It’s taken a while but consumers, merchants and banks have finally fallen in love with contactless payments. Fast, secure and convenient, contactless speeds up urban life and reduces the need to carry cash. Rapid transit, grocery and hospitality are just three of the sectors in which shoppers seem particularly keen to use their contactless cards.
One of the few drawbacks of contactless cards is the actual card. Wouldn’t it be lovely if we could pay by tapping a watch, fitness band, signet ring or other accoutrement on a payment terminal? So, it’s no surprise that the payment industry has been working on embedding payments into popular brands such as Swatch or Fitbit.
This is harder than it sounds.
The technology and processes that lie behind contactless cards are complex. They have to be. This is a globally interoperable set of standards that needs to be 100% reliable and (almost) 100% secure.
A security key provided by the card issuer needs to be recognised by the security key on the payment terminal. Each card issuers’ security keys are different and, of course, jealously guarded but without them, you can’t make a payment.
At the moment there are just two options for brand owners to get these keys into their products – either become a card issuer themselves or do bilateral deals with a selection card issuer in each target market.
Becoming a card issuer (or partnering with one) normally involves equipping the product with a pre-pay card account at the point of manufacture. Consumers then need to sign-up for this account when they buy the device and fund the pre-pay account with (for example) a direct debit mandate or link to a credit card account. This is how bPay from Barclays works.
The technology is reliable but consumers are obliged to sign-up for a new account. Not only is this a poor experience but it requires the brand owner (or partner) to make credit, KYC and AML checks. This costs money. The final drawback of this approach is that the additional payment hop (brand owner’s pre-pay to cardholders preferred) is likely to cause delays in payment processing and extra costs which need to be borne by the brand owner or the consumer themselves.
If brand owners don’t want to become card issuers themselves, they will need to reach commercial agreements with individual issuers that already have large customer bases. These are necessary to get the security keys required to pre-provision the relevant credentials within each product.
This is a good option for wearable owners as they get to use their favourite cards but creates several headaches for the brand owner. The first is to establish relationships with all the major card issuers in a particular market. This is time consuming and expensive. The second is that since the security keys need embedding at the point of manufacture, the brand owner needs to know very early how many products it needs to equip with each of Barclaycard, MBNA, Capital One or other card issuers credentials. There is plenty of scope to over/under produce and be left with significant stock shortfalls or overhangs.
The paucity of wearable payment products on the market indicates that neither option is particularly attractive, from either a technology or marketing perspective. Indeed, despite some eye catching announcements, the only wearable payment products available (or close to availability) are commercialised by payment companies rather than brand owners. And many of these seem primarily designed as technology showcases rather than as credible attempts to launch mass-market consumer products.
So much for the problem. What about a solution? Well, I’ve been intrigued by a new approach from a UK start-up called DigiSEq – a resident at Techstars’ London Fintech Accelerator at which I’m one of the mentors.
Staffed by ex-MasterCard folk, DigiSEq’s aim is to allow any payment card to be provisioned ‘over the air’ onto any product. DigiSEq would do the hard work of establishing relationships with all the card issuers, negotiating the commercials and persuading them to part with their security keys. Brand owners would no longer need to insert the payment credentials at the point of manufacture. Instead, the consumer’s preferred account details can be written to the device later, at some point in the distribution chain.
The customer experience would be like this. When someone buys a watch, the jeweller asks whether they would like it payment enabled. If the answer is yes, the jeweller taps first shoppers’ payment card and then the watch against the DigiSEq “appliance” and the card’s credential are now embedded in the watch. For an online purchase, the shopper would submit their card details via a secure website and the security key would be provisioned at the distribution centre just before shipping.
I love the concept. The advantages for consumers and brand owners are clear but there’s plenty of detail to be worked through. This won’t be plain sailing for DigiSEq.
The first challenge for Digiseq is to sign-up enough card issuers to excite brand owners. Each issuer then needs to be brought on board with its own commercials terms and security set-up. Issuers are normally banks and never do anything in a hurry so this may take a while.
The second challenge is that of adding contactless technology in the manufacturing process. To succeed, Digiseq will probably need to develop a managed service capability to offer wearable payments as near to a turnkey solution as possible. Brand owners love their brands. They don’t need to know about secure chip design.
Consumers and brand owners are ready for wearable payments but the mechanics of provisioning card credentials are complex. If DigiSEq can crack this conundrum first, a sizeable prize awaits.