There is a growing disconnect between consumer shopping habits and the payment capabilities offered by retailers. Nielson reports that over 80% of smartphone and tablet owners use their devices for shopping activities, yet only 15% of merchants support mobile commerce transactions according to Lexis Nexis. In the same survey, half of all merchants surveyed believe that adopting mobile payments is necessary to stay competitive.
Global mobile payments solutions provider, Omlis and technology partner Seric Systems have looked at the pros and cons for merchants considering implementing a mobile payment strategy. The risks and benefits of three key areas were considered: implementation, security and cost.
Risk: New Territory
"For established organizations, it may seem like a challenge to roll out a new strategy revolving around consumers' mobile needs," said John Stuart, Chief Commercial Officer of Omlis. "However, in order to maintain a competitive advantage and retain customers with growing competition from non-banking organizations who are entering the world of payments, merchants need to face this challenge and incorporate digital offerings into their business processes."
Benefit: Competitive Edge
"It is still early enough in the mobile payments game to successfully implement a very competitive mobile payment strategy," said Markus Milsted, CEO of Omlis. "Consumer demand is palpable and retailers know that they will ultimately need to offer convenient mobile payments in order to stay competitive. It's clearly the right time to get into mobile payments, which retailers can do by using technologies that offer heightened convenience at the till, online and via mobile apps."
Most merchants are aware of the competitive advantage gained by adopting a mobile payment strategy, yet many have yet to integrate mobile into their payment options due to hesitation over security weaknesses and cost.
Risk: New Security Threats
Retail organizations understand how to manage security threats with their current payment options. Accepting mobile payments can be a daunting new aspect of the business operations, and with convenience typically favored over security in mobile wallets and mobile payment apps, merchants are faced with implementing a security strategy alongside the new mobile offerings to ensure that transactions are safe.
New research consistently displays the security risks present via the mobile channel. These risks are primarily associated with using mobile apps for transactions, POS (point of sale) security and storing sensitive data. The use of mobile payments in small businesses demonstrates the need for heightened security, as they are typically burdened with a higher cost per fraudulent transaction than larger businesses which can afford to employ more fraud prevention tools.
"There is a clear security risk associated with implementing mobile payment systems. Proactively addressing fraud prevention alongside implementation of a new payment channel will enable a successful transformation," said Stuart Macdonald, Director of Seric Systems and Omlis partner. "When it comes to mobile, implementing a platform with a direct security approach will be most effective for those who handle sensitive data or want to protect consumer transaction information. Data security is easily controlled when the right technology is applied alongside risk management strategies."
Benefit: Increased Payment Fraud Prevention
Fraud prevention will need to be considered in conjunction with the use of mobile payment technologies in order to gain consumer trust. It may be surprising that payment fraud prevention could be considered a benefit of mobile payments, but mobile can actually present an immense opportunity for guaranteeing secure transactions. Card fraud is a common problem in all developed markets, growing by 19% in 2013 to total $14 billion and increasing incrementally in 2014, according to BI Intelligence. Added pressure on merchants brings fraud prevention to the forefront, and digital payment methods enable the use of heightened security technologies.
With mobile payment transactions, a novel security method called tokenization secures card numbers, eliminating the risk involved with transferring card data. Tokenization enables payments on mobile phones through allowing secure transactions, and powers mobile payment technologies like ApplePay. In basic terms, tokenization is the secure process of encrypting credit card information by generating a 'token' that replaces a cardholder's credit or debit card PAN (personal account number) within a digital transaction, providing enhanced fraud prevention for online and mobile payments. Card providers like Visa have started tokenizing all mobile and online transactions.
By layering multiple levels of security and employing new security technologies, mobile payments can, in fact, make payments more secure.
Risk: Expenses and Fraud Losses
The IBM 2014 Cost of Data Breach Study calculated that retail organizations have the highest estimated probability (35%) of falling victim to a data breach. In IBM's 2014 Cost of Data Breach Study, the average per capita cost of a data breach increased from £86 to £95 in the United Kingdom, and is partially attributed to the impact of fraud deriving from mobile devices. Mobile fraud poses a costly risk to businesses who aren't using secure systems for mobile payments, which need to be completely secure in order to deliver a profitable business model for retail service providers.
"Seamless mobile payment experiences can improve convenience and consumer satisfaction," said Milsted. "Mobile payments offer an omni-channel opportunity to engage consumers on every medium."
For example, mPOS (mobile point of sale) adoption can enable card acceptance at lower transaction fees, saving money and also unlocking profits with loyalty or coupon schemes, smarter analytics for better inventory management and planning as well as enhanced customer service.
Added fraud prevention with more secure transactions can also reduce fraud in the long-term, saving the organization from unnecessary fees and increasing consumer confidence.
"The current acceleration of mobile payments means that now is the best time to invest in a futureproof mobile security technology which will carry the market forward," said Macdonald. The mobile security market alone has a projected growth rate of 30% in the next four years, becoming worth $5,754.8 million by 2019..
Implementing a mobile payment solution that favors security and convenience will allow organizations to safeguard against the cost of fraud while positively impacting operational savings and revenues. For business planning, Deloitte offers a mobile payments risk map that helps identify and address the following key areas of risk: information management and analytics; operations; security and resilience; governance, risk and compliance and strategy.
Omlis technology reduces the security risk for mobile payments, encouraging consumer adoption to build trust and brand loyalty.