[Column] Gerhard Oosthuizen: Four mega-trends shaping mobile payment platforms

With rapid smartphone penetration in South Africa boosting research and development, it is no surprise that local fintech players are turning their attention towards mobile payment innovation. Mobile payments could be very lucrative in the local market, as elsewhere, but this potential remains largely untapped. We believe that banks and other financial service providers have a great deal to gain from offering secure mobile payments to consumers eager for no-fuss solutions.

In developed economies like North America and Europe, research has demonstrated that for any new payment solution or platform to gain traction, trust-inducing security has to be the starting point. With this in mind, there are several trends shaping the design and development of mobile payment solutions today – all aiming to attract increasingly demanding and tech savvy consumers.

From here to tokenization

There’s a difficult journey underway, fraught with uncertainty, as the traditional payments paradigm is replaced by a fully tokenized system. In essence, tokenization can be used to secure any kind of digital transaction by reducing the amount of sensitive data stored on mobile devices and transmitted over networks during payment. The technology substitutes a payment card’s “static credentials” (the card number and expiration date, for example) with a unique value that only applies to a single transaction. This token is of no value to fraudsters because they cannot use it again.

New and established fintech players are looking for smart ways to leverage the technology. Leading consumer products include Samsung Pay, Masterpass, Visa Checkout, Apple Pay, and WeChat Pay.

Choosing the right path to tokenization is vital: you only want to do this once. How do you ensure your organization gets it right and avoids a death by a thousand cuts?

Regulatory crosswinds will complicate take-off

The regulatory burden on financial services and payments companies continues to grow, siphoning away resources that could be put to better use elsewhere. These entire industries are going through the same thing, so there’s an opportunity for more forward-looking businesses to take a lead over the competition by approaching the problem of compliance with innovative thinking.

Rather than aiming to meet the minimum of requirements, organizations should take the long view. Otherwise, they’ll return to square one every year or so.

Is your organization focused too narrowly on meeting the most immediate compliance obligations? How can picking the right technology vendor smooth your response to future regulatory changes? What’s your strategy for using regulation to get a lead on your rivals in the market?

The payment event is dead

E-commerce giant Amazon is piloting a concept – Amazon Go – that aims to eliminate physical checkout lines. The company’s new bricks and mortar grocery store concept requires shoppers to scan their smartphones on entry, after which its “just walk out” technology registers what products are taken off shelves (or returned), keeping track of each virtual cart. The shopper simply leaves the store when he or she is finished, and the e-tailer automatically charges their account.

Those in mobile payments are also reimagining the shopping experience. Why, they wonder, must a mobile-based purchase end with the tedious old checkout? Reviewing the items you have selected and paying for them should be so easy that it appears not to happen at all.

How will you enable this for your merchants and customers in a way that’s easy to integrate, easy to use and still secure?

Multiplying ecosystems

It’s not just about an app store linked to a particular mobile operating system anymore. Mobile “ecosystems” are bursting into life everywhere. Financial services providers and mobile payments companies now see, thanks to Apple, that digital dominance is predicated on offering a range of compelling products and services through a self-contained and secure platform shared with other organizations.

As this trend develops, banks and financial institutions will need to consider very carefully what ecosystems to support – and how they will do so. The key to getting it right is identifying where and how their customers are interacting digitally and how the ecosystem in question serves their needs.

Will you support payments on platforms like Facebook, WhatsApp or Amazon Echo? How will your customers opt in and select their payment mechanisms? Who gets what share of the sales commission or service fee? Would you want to create your own ecosystem?

Gerhard Oosthuizen is Chief Information Officer at Entersekt, Cape Town, South Africa.