Bank Mobile Wallets: NFC or Cloud?

Extensive travel tends to wreak havoc on the usual patterns and the best intentions. As a result, I haven't yet had a chance to blog about an interesting development first announced a couple of weeks ago. FIS, a large technology and services provider, has announced a new m-payments system, developed in partnership with Paydiant, a mobile technology company. Celent clients may recall my recent report, "What's In Your Mobile Wallet? Winning the Battle for Mobile at the Retail POS" where I described the four major domains which represent the key battlegrounds for bringing mobile payments to the physical stores in the developed markets. In that report, I suggested that banks are in danger of losing control over POS payments to cloud-based wallet providers, such as PayPal and others. I also said that NFC, despite all the concerns around infrastructure and business models, represents the best chance for banks to keep their payments credentials used at the POS in the mobile world. With the announcement from FIS, it seems that banks can take on the cloud-based wallet providers at their own game. FIS and Paydiant developed a cloud-based solution that can be integrated into the bank's mobile app and simply requires downloadable apps for consumers and retailers. Because the app resides in the cloud, no payment credentials need to be exchanged at the POS, giving everyone an additional piece of mind and alleviating the retailers from PCI compliance requirements. In the demo showed to Celent in Boston, the POS terminal produced a QR code, which a consumer would scan with his app on a mobile phone, which then triggers the payment transaction. The QR code is only one possible communications technology - NFC could be used instead if both the terminal and the phone were NFC-capable. The payment is done via one of the payment instruments (e.g. a card) that the consumer has pre-registered with the app and the retailer already accepts. The app could also be developed by retailers rather than banks. In fact, the retailers might find the solution easier to implement than banks, as they can control the acceptance side. The banks wishing to use this solution must ensure that there are enough merchants that have downloaded the appropriate app and are willing to let customers use it. All of which points for the need to create and manage a new scheme, one that consumers recognise as they decide which app to pull up on their mobile phone at the POS. Still, I think it's a very interesting solution and one that allows the FIs and retailers explore the opportunities around cloud-based wallets.