Three Big Pieces of the Mobile Payments Puzzle: EMV, NFC, and Apple

As Mercator Advisory Group has explained in previous research, the road to mobile payments adoption has been full of dead-ends, detours, and wrong turns. Payments-industry incumbents have, for the most part, patiently waited for mobile payment technologies to mature and have refrained from thrusting new processes onto their cardholders. Several startups as well as established firms outside of the financial services industry interpreted such patience as an opportunity to go to market with enhanced mobile offerings that could disrupt the traditional payments industry value chain.

Instead of waiting for contactless acceptance to develop, payments upstarts such as Isis and Google raced to market with early-stage products, recruiting merchants as they continued to develop their solutions. The problem, as many users and providers of mobile wallets can attest, is that the convenience of the magnetic stripe (its ease of use, speed, reliability, and more) is hard to beat.

The industry’s shift toward EMV (see Preparing for 2015: The Year of the Liability Shift) could change that dynamic, however, and set the stage for mobile payment adoption. The transition to chip-enabled cards and card readers will cause a significant amount of confusion for merchants and cardholders. Cashiers need to be retrained, transactions will take longer, and payment cards will be left behind at checkout. EMV, to the extent that it makes the card experience more frustrating at the point of sale, will lower the bar for mobile payment solutions to improve upon the legacy card system.

It’s quite ironic to think that “upgrading” to 1990s technology could be the catalyst that moves the U.S. toward more feature-rich payment experiences. Nevertheless, companies such as Apple that have waited to place bets on any particular mobile payment technology stand to benefit from the now immanent EMV deployment (including contactless acceptance), the results of early-stage pilots, and relatively recent technological developments such as host card emulation (HCE). Seemingly substantiated rumors that Apple will include an NFC chip in the next iPhone release have returned NFC, which many in the industry had left for dead, to the mobile payments spotlight.

We will have to wait for Apple’s media event on September 9 to find out how the company plans to leverage, if at all, iBeacons, TouchID, Passbook, and its credit card accounts on file to deliver payment services. But reports that Apple will also announce partnerships with Visa, MasterCard, and American Express, if true, will lend credibility to any product the company releases.

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