Understanding the Electronic Payments Alphabet Part Three: Mobile Technology and Devices

Earlier this year, we discussed Europay MasterCard Visa (EMV), the new method for issuing and accepting face-to-face card transactions that aims to reduce card fraud. In the third and final part of this electronic payment technology series, let’s shift the focus to Near Field Communications (NFC, or “Tap to Pay”). 

Before we dive in, remember that the October 1 payment system deadline for U.S. retailers is approaching fast. After that date, when any credit card fraud takes place, the liability for fraud will fall on the least EMV-compliant party (be it the merchant or card issuer). To avoid this significant exposure, face-to-face retailers need to have payment terminals and systems in place that are capable of reading and processing EMV card transactions.

Retailers should know that nearly all of these new terminals also include the ability to read electronic (NFC) signals, which are transmitted short distances from smartphones. Essentially, using this option requires the customer to have NFC-capable smartphones and the retailers’ terminals to have its NFC capability activated. 

For background, NFC payment technology has been available for a few years now, most notably via devices using Google Wallet and other apps. However, few retailers implemented NFC-capable terminals from the outset.  Then, along came EMV and the iPhone 6 with its NFC capability (Apple Pay). Between Apple’s advertising, other smartphone manufacturers getting involved and retailers upgrading their terminals, the growth of mobile payments has accelerated rapidly

As more retailers implement this NFC payment technology, and as momentum continues to build around its use by consumers, its future looks promising. Smartphones with NFC technology provide customers with an exceptionally secure payment method, and in the case of Apply Pay and Samsung Pay, they minimize the transfer of customer data to third parties. For retailers that invest in EMV/NFC terminals, there’s also the added convenience, efficiency and security of these payment alternatives for customers, which they will surely recognize and appreciate.

With all this in mind, here are brief overviews of the various NFC technologies that retailers should note as they invest and implement these new systems: 

Apple iPhone – Apple Pay:

With Apple Pay, an iPhone 6 user can load information from several debit or credit cards directly onto their phone.  To pay, they hold their iPhone near a contactless terminal. Then, a unique Device Account Number and security code are transmitted for payment, but not the card number.  Aside from ease of use, Apple claims its technology is very secure, while minimizing the transfer of customer data. Other security features include:
  • Once entered into the iPhone, the only card data available is the card type and the last 4 digits of the card number.  Card data is not maintained on the iPhone or Apple servers.
  • The purchase will require the user’s fingerprint, or they can enter a PIN number.
  • The phone only stores data from the ten most recent transactions.
Android phones – Samsung Pay with MST:

Samsung Pay is a new product similar to Apple Pay, and available in the new Samsung Galaxy S6. In addition to NFC, Samsung Pay has added technology called Magnetic Secure Transmission (MST). This allows payments to be made from an S6 at a terminal with no NFC capabilitiesThe card data is instead read by the terminal’s magstripe reader, which allows the S6 owner to make a purchase at any card terminal—whether or not it’s NFC-capable. Although a convenient option for customers, it could be less valuable in the future if most terminals become NFC-capable.

Android phones – Google Wallet:

Most other Android phones will also have NFC purchasing capability, coming preloaded with Google Wallet software.  However, Google Wallet users will not have biometric security as do iPhone 6 and Samsung Galaxy S6 users, and although the retailers will not be collecting customer data, Google likely will. 

Windows phones:

Microsoft has said they will have an NFC function on their Windows 10 phones, released later this year.

Merchant Customer Exchange (MCX): MCX is a payments venture owned by major retailers.  CurrentC is their mobile wallet app under development with rollout scheduled later this year. MCX’s main goals are to reduce fees they pay to card networks and incentivize customers to make more purchases by offering them discounts electronically.  To set up the app, the consumer must provide personal and banking information, and then download the CurrentC app and each retailer’s corresponding app.  During the purchase, instead of using NFC technology, they scan a QR code – similar to scanning a boarding pass before getting on a plane. Although QR code scanning technology may be secure, CurrentC will be collecting customers’ personal, banking and shopping information, possibly leading to hesitation from consumers.