Paying with our phones – Is that the future? - June 12, 2015

Paying with our phones – Is that the future?

Day by day, we hear more about the new features of our smartphones and of our other gadgets. Some time ago, it was almost impossible to use phones for anything else but calling, now we can work, play games on them and even make payments. The mobile wallets are becoming more popular, but some questions remain the same: are they really that easy to use and are they safe?

Now that all the main smartphone manufacturers entered the mobile payment market, it is safe to say that the technology will remain and will be used around the world. Apple Pay is already out, Google Wallet (or Android Pay lately) is here shortly, and Samsung also announced its own system.

Paying with phones is mainly accessible in the US right now, but it is sure that it will reach out to other countries. (In the UK Apple Pay will launch in July, with a 20£ spending cap at the beginning.) The technology is provided: most of the high tech mobile phones (iPhone 6 and 6+, top tier Android phones) are compatible with MasterCard’s PayPass, and other contactless systems, which are already around the world. It is not surprising: the phones use the same Near Field Communication technology as the contactless credit cards.

Using these payment systems is quite easy too: both iPhone and Android only need a compatible credit or debit card, and the phones are basically ready to go as wallets. Sometimes there are security checks as well, to see if the phone and the credit card have the same owner.

And here comesthe main security issue of mobile payment. With the rise of Apple Pay, the banks reported more and more fraud problems. At this point, it is not an Apple’s system error. Banks verify credit cards too easily when they are added to the mobile wallet. So when criminals steal credit cards and other personal data, it is easy to link them to a mobile phone. After that, they can just simply use the phone at a cashier as well. (The Verge wrote a great article about the matter.) So there is room for improvement between banks and developers, but the wallets seem to be ready.

As for the other security issues, like a stolen phone, so far there were no news about great failures of these payment systems. A lost phone with the credit card data cannot be used, since a PIN code or fingerprint is needed to use the payment function. Even the newcomer Apple Watch is pretty safe: it can be used without entering a PIN every single time, but if it loses contact with the user’s skin it needs to be re-authenticated. Some even say that a mobile wallet is better than a simple credit card, since the card data (number, expiration dates and CVV codes) are encrypted, therefore a phone cannot be used as easily as a stolen credit card.

So all in all, the usage of the mobile payment systems is pretty simple. As for now, they are not real world wide solutions, as credit cards are, but it is only a matter of time. About the security: they are as secure as they can be, and it is clear that physical cards can be used for frauds as well.

Disclaimer: Innovative Securities’ clients can request a MasterCard credit card, which can be used with these mobile payment systems as well. For some of the above mentioned systems, adoption is needed from the issuer bank or financial service provider. We are planning to adopt these systems.