NFC – FinTech, Banking, Technology and Speed

Vinod Sharma, Chief Technology Officer at Econet Wireless Zimbabwe

17.10.2016 07:00 am

Fintech

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Abstract – African financial services industry is in the midst of extraordinary change more and more of the population is becoming part of the formal financial system with mobile technology driven inclusion but still large portion of the market still remains untapped. The race/efforts by nonbank organization’s are still on to find innovative ways to get excluded customers on board. Included consumers are looking for everyday convenience, while businesses are looking for a competitive edge thus resulting in a new breed of products and next-generation payment options. At the same time many consumers still needs to answer for their questions like what do I do on Internet banking, with NFC sticker on back of my $10 mobile phone, with easy solution, open and integrated design technologies? Product that span the complete front to back and back to front solution like retail suits, corporate suits, funds suits, micro banking suits (Credit, Savings, Insurance etc).

The ranges of banking services by 3 Friends (Banks, MNO’s and FinTech) are underpinned by modern technology and architectures that leaves a wide choice of stack. Same technologies which are very useful, innovative, and juicy on mobile payments through NFC method are available with zero adoption due to lack of customer education. Assumption taken here is readers are fully well versed of mobile payment through mobile wallet or mobile money, which is a solution that lets people conduct banking (Not necessarily backed by banks) transactions with ease, directly from their mobile device, in a secure and convenient manner. In case reader needs detailed information or deliberation on any part please feel free get in touch directly.

Introduction- With NFC any device can be a payment device. How smart it would be if you just tap your nfc card, any hand-phone (with sticker on back), your smart watch/phone or any item with small sticker on it. It introduces a better way to add secure payment capabilities based on NFC to add to any object like car keys, or things you wear, like wristbands, jewelry, and other fashion accessories. To pay for your tea, coffee, toll-gate, buying any soda/ water from standalone dispenser machine from airport etc or even when you are just picking any grocery item. Payment can be made by just tapping any NFC enabled device or with NFC sticker. Imagine the time needed in queue at shopping mall, railway stations or parking lots when you don’t have NFC and when you have this magic in your hand. NFC can play or plays a major game changer role especially in micro payments. NFC payments are fairly secured, as straightforward to deploy as any other mobile app using a standard technology.

NFC or any similar technologies are neither new nor a revolutionary innovation its in existence on this planet since decades, but not all of us are aware to make use of this for payments (Ok I agree most of us are). Mobile payment using NFC has been around for a long time but banks and retailers are hesitant to participate due to fear of low adoption rate. NFC is easy and simple concept but some time it gets over simplify along with same reasons for payments under mobile or simplified version as mobile payments about which every single company on this earth is talking about these days and its true every single company. FinTech was forced to redesign banking model. Thus, New banking model was introduced, which created a distinction between ‘banking services’ led by fintech’s, and ‘banking services’ led by banks which used customers to manage their cash & liquidity requirements. Despite the unplanned origins of FinTech’s ‘banking services’ model, it has become an industry best practice, followed by many digital finance roll-outs including banks now. What will be the future of finance in Africa look like in 2025.

Main Story – Using combination of technologies like mobile device, bitcoin, blockchain, fintech companies are building Internet of value. The question then is what does this means for financial institutions, governments and citizens. Meanwhile, disruptive new entrants (almost all of them coming from out of financial service industry with almost zero experience) continue / wanting to gain ground. How should Africa’s financial firms respond to these myriad challenges? Bitcoin is bit but very complex when it comes to cashless payment method. Having full understanding of the business & technologies can now get some ideas on how to marry both of these to gain some cost & speed effectiveness. Near field communication (NFC) can use contactless chip in mobile phone or in small sticker at back of phone, NFC can be used for all kinds of applications, contactless payment at POS and also P2P payments upto an extend. The Internet of things is all about machines transacting with Machines. Unfortunately with the way the bank system works today (slow & outdated machines with no or zero innovations) we need to reinvent financial technology and create an Internet of value to work with Internet of things.

The challenge to NFC is the cost of devices (Handsets & Receiving devices). Some brands do not take time to invest fully as Apple does. To demystify the new tech as well as highlight benefits & security some explanation is required though. So first movers’ issues are sometimes addressed by Apple making them seem greater. Owning core software & hardware means companies like Apple they have more control & ability to rectify issues and manage perception. To get NFC accepted more, the mobile side needs to look longterm & subsidies introduction of such tech. NFC has broader applications than just mobile payments. PayPal having gained first mover advantage in this space although PayPal has not stopped trying, it has chalked up several failed attempts in NFC and in-store payment. Although PayPal has done well in other forms of mobile payment, EcoCash Zimbabwe able to launch commercially successful NFC services that I am aware of. At the same time NFC is just a remarkably intuitive technology to use and many thought NFC would indeed spread like wildfire as it became available for payment transactions. The reality, though, is that adoption rates, while steadily increasing.

Security is an integral component of all payments, as sensitive data need to be protected from any fraudulent parties. The card associations have created a set of rules and security standards, which must be followed by anyone with access to card information including gateways. This set of rules and security standards is called the Payment Card Industry Data Security Standard. To add security for both subscriber and merchant (Yes at business cost), as in any financial transaction that’s the golden Key. Customised NFC device for closed loop payment are very cheap but security, who will answer. For banks NFC payments does not make much business unless any bank is interested in micro payments and collection as most of the bank wants to do big value transactions. Along with value banks always wants to be on back seat to eat all the cream.

The primary uses of NFC are

Connect electronic devices, such as wireless components in a home office system or a headset with a mobile phone.
Access digital content, using a wireless device such as a cell phone to read a “smart” poster embedded with an RFID tag.
2 devices read and write to each other using NFC, touching two handsets together to transfer data like contacts or photos normally called as two-way communication.
Device reads and writes to an NFC chip. Touch and go concept like in apple case where touching apple NFC device on NFC reader or NFC POS to debit wallet or card for mobile payment balance written to the card normally.
Make contactless transactions, including those for payment, access and ticketing.

Looking at type of payment that can be routed via NFC interface

M-Commerce – Mobile phones linked to credit/debit cards can be used to make payments typically for transportation, vending machines etc.
E-Money – Cash loaded in the mobile phones at service provider outlets. Consumers use this virtual cash as real value for all types of transactions.
Banking Channel – Mobile phone used for accessing the bank accounts. All payments are routed through the bank.

NFC Patments.png Banks will certainly have to judge whether the massive investment they could make, in order to challenge the spreading popularity of payment systems such as PayPal, will be worthwhile, given that PayPal has gained ‘first mover’ advantage and that as highly-regulated financial service companies with duties to both national and continental authorities, they have to abide by stricter rules and security protocols. They must also judge whether their customers will move with them into a new more agile, flexible and electronic future, or whether a majority of people actively prefer the new, low cost (or free) services that have sprung up as part of the digital revolution. Banks, for their part, will continue to work hard to convince customers that they have their interests at heart and are introducing new payment systems in order to make their lives easier and save them money, while maintaining their security. FinTech through BaaP and BaaS golden keys gotten a global industry leader certificate and now empowering NFC payments in bank domain and non-bank domain financial institutions to lead in the future of mobile financial services.

The main drivers behind the success of mobile money are the explosive growth in the number of mobile devices and the fall in the cost of computing power, which have lowered the barriers to new entrants in this field. Mobile money (m-money) is quite versatile and can support a variety of services, in particular, person to person (P2P) money transfers, which are of significant value for emerging economies. Broadly speaking, m-money refers to financial transactions and services that can be carried out using a mobile device such as a mobile phone or tablet. These financial transactions and services are sometimes referred to as mobile financial services and may or may not be linked directly to a bank account. The year 2012 was turned out to be a very busy year for mobile money, with a number of articles in the news and companies like Starbucks announcing their mobile money plans each week. The terms “m-money”, “mobile financial services” and “e-money” are used quite often in technical reports and in the media.

Conclusions- Although we have made great strides to expand access to financial services through new technologies and innovative business models, the gender divide stubbornly persists in most emerging markets. The report estimates about 1.1 billion women globally are excluded from the formal financial system. In developing countries, 59 per cent of men hold bank accounts compared with 50 per cent of women. Speeds customers and sellers looking through the checkout process and is proven to increase payment instrument speed the answer may be NFC gets fit in here to reduce average purchase amount transactions. What are the implications of NFC based Mobile Payments solution? Is it going to change the world, be a significant “win”, be a nice hack. NFC based mobile payments can support globally and will give financial institutions and partners greater choice in offering consumers secure ways to pay with smartphones.

Time has now come for banks and other entities with an interest in financial service provision, to step up as one single team, exploit technology and leverage on existing MNO infrastructure to acquire customers, enrich use cases, lower costs and increase revenue especially in markets where regulators (such as reserve banks) play a dominant role. The real credit for revolutionizing the mobile payments arena, would have to go to Google’s Host Card Emulation (HCE). This was when mobile payments really cut loose. The success of Apple Pay was backed by the payments industry to boost contactless technology and, as a result, Apple has successfully created a desire for mobile contactless payments amongst consumers.

Food for thought – My next post will be around financial inclusion or in my language “Finclsuion”. Will rising innovations in mobile money domain will help to close the financial gender gap, will it help to help women in particular which are more vulnerable to increased financial burdens, like the ones that arise when sick-minded men abandon their responsibilities of providing basics for their families or to them. The problem is compounded by the largely close-minded or without an apology to say sick-mind societies that bars women from owning lands, properties or even savings etc.