Nets: Modern finance: smartphone applications - Frode Åsheim

Contactless payment cards have taken Europe by storm, but is the industry ready to replace the plastic with a mobile phone? Frode Åsheim, group executive vice-president of strategy and customer concepts at Nets, discusses the benefits and challenges of the concept, and reveals the thinking behind the group's white-label solution for mobile payments.

Reach into your pocket, pull out your wallet and count the cards within it. You'll likely find a plethora of plastic for paying for items and travel, using your local library, proving your identity and even loyalty coupons. In this age of digital solutions, having to carry around copious items doesn't seem particularly convenient.

With the public rapidly integrating their smartphones into various areas of their everyday lives - from newspapers to maps and game consoles - is it only natural that the mobile device will, in time, replace the leather wallet? It's a paradigm Nets are banking on, as the Nordic payment company introduces a new system enabling issuers to offer customers use of their smartphones to play the role of contactless payment cards.

Turning the tide: how cash and cheques could become a thing of the past

The payment tide has been turning for years, with a huge decline in cash and cheque transactions throughout Europe. In Denmark, for instance, the nation's favourite payment card the Dankort reached over a billion transactions in 2013. Do incidences like these suggest a future where all payments are made digitally is on the horizon?

"I think we were very proud when we reached that record of a billion," highlights Frode Åsheim, group executive vice-president, strategy and concepts at Nets. "A tremendous development has been achieved there. But, on the other hand, I think it's quite a huge leap to go from here to a cashless society."

Åsheim believes analysts can fall into the trap of only looking at the figures for single nations, without looking at the bigger picture. Nets has played a key role in the dramatic decrease of cash-based payments in the Nordics. But, in southern Europe, digital methods are comparatively a lot smaller.

It's particularly interesting to look at the situations where people tend to still use coins and notes over digital methods, Åsheim says. Over half of them tend to occur for the same two reasons.

"One is that it's just quicker to pay with cash. The other is where there are no alternatives available," he explains.

The need for speed has resulted in contactless payment methods gaining traction in many European countries. Large retailers are increasingly accepting of the cards. This move, combined with the prevalence of mobile banking - where phone users outnumber their computer counterpoints by a factor of five - has resulted in a greater push for mobile payments.

"So, for that reason, Nets wants to introduce a mobile wallet that's an equally rapid way to pay," says Åsheim.

On the go: using modern technology to keep up with today's consumers

At the centre of Nets' mobile solutions suite is the Mobile Wallet Platform. This allows any issuer to design and brand a mobile wallet that fits the company's needs.

At the same time, the flexibility of the platform allows any service provider to launch services across different issuers' wallets, thus giving the end user the same experience that they would have with a leather wallet, where cards from a wide range of providers happily coexist.

"We believe a key strength with Nets white-label wallet is that it connects to, but is independent of, key players in the ecosystem. We're more of a technical service provider connecting these players into a network," Åsheim explains.

"Having said that, I think what this comes down to is that you can either choose to have a strategy that you will win the market with one wallet, and you can believe that it will be so strong that all others will go into this wallet. Or, you can as we do, believe that these wallets will be so crucial for each issuer that they will want to make their wallet, and make their brand and their profile own the customer relationship through that."

The first phase in the development of Nets' wallet platform supports the currently most standardised and widespread payments infrastructure, card-based payments using near-field communication (NFC) technology, which is already present in some smartphones. Through NFC, the payment credentials are passed to a terminal over a short-range, low-power wireless link. By tapping the phone on a contactless payment terminal, the merchant receives the payment as a standard contactless transaction.

Åsheim believes such a mobile payment option may represent an exciting opportunity for merchants. Integrated loyalty systems and programmes will probably emerge, he reckons.

"The wallet can be so much more than just a wallet for payments," he emphasises. "Some companies are getting into the wallet game by using more advanced marketing."

Future perfect: innovative solutions are required to keep up with the changing times

Åsheim looks to a future where, by using a mobile phone's GPS technology, relevant advertising and offers can appear on the user's device when they reach a certain distance from a particular shop.

But how receptive will the public be to using their mobile phones instead of a credit or debit card? Merely tapping their phone when they get to the checkout to authorise their payment seems simple, but there are a number of worries. The biggest concerns seem to surround the security element of NFC. But, Åsheim believes there's really no need to worry.

"A mobile phone is no less secure than issuing a plastic card. There are sound mechanisms that can ensure the security on top of that," he says. "But sometimes, we must do the trade-off between convenience and security. With that in practice, many, for example, chose to cap a certain amount and say everything above that needs a PIN, but everything below does not require one."

Determining that cap, again, may vary from provider to provider or country to country. He cites a UK survey conducted a few years ago that concluded that when people paid for items using cash, 80% of the time it was for an amount below £10. Europe is looking at a €25 cap in general, Åsheim says.

Aside from security worries, it's hard to know for sure what kind of technology will prove the most effective for mobile wallets.

"NFC might be the closest technology to win on the communications side, but it's definitely not set," says Åsheim. "And if you follow debates, I think you see a lot being sceptical about whether it will truly win, as Bluetooth technology, for example, can also be used in such settings, although global standards for its use in payments and commerce do not exist yet."

That is why the Nets mobile platform, while starting with NFC-based payments, is flexible to incorporate other technologies that may become standard in the market.

End-to-end solutions: working with a multitude of IT systems

Another issue is that European banks are facing some key payment infrastructure challenges. IT systems aren't necessarily adapting quickly enough to deal with the increased emphasis on digital payments. This could be a problem if NFC technology truly takes off.

"At the back-end, it boils down to whether you are able to meet the fact that bank IT systems have now been there for 30 to 40 years. They are more tricky to maintain.

If you then add new requirements and compliance, and so on, you have a true pain for the banks," adds Åsheim. "At the front-end, agility, innovation and the ability to bring new solutions to the market is key."

But, the benefits most likely outweigh the challenges when it comes to mobile-payment options, and Nets feels it can face the future with a sense of cautious optimism. However, the company is not about to get carried away with more futuristic pursuits. We are always scanning the market to understand how consumers and Nets customers' needs are evolving, to ensure our solutions meet these needs, but our primary focus is on delivering the solutions that are gaining traction in today's market, including mobile contactless payments."

Frode Åsheim, group executive vice-president of strategy and customer concepts at Nets.
The Nets offices in Ballerup, Denmark.