“The mobile phone will be a much more secure payment device than the plastic cards we use today.” That is the view of the assistant director of the Retail Payments Risk Forum, in a blog post published this week by the Federal Reserve Bank of Atlanta.
In ‘Dispelling the myths about mobile banking and payments‘, Cindy Merritt says the mobile phone should be seen as a normal method of payment, and one that should be encouraged thanks to its superior security features when compared with magnetic stripe cards.
“First of all, the security functionalities resident in the mobile handset provide authentication capabilities that don’t exist in the current payments environment,” she says. “The ability to add passwords and GPS location functionality to the handset represent additional security controls to accessing payment instruments in the future mobile wallet.
“Today, there are no locks on your leather wallet to preclude a bad actor from stealing your credit and debit cards and using them for illicit activity.
“Moreover, the technologies that enable our current payments are becoming increasingly obsolete and vulnerable to fraud. Card payments grow riskier every day as the United States remains reliant upon mag-stripe technology, which is very easy for criminals to breach and then use to clone cards for illegal payments.
“Because mobile devices will use contactless technology in the form of an embedded computer chip, the mobile phone will be a much more secure payment device than the plastic cards we use today.
“So maybe the idea of mobile banking and payments isn’t that scary—and maybe these things aren’t even that trendy any more. When you get right down to it, the cell phone is just another form factor for a payment.”
The Atlanta Fed, the Boston Fed and a selected group of US mobile network operators, banks and payments networks held months of discussions during 2010 which resulted in the publication last month of a white paper, Mobile Payments in the United States — Mapping Out the Road Ahead, which sets out a vision for the future centred around an NFC-based open mobile wallet.
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Comparing a 50 year old technology to a 10 year old tech (mag stripes versus NFC)…? It should not surprise anyone that mobile payments come out looking better. While I would like to see mobile wallets take the place of cards, I’m not sure it’s going to happen soon.
Case in point… American’s are denied use of their mag stripe cards for over $4B in transactions annually. The reason is the growing use of EMV Chip and PIN cards in Europe. Rather than pushing the card brands to move to contactless (RFID and NFC) world wide, Wells and others are testing EMV cards.
So if we finally drop mag stripe technology, we might see it replaced with EMV cards, not NFC and RFID products.
EMV and NFC are complementary and not mutually exclusive…… UK NFC cards are EMV…… NFC merely changes the interface. Wells would be well advised to make it’s EMV cards NFC enabled so they will work with full EMV security right at home in the US via the NFC interface. Doing that would in fact be a practical entry point for EMV into the US market.
Keith:
I wasn’t clear. You’re probably correct that NFC, RFID, and EMV chips may all be the same inside, but the connection to the merchant terminal is different. A contact based chip card requires a very different terminal than and RFID/NFC based token.
As I understand it, the EMV terminals in Europe and elsewhere are contact based, not RFID. There’s also the issue of the PINs for credit transactions. European Chip and PIN set ups are contact based cards plus pins. US based RFID terminals don’t use pins for credit transactions.