Your Phone as a Wallet: Setting the Stage for Digital Payments

Picture this: you approach a cash register about to make a payment and realize you left your wallet at home. With only your keys and smartphone in hand, what do you do?

Will you ask the cashier to put your purchase aside? Or are you part of the growing group of people that can rely on a mobile “wallet” to complete the transaction?

The future of payments is digital and increasingly connected to your mobile device.

According to the Federal Reserve Board’s 2016 Consumers and Mobile Financial Services report, the use of mobile banking is on the rise as 43 per cent of all mobile phone owners with a bank account used mobile banking within the 12 months prior to the survey, up from 39 per cent in 2014 and 33 per cent in 2013. Business Insider also states that although consumers are reluctant to embrace mobile wallets, the volume of mobile-based payments is expected to reach $503 billion by 2020.

Banking and payments are at a tipping point. Consumer expectations are fluctuating and thanks largely to growing experiences in other industries, purchasers are demanding customized, secure, seamless and digital-first shopping experiences. To remain competitive and meet the needs of digital-savvy customers, financial service organizations are recognizing that technological innovation is rapidly becoming an integral part of their business.

The notion for mobile wallets is not new. But with advances in technology and the increasing pervasiveness of mobile devices, solutions like tokenization are coming to the forefront, bringing the convenience and flexibility of secure digital payments literally to our fingertips.

Tokenization replaces a consumer’s financial information, like a payment card number, with a secure token that consists of a unique, randomly generated sequence of numbers. This token permits secure digital transactions on a consumer’s mobile phone as a well as an increasing array of other digital devices like computers, TVs and even cars. Tokens are specific to each user’s account and device – your real card number is never exposed nor is it shared with any merchant or third party.

Across North America, we’re seeing this innovative banking and payment endeavor unfold.

In Canada, Interac has collaborated with Apple Pay to provide digital debit payments to Canadian consumers. The Interac Token Service Platform, a proprietary tokenization service, is one of the first for a debit network anywhere in the world. It meets global mobile industry standards and provides an ‘open’ mobile debit payment solution with device-agnostic technology that can be applied on any mobile device.

Supported with IBM’s cloud infrastructure to process large volumes of financial data and transactions, Interac offers real-time transactions where payment is received immediately. IBM Cloud allows Interac to manage this vast amount of client data without the limitations of space that is present on traditional servers. This “pay-as-you-go” flexibility helps ensure purchasers can always make mobile payments quickly and easily.

For added security, consumers’ payment card numbers are not stored on mobile devices or on Apple services. When Interac debit cards are used with Apple Pay, each customer’s security and privacy is protected. A unique token number is assigned, encrypted and securely stored in the device. This token is used only once on a consumer’s mobile device where a protective passcode is required.

VISA, MasterCard and American Express also offer tokenization services. For instance, MasterCard is helping consumers securely shop online or in apps from any connected device. Users’ preferred payment method and shipping information are securely stored, making check-out easier and faster while greatly minimizing risk for fraud.

With increased security and privacy benefits, tokenization will become the new standard for digital payments – not just for banks, but also for retailers and consumers alike. Moreover, it is because of technologies like cloud that tokenization will become the linchpin to improve the financial industry’s operations, customer experience and bottom line.

Successful financial institutions understand that banking and payments are migrating to digital channels. The more organizations move toward this direction, the more we’ll see newer applications of technology enable consumers to transact via their mobile device.

What we’re seeing with tokenization is just the beginning.

Alon Kronenberg is the Mobile Leader for IBM Canada.