The Fundamentals of Mobile and Digital Payments for Bankers

[ILLUSTRATION OMITTED] WITH consumer enthusiasm for and digital payments on the rise, usage will continue to grow past the early adopter phase as the likes of Apple Pay and Samsung enter the market. From a consumer behavioral perspective based on payments usage, what the industry is seeing now is much different compared to years past. More people are trying digital wallets, using payment apps, and experimenting with making payments using near-field communication (NFC) equipped devices. According to a recent Federal Reserve survey, mobile phones are also changing the way consumers make payments. Twenty-two percent of all phone owners reported having made a payment in the 12 months prior the [March 2015] survey, up from 17 percent in 2013, and 15 percent in 2012. As the pieces come together, it's important for banks to examine and understand the most important elements of and digital payments. In particular, focusing on key security elements needed to protect consumers' information during transactions, such as Tokenization, Host Card Emulation, and 3D-Secure. Not only does implementing these technologies within payments help keep data protected, they also help to establish trust in payments among consumers. As best practices continue to form, banks can either adapt their own internal systems to support multiple wallets and the facilitation of tokenized transactions, or partner with organizations that can expertly provide these services. For instance, Discover will soon launch Discover Digital Exchange (DDX), a platform for Discover Debit and other Discover card issuers, designed to simplify management of digital payments and accelerate time to market. Pieces are in Place for Broad Adoption Anyone who has seen a family at a restaurant staring at their respective smartphones understands the behaviors driving change. Consumers are deeply connected to their devices and apps. These electronic security blankets help navigate and enhance many aspects of our lives, and smart devices are becoming ubiquitous--crossing social and economic chasms in a way that only television has done in the past. The Fed survey found the connectivity is reaching deeper than ever. Eighty-seven percent of Americans now have phones and nearly three quarters of those devices are Internet-enabled, up from 61 percent just a year earlier. Meanwhile, Walker Sands' 2015 Future of Retail study illustrates how those phone devices are becoming an optional payment vehicle. Forty percent of respondents said they used a payment application in the past year--a five-fold increase from the previous year. Market research from PricewaterhouseCoopers predicts that by 2019, U.S. payments will hit $142 billion, not including payments made on tablets or card payments made at the POS or with a card reader. Drilling down further, the base of NFC-equipped devices is approaching 650 million and Deloitte predicts that 32.5 million of these devices will be used at least once a month to make contactless in-store payments by the end of 2015. Enabling Mobile and Digital Payments As merchants, issuers, and consumers look to the future of payments, one thing is clear--the user experience needs to be seamless and subject to increased security. For issuers to participate in the emerging and digital payments ecosystem, access to the infrastructure to facilitate payments is necessary. Banks must be equipped to participate in various wallets, authorize tokenized transactions and manage tokens throughout their lifecycle. This is a major undertaking requiring changes to internal processes, operations and systems. Recognizing that the payments environment will continue to evolve rapidly, banks also need to be adaptable. …