27 August 2015
Paying the babysitter directly with mobile P2P-technology should be easy and safe
When Apple does something innovative, it usually turns out for the best. The company recently filed a patent that uses NFC and Bluetooth technology to enable person-to-person payments between iPhones and Apple Watches. This means that people can pay each other with their mobile phones. Why and how will peer-to-peer payments change the payments landscape?
The increasing proliferation of faster/instant payments and of mobile phones begs the question whether money cannot be transferred more easily, quickly and safely between people than with current methods. Would it not be better to send money by clicking on a mobile contact? We all have the mobile phone number of our contacts (unlike the IBAN) and initiating a payment from our ever-present mobile devices – if done securely and conveniently – is surely the future.
A fragmented P2P market
A solution for mobile devices is the next step, but what is the best solution? The market seems already fragmented, before the development has started. Besides the patent of Apple, over 50 such mobile peer-to-peer payment (mP2P) solutions have emerged in Europe in recent times. However, these are typically local, working only in a particular geography (e.g. Swish in Sweden, PayM in UK etc). Under the Single European (Digital) Market it seems apposite to think of pan-European solutions allowing anyone in Europe to send money to anyone else independent of either’s geography.
Thus it is only consistent that the European Retail Payment Board (ERPB), composed of representatives of all key payment stakeholders and chaired by the ECB, has identified the promotion of pan-European mP2P as one of its two current strategic initiatives. The ERPB recently said that it has agreed to “endorse the vision of allowing any person to initiate a pan-European P2P mobile payment safely and securely, using a simple method with information the counterparty is prepared to share in order to make a payment”.
User experience should be simple
For consumers to adopt P2P-payments the user experience, as with everything innovative, should be really simple. In the mobile P2P payment solution a user invokes a payment app on his smartphone where he enters the amount to be transferred and selects the intended recipient from his contact list. Behind the scenes this mobile number is translated into a destination bank account. This is typically done by a database service currently mapping local phone numbers and accounts, but in future a distributed mapping service accessible from anywhere in Europe.
For practical reasons it may be best to map not only the phone number into an account number, but also return the name of the account holder. Thus when the user selects a mobile number to send to, the system will return to him – before the payment is initiated – the name of the person that the system has associated with that number. The user can then verify that this is indeed the person he intends to send the money to and then press ‘send money’ and thus be sure to reach the right recipient.
Privacy remains key
This model looks quite simple, but the underlying scheme is obviously not. In order to ensure safe payments, privacy should be totally assured. The system must conform to local and European data protection legislation. Any data in any systems must only be made accessible to those actors and for those purposes authorized and agreed with the user. No data may be retained beyond its need and no data stored beyond what is needed.
The consequence is that users can’t automatically be enrolled into the mapping service but instead need to “opt in” actively. Many solutions in the market have failed by not implementing the enrolment process legally, elegantly and conveniently while making the advantages (and risks) clear to the user and must thus be a point of very special attention.
Modern bank-based solutions as an example
The solution that balances both convenience and know-your-customer/privacy/security may be found in modern bank-based solutions: the user has already been vetted and can thus, with a simple ‘tick’ in his mobile banking app – once – confirm that he is interested in receiving money from others and thus enroll conveniently into the system. It must be made clear, of course, in so doing he makes his name potentially visible to anyone who has his phone number and is thenceforth subscribing to the terms and conditions of the service.
Work needs to be done on the side of the stakeholders as well in order to ensure full privacy and protection from hackers. Only special selected parties (who need to be specially vetted, maybe even licensed, and continuously monitored) can be allowed to access the mapping service and manage the mapping between phone numbers and account numbers through a standard, highly controlled interface.
Once the above considerations are in place and a safe, secure, easy to use pan-European payment system is emerging, it will surely not be long before the “person-to-person” scenario is extended to paying the babysitter (now done by cash or cheque), the window cleaner, taxi driver and merchants in general, sending remittances abroad – and more. We will have a convenient, practical, secure way of paying peers by mobile phone all across Europe.