that enables users to check their balances and conduct other financial services from their phone. He said millions of customers at banks, such as Citi and Bank of America, use the applications three to four times a week on average.

Going forward, MasterCard wants to work with mFoundry to enable those applications to make payments at the register using MasterCard’s near-field communication (NFC) technology called PayPass.

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