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Global governments enable mobile payments

Why has our US adoption been so slow?

by / May 25, 2014

Credit: Flickr/sergiouceda

In the United Arab Emirates (UAE) a Smart Government Initiative is being implemented which will soon “provide users of mobile devices with an electronic equivalent of the traditional wallet, able to store, transfer money and pay for goods and services very conveniently from a common platform.”

In Japan, according to the New York Times, “The country’s largest phone carrier, said that about one third of its roughly 65 million subscribers were using its mobile payments service. The service, called iD, is used for payments with taxis, vending machines, buying a meal at McDonald’s or even paying to get on the subway.”

That same mobile payment system works in South Korea as well, providing incentives for adoption to both consumers and businesses.

And in Kenya, M-Pesa, which is the country’s mobile payment system, has revolutionized mobile technology for millions and provides the majority of the country's citizens with banking access.

According to Tech Republic, Kenya is the world’s unlikely leader in mobile payments:

“Almost 80% of people with cell phones use them for mobile payment and banking (and three quarters of the people in Kenya own cell phones), primarily through the M-Pesa system. Half of all mobile money transactions in the world take place in Kenya, where annual transfers have reached $10 billion.

About 60% of Kenyans living on less than $2.50 a day have mobile phones. Kenyans, even those at the bottom of the economic pyramid, have adopted the technology faster than any other African country. This rapid adoption was spurred by the invention of M-Pesa, which was created in 2007 by Safaricom, Kenya's leading mobile service provider….

Because of the success in Kenya, Vodafone is spreading M-Pesa to India and Afghanistan, as well as other areas of Africa such as Tanzania.”

Finally, in Afghanistan, mobile payments have reduced fraud and enabled the country to become a recognized leader in the mobile payments world-wide, according to Time Magazine.

“…It’s not at all unusual to see an Afghan policeman on Kabul’s security cordon, known as the Ring of Steel, checking his Nokia 1101 to verify that his monthly salary has been transferred to his mobile wallet. Then, just as quickly, texting a sum of money to his wife’s mobile phone in rural Afghanistan so she can buy groceries for the family or a new propane tank for the kitchen….

M-Paisa has made a big contribution toward eliminating corruption and theft in Afghanistan’s public sector,” says Laurence Chandy, an analyst who specializes in development issues at the Brookings Institution in Washington.”

The challenges and opportunities of a digital economy

According to the Bill and Melinda Gates Foundation, the challenges and opportunities are huge in providing digitally-base financial tools and services for the poor. In addition to cost savings, digital financial services offer a wide array of benefits:

• They connect poor people to the formal financial sector and enable them to become customers and suppliers within the wider economy.

• Financial flows can be accurately tracked, resulting in safer and speedier transactions and less corruption and theft.

• Providers can use financial histories to develop products that are better suited to customers’ needs, cash flow, and risk profiles, including fee-for-service offerings and smaller-unit transactions.

• Direct deposits (including wages and government assistance) allow money to “bypass” the home, helping users save rather than spend and often giving women more financial authority within the family.

• Automatic reminders, positive default options, and other choices offered via mobile phone menus offer convenience and save time.

There are several excellent reports which describe the details of how “mobile money” is the key to improving the situation in many developing economies. One example is this report issued in December 2012 from the British Government entitled, The Financial Revolution in Africa: Mobile payment services in a new global age. Here’s an excerpt:

“By 2013, the number of active users employing mobile money services is estimated to exceed 200 million, up from an estimated 100 million in early 2011. Securing access to financial services, from bank accounts, to savings vehicles, payments systems and insurance services, represents an important factor in driving sustainable economic growth in the global economy. Promoting improvements in the distribution and delivery of formal financial services is integral to the UK’s economic interests and values in its relations across Africa and beyond. The advent of the innovation and creativity developed by mobile telephones and the ability of this platform to transform financial services signifies an unprecedented revolution for a massive swathe of ordinary citizens as well as a vast array of businesses and enterprise....”

Are mobile payments more secure than credit cards?

Most experts believe that mobile payments are more secure than credit and debit cards. This video explains some of those security advantages.

As the USA and most of the world’s top economies struggle with security problems associated with credit cards and as state and local governments struggle with maintaining Payment Card Industry (PCI) compliance and other security controls, the promise of more secure payments via mobile phones has prompted numerous start-up companies.

However, these new companies have struggled to overcome hurdles, such as marketing and achieving the required scale to gain adoption. This Forbes article describes the troubles that recent start-ups have faced in this mobile payments space.

Moving to wearable technology may provide additional security features in the future. This article from claims that wearable wallets are the next in line to try and overcome problems with mobile payments.

“Why should I have to whip out my phone when I can just touch a contactless ring, watch, button, cufflink or bracelet to the point of sale to make a payment?

Do not have a contactless point of sale? No problem, my smartwatch displays a bar code that serves as my payment method, using dollars, reward points or even crypto-currencies to settle the payment….

ULTIMATELY, WELL-EXECUTED wearable wallets can improve customer security, reduce skimming fraud, increase checkout line throughput, simplify award redemptions and lighten the soon-to-be obsolete wallets we carry today.”

Where is this digital payment trend heading?

Last year, I offered this primer to help understand mobile payments trends in the USA.

Google has offered a mobile wallet for several years, and Facebook is planning to offer mobile payments soon. It seems likely that a mobile payments revolution will take off at some point in the next five years.

There are also other apps that can make your smartphone a mobile wallet. This Computerworld slideshow shows some of the alternatives.

Also, this Government Technology Magazine articles points out how small application developers are taking on mobile wallets.

Still, the New York Times thinks we will face more headwinds to get wider mobile wallet adoption.

“David Byttow, who was the lead engineer working on Square Wallet from mid-2012 to mid-2013, said getting a mainstream digital payment solution started was difficult and represented something of a catch-22 situation. More people would most likely use a service if it were widely available, he said, but merchants are not interested in installing new payment software and hardware unless a large swath of shoppers are using the service.”

Which brings us back to personal preferences. When will things change? I asked myself, "Why do I use the credit cards that I do?"

For one, I like the cash-back bonuses and airline points that I get from multiple credit cards. Second, if there are unauthorized charges on my statement, I don’t have to pay, since the credit cards pay for the security the tab and/or fraud. Third, ease of use. The cards I use are accepted everywhere - even overseas.

In summary, I think technical solutions are coming for mobile payments, but adoption incentives will be required to prime the digital money pump. I suspect that current credit card companies like Mastercard and Visa will be involved in the answers.

What are your thoughts? 

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Dan Lohrmann Chief Security Officer & Chief Strategist at Security Mentor Inc.

Daniel J. Lohrmann is an internationally recognized cybersecurity leader, technologist, keynote speaker and author.

During his distinguished career, he has served global organizations in the public and private sectors in a variety of executive leadership capacities, receiving numerous national awards including: CSO of the Year, Public Official of the Year and Computerworld Premier 100 IT Leader.
Lohrmann led Michigan government’s cybersecurity and technology infrastructure teams from May 2002 to August 2014, including enterprisewide Chief Security Officer (CSO), Chief Technology Officer (CTO) and Chief Information Security Officer (CISO) roles in Michigan.

He currently serves as the Chief Security Officer (CSO) and Chief Strategist for Security Mentor Inc. He is leading the development and implementation of Security Mentor’s industry-leading cyber training, consulting and workshops for end users, managers and executives in the public and private sectors. He has advised senior leaders at the White House, National Governors Association (NGA), National Association of State CIOs (NASCIO), U.S. Department of Homeland Security (DHS), federal, state and local government agencies, Fortune 500 companies, small businesses and nonprofit institutions.

He has more than 30 years of experience in the computer industry, beginning his career with the National Security Agency. He worked for three years in England as a senior network engineer for Lockheed Martin (formerly Loral Aerospace) and for four years as a technical director for ManTech International in a US/UK military facility.

Lohrmann is the author of two books: Virtual Integrity: Faithfully Navigating the Brave New Web and BYOD for You: The Guide to Bring Your Own Device to Work. He has been a keynote speaker at global security and technology conferences from South Africa to Dubai and from Washington, D.C., to Moscow.

He holds a master's degree in computer science (CS) from Johns Hopkins University in Baltimore, and a bachelor's degree in CS from Valparaiso University in Indiana.

Follow Lohrmann on Twitter at: @govcso

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