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March 18, 2013
March Madness on the Hardwoods, Mobile Madness in the Payments Arena
As an avid sports fan, I am eagerly anticipating college basketball's annual rite of spring commonly known as "March Madness." This nickname for the NCAA's Men's Division I basketball tournament is derived from the amazing finishes and upsets that regularly occur during the tournament each year. A big part of the intrigue around this tournament involves millions of people that will "fill out a bracket," meaning they prognosticate the winner of every game, ultimately choosing the winner of the tournament.
As I was thinking about the upcoming tournament, I realized a similar situation is developing with mobile payments at the point of sale (POS). It seems that every day, I read an article or blog with differing viewpoints on what company, wallet, or solution will come out as the "winner" for mobile payments at the POS. This got me thinking how a "bracket" would look for the mobile payments ecosystem. Interestingly, many of the attributes usually found with the successful basketball teams in March are similar to those attributes I believe are necessary for successfully competing in the mobile payments arena.
Fundamentals are extremely important
Teams that are fundamentally sound tend to perform well in the tournament. Fundamentally sound teams run an efficient offense with a high point per possession percentage and low turnover margin, rebound well, and make a high percentage of their free throw shots.
Likewise, in the mobile proximity payments arena, I expect the winner(s) will nail down the fundamentals of the transaction that consumers and merchants alike expect: ease and quickness. Just as basketball teams can employ innovative styles or plans, mobile payment providers are also developing the latest and greatest add-on to the payments experience. However, if both fail to deliver on basic fundamentals, success can be elusive.
Track record of successful risk taking
Besides excelling at the basic fundamentals, teams that make a high percentage of their three-point shots usually do well during March Madness. The three-point shot is the riskiest shot in the game, yet carries the highest reward. Teams who capitalize this risk with a high success rate are difficult to beat.
Besides the fundamentals of a payment transaction, it is no secret that consumers and merchants want more for paying with their mobile phone at the POS. Discounts, couponing, and instant offers through past purchase behavior and geolocation seem to be a major opportunity of differentiation with mobile payments. But I am not convinced these carrots are enough for any particular player to obtain widespread or mass mobile payment adoption. The player that is able to completely transform a consumer's shopping experience with the mobile phone will likely come out ahead. I believe this will require some risk taking by doing something different from the rest of the field beyond coupons, offers, and discounts. Perhaps this might be a mobile solution that allows a consumer to make a purchase and completely bypass the checkout line and POS while also updating the merchant's inventory level in real time. Established companies, as well as young companies led by teams or individuals, with a successful track record of risk taking should be considered closely.
A common phrase heard in many sports, basketball included, is "defense wins championships." Basketball teams that hold their opponents to a low field goal percentage and generate a high number of turnovers have proven to be extremely difficult to beat in the tournament.
In the world of payments, defense is all about mitigating fraud. For a mobile payments solution to be successful, it must be as secure. And I could even argue that it must be more secure than current payment methods. Research has consistently shown that consumers must perceive these payments to be secure if they are going to adopt them. Secure solutions developed by companies that are trusted by consumers stand to have a solid chance to move ahead in a "mobile payment POS bracket."
The winning team
Using the same attributes of successful tournament teams and applying them to the mobile payments POS space, I think the ultimate winner of a "mobile payment POS bracket" must offer at least the following three attributes in a cost-effective manner:
- Enable a quick and simple transaction.
- Greatly transform the shopping experience by being unique and different.
- Offer a secure solution that consumers will understand and trust.
More often than not, the traditional and established basketball powers come out on top of the tournament, but it's those unexpected upsets by upstarts and underdogs that put the "madness" in the NCAA Tournament. How will the situation for using mobile phones at the POS play out? Will an established payment provider come out on top of the "mobile payment POS bracket" or will an upstart be that "bracket buster"?
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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- account takeovers
- ATM fraud
- bank supervision
- banks and banking
- card networks
- check fraud
- consumer fraud
- consumer protection
- cross-border wires
- data security
- debit cards
- emerging payments
- financial services
- identity theft
- law enforcement
- mobile banking
- mobile money transfer
- mobile network operator (MNO)
- mobile payments
- money laundering
- money services business (MSB)
- online banking fraud
- payments risk
- payments study
- payments systems
- phone fraud
- remotely created checks
- risk management
- Section 1073
- social networks
- third-party service provider
- trusted service manager
- Unfair and Deceptive Acts and Practices (UDAP)
- wire transfer fraud
- workplace fraud