Big Day for Payments: Plastic vs. Digital

Only in the ever changing world of payments.

It is more than a bit ironic that on a day that Isis Mobile Wallet announced that they were going live with their carrier-backed digital payments initiative, a unique card-based solution named Coin announced their alternative solution to the overstuffed wallet.

The question is . . . which solution has the greatest chance for near-term and long-term success?

Maybe both will garner the support of the key involved parties. Maybe neither. Maybe another company will take the Coin concept mainstream sooner than the planned introduction. The one thing I am pretty sure of is that it is further evidence that financial institutions need to place multiple bets on alternative solutions to avoid being left behind.

Despite all of the talk in the industry around mobile payments, acceptance of new digital innovations and platforms has been anything but a smooth ride. In addition to the seemingly insurmountable challenge around consumer's concern with security/privacy, getting merchants, consumers, financial institutions and even carriers on the same page has been close to impossible.

At the end of the day, the biggest challenge may be the perception by many that there is no reason to fix something that isn't broken. The current card-based process for making payments, while not perfect, is relatively easy and definitely firmly entrenched in the consumer's daily life.

What is Coin?

Coin is a .84 mm thin plastic card-like device that can store any of your current cards (actually, 8 of them) and behave like the cards it replaces. Instead of carrying an assortment of debit, credit, gift, membership and loyalty cards from various institutions, you simply use the dongle provided (like the one used by merchants accepting Square) to capture your card information on your phone, take a picture of the cards and use the Coin app to load your Coin card.

While only 8 cards can be loaded into the Coin card, an unlimited number of cards can be stored in the mobile app and switched in and out of the card as desired. "You don't need eight cards every day, so your phone is kind of like your drawer, and your Coin is kind of like your wallet," explains Parashar, founder and CEO of Coin. 

When you are ready to pay or use a loaded card, simply press a button on your Coin card to select the card you want to use (electronics imbedded within the Coin card itself), present your card to the merchant like you have done in the past, and the rest of the process is the same as it is today (see compelling video below).

Coin is Secure

For those concerned about the security of the card should you leave the card behind (only happens to me about 4x a year), the Coin card uses Bluetooth low energy technology to inform you on your phone that you left your card behind. Better yet, the card completely disables itself if your phone and card are away from each other for more than 10 minutes. 

For those concerned about someone scanning another person's plastic into the app, Coin says that the app only accepts a card that includes the user's personal information. Further, the Coin app is protected with 128-bit or 256-bit encryption and the company is pursuing PCI compliance. The app is also password protected.

Mobile Payments Growth: Just The Tip of The Iceberg?

A new report from Business Insider Intelligence on the state of the mobile payments industry shows that, while the volume of mobile payment transactions still represent just a small percentage of overall payments on the surface, the level of growth is significant and quickly shaping the entire payments industry.

Both consumer and merchant uptake is exploding as smartphone users are quickly adopting mobile wallets, payment apps, etc. to facilitate offline and online purchases and as businesses are turning smartphones and tablets into full-featured POS terminals. The next critical step is to persuade the masses to become users of the payment technology available.

When Amazon and eBay launched their online shopping sites in 1995 and 1996 respectively, the notion that over half the U.S. population would make purchases online would have been scoffed at. Yet in 2013, the number of online shoppers in the U.S. will reach 189.6 million, according to eMarketer. In this case, the majority of the consumers were resistant to change until they made the switch and realized the benefits. The same applies to mobile payments.

The key is to examine the current payments industry growth trends, motivations of current users, the reasons for the gap between awareness and usage, and how financial institutions, retailers, network operators and equipment manufacturers can work together to convert reluctant consumers into loyal users. As mentioned by many of my fintech colleagues recently, it goes beyond a mentality of "If you build it, they will come". There is a need to solve for the concern around mobile security as well as develop incentives for usage.

Defining Mobile Payments

For the purpose of the study being reviewed, 'mobile payments' were defined as when a mobile, internet-connected device (smartphone, tablet, smart watch, Google Glass, etc.) is used to facilitate a transaction that might otherwise have taken place using a physical credit card, debit card, check or cash at a physical (not online) store. 'Mobile transactions' (for the purpose of this study) are a larger category that included mobile payments as well as mobile commerce and e-commerce channeled by an app or mobile website (e.g., Amazon's mobile app).

Mobile payments and transaction innovation is currently be led by start-ups and tech companies, who are prompting legacy payments players and card companies to reevaluate their current strategies and increase their own pace of innovation. 'Coopetition' has become the norm as companies team up with each other as opposed to building a mobile strategy from scratch. These partnerships (and individual initiatives) are pushing innovation forward quickly, making the industry fragmented yet ripe for consolidation.

Mobile Payments: Still Relatively Small on the Surface

Like an iceberg, there is much more to the mobile payments than what the can be seen on the surface today, with a U.S. mobile payments forecast of $30 billion in 2013. According to the research compiled by BI Intelligence, this forecast represents an average annual growth rate of 118 percent since 2008, but still will only account for 2 percent of the $3.3 trillion debit and credit card volume in the U.S. this year. It was also found that other global markets (such as Africa and the Asia Pacific regions) are seeing a much larger percentage of mobile transactions.

In both the U.S. and other global regions, the growth in mobile transaction volume has been driven primarily by the growth in smartphone adoption (especially in areas of underdeveloped banking systems). Not only has the smartphone impacted the consumer side of the payments equation, but also the merchant side, where attachable card readers transform smartphones and tablets into cash registers, making card purchases easier.

Kaching Ushers In New Era of Mobile Banking

The Commonwealth Bank of Australia has broken new ground in the advancement of mobile payments by introducing a new iPhone application that allows users to pay friends or businesses using Near Field Communication (NFC), Facebook identification, an email address or a mobile phone number.

Kaching (pronounced like the cash register sound Ka-Ching)  will initially only be available for users of the iPhone 4 and 4S (with soon to follow Android support) using a specially designed case with built in NFC chip. With this case, the phone will allow the user to simply tap and pay at a PayPass terminal. 'This banking breakthrough marks a significant milestone in the evolution of how people pay and receive money from each other," stated Commonwealth Bank of Australia chief information officer Michael Harte.

According to a CBA spokesperson, the use of a specially designed NFC case is only an interim solution until iPhone, Android and other smartphones introduce new versions of phones with NFC integration built in. In what some believe could be the beginning of the end for plastic credit and debit cards and potentially even cash, this form of electronic payment would be conducted 24x7 in real time if both sides of the transaction are CBA customers and one to two days if the payment is made to a customer of another bank.