Banks gain an ally in mobile payments

In an effort to make its digital wallet service a more well-rounded product in an evolving digital era, MasterCard has enhanced its Masterpass offering to allow card issuers and merchants to give their customers more options to pay — online, via mobile app and, for the first time, in-store with NFC-enabled mobile payments on Android devices.

The announcement comes at a time when competing card networks and fintech companies also are increasing their digital efforts.

Visa recently introduced the Visa Digital Commerce App, an issuer-branded product that lets financial institutions offer their own mobile payments app to customers.

Apple’s long-rumored push into the online checkout world became a reality last month with its announcement that Apple Pay payments will come to the web this fall as part of an update to the Mac operating system.

Even retailers such as Starbucks, Wal-Mart and others continue to make improvements to their existing digital payments products — or introduce new ones.

MasterCard’s support, through Masterpass, of NFC-enabled mobile payments on compatible Android devices could well be the linchpin of the new enhanced service. Previously, with few exceptions, banks have been unable to compete with third-party mobile wallets in the market. Keep in mind that Apple does not allow access by third-party developers to the NFC chip on its devices.

A mix of national and large regional banks in the U.S. initially will support the enhanced Masterpass through their existing Android-based mobile banking apps. These FIs include Ally Bank, Associated, Bank of America, Bank of the West, BMO Harris Bank, Capital One, Central Bank, Citi, Fifth Third Bank, First Hawaiian Bank, First Tech Federal Credit Union, Key Bank, People’s United Bank, Security Services Federal Credit Union, SunTrust and Virginia Credit Union.

Rollouts from these issuers will begin later this month, MasterCard said today in an announcement.

The converged Masterpass solution will go live in selected parts of Europe, the Middle East and Africa by the end of 2016, according to a MasterCard press release. Additional rollouts in North America, Europe, Latin America, the Caribbean, the Middle East-Africa and Asia-Pacific will continue through 2016 and into 2017.

From the beginning, MasterCard has worked with issuers to enable their cards for third-party mobile wallet providers. However, the company has also told banks that they need to develop their own mobile payment strategy.

“We have a very conscious strategy that banks should be into Apple Pay, Android Pay and Samsung Pay because we think certain customer segments have a natural affinity for those digital brands and we want our cards to be used there,” James Anderson, group executive for platforms in MasterCard’s emerging payments division, told Mobile Payments Today. “We also think the banks need their own digital offerings. We think the banks have the assets to differentiate their offerings and frankly, we think they have an imperative to have their own offerings because they need to maintain relevance with their cardholders.”

Many industry executives and observers share Anderson’s opinion and they have been more vocal about it in the past 12 to 18 months as the Pays slowly gained traction with consumers. But there’s a void in third-party wallet features that MasterCard is helping banks to fill in order to gain a competitive edge.

“When we started this journey, we didn’t start going to digital [payments] so that we could replicate the existing functionality of a card into a smartphone and say, ‘that’s it, we’re done,'” Anderson said.

Instead, MasterCard went further to help banks complement the payments function of their mobile wallets with debit balance display, a credit open-to-buy feature, card benefit reminders, purchase notifications, purchase history and points balance. A couple of the enhanced services also can include a wallet loyalty scheme and pay-with-points programs.

Banks may add or remove services as desired; MasterCard will provide an SDK to FIs and their processors to make changes.

(As a side note, the key difference between the Visa Digital Commerce App and the enhanced Masterpass is that the Visa product is offered as a white-label service, but with Masterpass banks add MasterCard-provided APIs to their own mobile app.)

“It did take us a little longer than we wanted to make that [mobile] payment work, but we’re there,” Anderson said. “But we haven’t yet as an industry, or individually, really followed through on value-added services. And I don’t even like that term. It’s the stuff that makes it better.”

Anderson compared the Masterpass transition to Starbucks adding a mobile component to its loyalty program. Consumers who were accustomed to paying with a Starbucks gift card started to use the app, even though the only difference between the two was better loyalty tracking.

Then Starbucks started to add other features to the mobile app, such as order-ahead and pay and a connection to the music streaming service Spotify.

“It’s not a perfect analogy because it’s a retailer and a simpler environment, but I think right now we’re at the point where Starbucks was about two years ago,” Anderson said. “Once you get on a digital platform, it gives you new degrees of freedom.

“So what we’re proposing with Masterpass is a way for the banks to do that at scale with a partner that can really help them with the bits and pieces they might not be able to do on their own.”

Industry observers agree that the new Masterpass should help banks compete more effectively with the Pays, especially when it comes to value-added services.

“I’ve argued from the beginning that wrapping a lot of the current services in mobile banking around a mobile wallet will be that value proposition that drives adoption,” Daniel Van Dyke, a mobile research specialist at Javelin Strategy & Research, told Mobile Payments Today in an interview.

But Van Dyke and others agree that more mobile payment options also can lead to more confusion among consumers who haven’t been adopting the Pays as avidly as some had hoped.

“I think these [new services from Visa and MasterCard] are all steps in the right direction [for banks], but there is a lot of competition for consumers’ attention and I’m not sure if the consumers really know where they want to go themselves,” Ed O’Brien, director of the banking channels advisory service at Mercator Advisory Group, told Mobile Payments Today in an interview.

As for the merchant side, Masterpass has added new partners worth noting:

  • Saks and Lord & Taylor will add Masterpass online checkout on their websites;
  • The Cheesecake Factory will add an in-app Masterpass checkout option that lets diners pay at the table using an iOS or Android device; and
  • New York’s Metropolitan Transportation Authority will add a Masterpass checkout option to the mobile ticketing app it released last month.
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