How Mobile is Reshaping Payments

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1 How Mobile is Reshaping Payments Smart Card Alliance Payments Summit April 7, 2016 Marianne Crowe Vice President, Payment Strategies Federal Reserve Bank of Boston Disclaimer: The views expressed in this presenta5on are those of the presenter and do not necessarily reflect the views of the Federal Reserve Bank of Boston or System.

2 Mobile is at core of emerging retail payments evolution Remote Payments SMS & Internet PayPal Text to Buy Mobile Browser QR Codes mpos NFC/SE Wallet NFC/HCE Merchant Apps Text Buy It Mobile App Stores mpos NFC/SE Mobile Wallet Digital Wallet Beacon BLE FI Wallet Apple NFC/Token Android Contactless Cards Proliferation of Mobile Apps Mobile Prepaid Prepaid Account Digital Wallet NFC/HCE Direct Carrier Billing Mobile Bank Account Virtual Swipe 2

3 How Federal Reserve plays a role in mobile payments Fosters integrity, accessibility, and efficiency of payment system Views mobile payments as a new payment channel Convenes Mobile Payments Industry Workgroup (MPIW) to drive efficient, secure, and ubiquitous U.S. retail mobile payments ecosystem to achieve critical mass 3

4 MPIW Tokenization Landscape Stakeholder Assessment Conducted analysis of mobile security and payment credentials Early tokenization developments supported different, conflicting models, creating industry confusion Met with EMVCo, TCH, PCI, & X9 in June 2014 Formed tokenization sub-group in September 2014 Published findings in June 2015: Is Payment Tokenization Ready for Primetime? Interviewed 31 industry organizations Captured perspectives on benefits, challenges, and opportunities of payment tokenization 4

5 How payment tokenization secures the PAN EMVCo introduced new concepts Token Service Provider (TSP), Token Requestor (TR) Domain Restriction Controls, Token Assurance/Risk Scoring Identification and Verification (ID&V) Token Vault, Token Provisioning 5

6 Financial Institutions generally support EMVCo payment token model Large, regional, and small banks and credit unions Mobile phone-based transactions offer more security than other payment types Payment token enhances FI s ability to manage risk Initial challenges with token provisioning process (e.g., Yellow Path authentication) were addressed FIs want ability to add data to improve ID&V provisioning process Some preference for provisioning customers through FI s mobile banking app Looking beyond Apple Pay with SE to bank-centric software/hce solutions 6

7 Processors and Merchants must integrate token with back-end processes Processors want to be involved in token process Merchants concerned with security & data protection Experience with back-end merchant security tokeniza>on Interested in becoming TSPs experienced with security tokeniza>on Some par>cipate in EMVCo tokeniza>on group Can help develop func>onality/features to address merchant issues Apple Pay viewed as game changer by FI clients Concerns with COF/token integra>on; mul>ple token requestors See poten>al of mobile as secure and affordable, but aware of risks inherent in mobile channel Want to leverage mobile beyond payments for shopping, rewards, and loyalty Importance of end-to-end security with tokeniza>on and encryp>on Data captured through tokeniza>on should only be used for security Ability to use payment tokens to access customer data on back-end Open and inclusive tokeniza>on standards 7

8 Online Payment Service Providers see value in tokenization Token highly desirable for online and in-app cloud-based payment services Experience with merchant security tokenization Card-on-file (COF) model Parallels to EMVCo Some use static tokens with dynamic elements TSP for their ecommerce merchants Concerns with payment tokenization implementation Integration with their proprietary systems Desire to avoid major operational disruption or excessive cost Positive view of Apple Pay May encourage merchants to deploy more contactless terminals 8

9 Apple Pay provided early indication of how payment tokenization implementations were going 9

10 Apple Pay has been a catalyst for other mobile payment developments Different models built on same platform EMVCo payment token and cryptogram replace PAN Payment token/ limited use tokens stored in secure element, mobile OS, or cloud NFC ID&V Fingerprint authentication NFC/SE ese HCE NFC/HCE NFC/TEE, MST MST Capital One NFC/ HCE?? Chase Pay Walmart Pay QR Code 10

11 More mobile transactions driving increase in ecommerce volume 7.5% of total U.S. retail sales came from ecommerce in Q4 2015, and mobile apps generated ~ 50% of mobile transac>ons for the largest ecommerce retailers Billions ($) $300 $250 $200 $150 $100 $50 $0 Desktop + Mobile Retail Commerce Dollar Sales $24.7 $ % 9.8% $186 $211 $ % $ % $237 $ Desktop Mobile Mobile % Share of ecommerce 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: U.S. Census Bureau; Criteo; comscore mcommerce Measurement,

12 Standards play important role in adoption of mobile/digital payments Card networks develop proprietary standards Faster implementation Feeling of exclusion by stakeholders who must follow standard Standards Gaps? Provisioning & authentication End-to-end mobile payment security, Coordination and interoperability Merchants and other stakeholders support open standards Voluntary participation Everyone has a vote Owned by accredited standards body Consensus increases acceptance but takes longer 12

13 Mobile s influence on payments Enables convergence of payment channels Mobile functions at POS, in-app, internet, and with loyalty and rewards Enables strong security with encryption, tokenization, and dynamic data to drive adoption Multiple wallet model solutions are fostering competition and ubiquity; driving framework for standards Supports growth and more security for ecommerce channel 13

14 Questions? Thank you 14