MasterCard unveils secure-payment prototypes for 2016 delivery
Products are expected to roll out in 2016 in the U.S. Capital One was named as the first credit card issuer to back the program.
"As more and more 'things' become connected, consumers will have endless possibilities when it comes to how they pay and will need all their devices to work seamlessly together," said Ed McLaughlin, chief emerging payments officer at MasterCard, in a statement.
A new MasterCard video shows a model making a secure payment for coffee in a shop with a wristband, then using a ring to pay for a subway fare at an entry gate and, finally, a key fob to buy groceries at a grocery point-of-sale terminal. The video showcased a smart wristband from Nymi, a smart ring from Ringly and a key fob from GM. Other partners named included clothing designer Adam Selman as well as Bluetooth locator device maker TrackR.
TrackR so far has made devices that use Bluetooth connectivity to help users find lost items. Most of the MasterCard prototypes shown Monday rely upon Near Field Communication (NFC) technology. One MasterCard demonstration during its announcement at the Money2020 conference in Las Vegas showed a dress that had several NFC chips attached.
MasterCard's security is based on dynamic tokenization technology in which a user's 16-digit credit card number is replaced with a unique alternate card number or "token," which can be used for mobile point-of-sale transactions as well as online purchases. There is usually also a one-time code generated by a chip in the wearable for each transaction that adds to the security.
Wearable payments promise to be much more secure than chip cards now being distributed by banks because of the unique token tied to each user. Tokens "are much more secure technology than a PIN, which is easier to steal," explained Gartner analyst Avivah Litan.
Analysts said that the market opportunity with wearables for banks and card companies is promising. "Every company will or already is competing on this approach," Litan said.
"MasterCard wants to extend commerce to anything with an Internet connection, and the Internet of Things presents an opportunity for banks to expand their addressable market," said Jordan McKee, an analyst at 451 Research, after attending the MasterCard event.
"This is still early days for this Internet of Things market and something that will take time to manifest itself," McKee added. "MasterCard's announcement is an indication of where things are headed, with the inventions less around mobile phones and more around connected [device] commerce."
Visa also has its own Visa Token service in the works and is expected to have its own announcement soon with a variety of partners, somewhat similar to MasterCard, McKee said.
Patrick Moorhead, an analyst at Moor Insights & Research, said a bank stands to gain financially by having its credit card applied to a variety of different wearables or objects. "Card providers want consumers to use their card first" before competitors on a variety of devices, he said.
MasterCard didn't give a formal name to the program behind its prototypes announced on Monday, but called the program an extension of its Digital Enablement Service and its Digital Enablement Express program.
Because of MasterCard’s Digital Enablement Service, about 100 banks have aligned with MasterCard’s technology to allow any device maker to create a product to provide secure NFC payments, said James Anderson, MasterCard’s group executive for platforms in emerging payments.
That means hundreds of millions of MasterCards worldwide will work with a device, Anderson said in an interview. "With that connectivity in place, device manufacturers can get going quickly, with products introduced in 2016. You’ll see a lot of activity in 2017."
Also on Monday, JP Morgan Chase launched its own smartphone payment platform that will rely on using barcodes, instead of NFC.
Chase has partnered with 40 major retailers in the CurrentC payment system, finally expected to launch in mid-2016. The system will provide an app connected to a credit card to display a barcode on a customer's smartphone display, which is read by a retailer's payment terminal.
CurrentC and Chase view the barcode approach as easier to implement for merchants and compatible with more smartphones than Apple Pay, Android Pay and even Samsung Pay.
McKee said it is a big advantage for CurrentC to work with established card issuer Chase. But he also called using QR codes "kind of clunky and almost a step backwards." It would probably be difficult to put a readable QR code on a small wristband display and impossible to use a QR code with a ring or another device with no display, he noted.
The fact that Chase is working with CurrentC and Capital One is working separately with MasterCard are signs that "banks are trying to regain control" over mobile payment technology advances, wresting away control from Apple and Google and others, McKee added.
"Banks don't want to be the dumb pipes and are really trying to reposition themselves in mobile and don't want to be trapped in a third-party container like Apple Pay," McKee said.