Why Aren’t You Paying With Your Phone Yet? Mobile Payments Security and Consumer Confidence


Industry analysts have been predicting the mobile takeover for over a decade, but time has consistently proven them too optimistic. Consumer adoption of mobile payments has been slow, to the surprise of many in the industry, and studies have pointed to one overwhelming reason why: security.

Most online shoppers avoid mobile payments because they don’t think of them as secure. In a survey released last week by Bizrate, over 60% of respondents believed that the security to protect their personal information while using their phones (both online and in-store) to make a purchase wasn’t strong enough.

But are mobile payments actually as dangerous as people think they are? Let’s take a look.

We wrote recently about the rise of the omni-channel consumer and how the retail industry is just beginning to experience the blurring of barriers between various sales channels (e-commerce, m-commerce, brick-and-mortar). One of the reasons why this didn’t start sooner and why it remains an ongoing process is that as much as shoppers want an omni-channel marketplace, many still perceive using their phone to make a purchase as unsafe.

A new survey from Tripwire asked consumers: “What is the safest way to pay for a purchase in a store?” A measly 1% of respondents chose mobile payments, while almost 30% of respondents chose credit cards, more than double the amount who chose debit cards. This survey shone the light on the public’s misconception about which method they feel is safest versus the industry’s knowledge that debit cards are safer than credit cards. So, is it possible that mobile payments are, in fact, more secure than consumers feel they are?

While consumers appear unanimous on the issue of security, researchers and analysts are conversely united. A report published by Kaspersky Laps suggests that at this point, mobile security is nothing to be worried about. Because online security and anti-fraud technologies had already matured before mobile payments arrived on the scene, banks, payment providers and retailers have been able to build a secure foundation into their mobile offerings, giving mobile payments a head start in protecting consumers.

A study from Javelin Strategy & Research, which predicts that value of mobile payments at the point-of-sale would grow to 5.4 billion USD by 2018, found that the mobile payment fraud rate of middle-market businesses is only 1% – that’s a considerable difference from the fraud rates of 52% for credit cards and 23% for debit cards. This suggests that payment cards are, in fact, the more dangerous choice.

The authors of Inside Revenue Management similarly agree that mobile payments may be more secure than the alternatives, writing: “From a security point of view, does it really make sense to carry on with little plastic cards, magnetic stripes and passwords?”

Should You Embrace Mobile Payments?

Despite mobile payment adoption having more than doubled last year, we’re still a long way away from leaving our wallets at home and using our phones to pay for anything we need or want. Mobile payment technologies are achieving a significant level of consumer acceptance, but many barriers to a truly mobile marketplace remain, from little annoyances such as small screen sizes to a lack of adequate infrastructure to allow merchants to reliably accept mobile payments.

If security is your concern, listen to the experts. While security risks will always be a reality, it’s likely that paying with your phone will prove to be more secure than paying with your credit or debit cards, with the right technologies in place to accept them.

While the majority of shoppers take a multi-device path to purchase, paying by phone still remains in the minority even though it’s the next logical step in today’s commerce ecosystem. Have you already embraced mobile payments? Tell us about it (or why you haven’t) in the comments!

Stay tuned to the DalPay Blog for more on this subject, with upcoming articles about the drivers and barriers of mobile payments and how to make your business mobile ready. For the latest news and views about the industry, follow us on Facebook and Twitter.

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Multilateral Interchange Fee Caps will have a Mixed Effect in Europe


Earlier this year, the European Parliament voted to regulate credit and debit card interchange fees, lowering the cap to 0.3% and 0.2% respectively. Coming into effect in January 2015, the multilateral interchange fee (MIF) regulation is designed to enforce a fair price among all products and providers in order to encourage new market-entrants and increase competition within the Single Euro Payments Area (SEPA).

MIFs are the fees paid by merchants to payment card providers in exchange for the ability to accept credit and debit card payments both online (card-not-present or CNP transactions) and at the point-of-sale (POS). There has been some resistance to the regulation, particularly from card providers who collect the profits from MIFs, but also from merchants and SEPA-opponents in specific parts of Europe which could potentially see negative effects as a result of the regulations.


 The Single Euro Payments Area is a payment integration initiative coordinated by the European Payment Council in order to introduce a single, harmonised payment format for all transactions in the euro currency. The initiative was designed to integrate the separate national European markets into a single domestic market.

Following in SEPA’s footsteps, the new MIF regulation eliminates the difference between cross-border and national card payments, treating all European card payments equally. While our previous article about SEPA mostly focused on the benefits of that initiative, now that the deadline has passed there is going to be a long period of growing pains while the formerly fragmented European markets merge their payment systems.

Added to these growing pains are further initiatives spearheaded by the European Commission, including the interchange fee cap. This and other initiatives are designed to be beneficial to the European payments landscape overall, but because they apply without prejudice to all eurozone countries, some countries will initially benefit more than others due to existing payment habits, technological infrastructure and economic realities.

UntitledFor example, in the UK the introduction of additional layers of security to card-not-present (CNP) transactions such as Visa 3D Secure and MasterCard SecureCode has had a positive impact on conversion rates. Despite the additional step in the purchase process, customers in the UK are more likely to make a purchase if they have the additional assurance of security. Meanwhile in Germany, the very same technologies have had a significant negative effect on conversion rates.

These extra layers of security are being enforced by the MIF regulation and will therefore now be required by all payment card-accepting merchants. Because of this, merchants who do not already offer the required extra layer of security, particularly those in markets where these technologies have had a negative effect on conversion rates, will initially be at a disadvantage once the regulation comes into force.

However, in the long-term, the regulation will force merchants to increase their level of security and ultimately allow them to profit from the lower interchange fees, which are likely to be shared with consumers in the form of lower prices.

In addition, the mixed effects that the regulation will have in different regions of Europe only applies to card-not-present transactions, while the effects on point-of-sale transactions will almost universally benefit merchants within the eurozone. This is because POS transactions in Europe are already compliant with the security requirements enforced by the new regulation and there is no additional investment necessary on the merchant’s side.

The Benefits

For consumers:

  • Secure and low-cost electronic payments widely available across the eurozone.
  • Wider acceptance of payments cards as more small merchants can afford the fees.
  • No hidden or unexpected fees from card providers.

For merchants:

  • The ability to accept payment cards at fair prices.
  • Cost savings which can be used to improve services and be passed on to customers.
  • Eurozone-wide products and services at a standardised cost.

For payment providers:

  • New market entrants and increased adoption of payment card services will grow total transaction numbers.
  • Increased e-commerce traffic mean increased opportunities for market additional services.
  • New and innovative payment products and technologies will be developed.

Proponents of the MIF regulation view it as a necessary component in establishing a true single euro payments area and in preparing the European payments industry for an increasingly digital marketplace. The European Commission has concluded that current interchange fee levels are anti-competitive, in that they discourage new market entrants and cost businesses an average of 9 billion euro per year. Much of those costs are then passed on to the consumer in the form of higher prices.

In regards to that, lower MIFs are expected to promote innovations, improve customer service and ensure flexibility. The costs savings to merchants are expected to increase competition and result in lower prices for their customers. The negative side-effects involved in establishing SEPA and its associated regulations, while not insignificant, are merely growing pains in the process of building a strong, modern European economy.