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Contactless payment ads from Turkey

Contactless payments in Turkey is gaining ground, but it is still in early steps. As of December 2016, 25 % of the POS terminals have contactless reader and 30 % of the credit cards have contactless feature. Transaction volume though is still low and this is part of the effort for boosting numbers.

BKM, the national regulator and processor of the card payments industry in Turkey is actively working on the growth of contactless payments in Turkey. As a part of the initiative, 3 digital only ads have been announced. The ads mainly focus on how contactless payment can enhance customer’s payment experience during check out. The speed and convenience effect of the contactless payment along with “the cool factor” is underlined.

 

 

 

 

Mobile Payments, Apple vs Google

This post was originally published on Medium.

Back in 2010, NFC was a huge thing within the payment professionals community. Every single bank, payment processor, carrier and fintech company (this term was not in the mainstream media back then) had some sort of mobile payment project. Each mobile payment meeting was starting with the agenda of how the mobile payment figures would boom in the next 2 years. Well, things didn’t turn out that way.

Essentially, payment is the authorisation of a person’s credentials for a certain amount of exchange by the financial institution that granted a risk limit to the transacting party requesting the product or service. When the NFC was supposed to be booming, the medium for the payment service was the so called secure element on the phone, which was the SIM card. This medium was owned by the carriers and they tried to make a big deal out of this ownership. Well, things didn’t turn out that way, either!

After the end of the SIM era, Google and Apple announced their value propositions to the mobile payment space.

Google provided the almost equivalent medium of the SIM for hosting the payment medium on the mobile devices. This is what we call Host Card Emulation, HCE. HCE existed before Google, but it was Google who made it available to a market at large. Google, being the platform owner of the Android eco-system, is the enabler for the mobile payments without the need of a third party between the customer and the financial institution. It is a pure software implementation, it is a balanced sharing of power between the customer, financial institution and Google. For the records, Google’s own mobile payment product Android Pay is another story.

Apple, then launched the ApplePay with typical Apple product features. It is a mobile wallet offering to the iPhone owners. The financial institution is somehow blurry within the service. Apple controls the hardware and software and no one else -including the iPhone owner him/herself has much option to act on his/her own other than what Apple is guiding. The mobile device becomes an interactive channel for the financial institution with its customer where the financial institution has no control over the whole experience other than provisioning the payment card.

The SIM based experiences showed the industry that the payment itself is not something that the customers are quite willing to accept on a mobile device. Especially considering all the hassle that the customer needs to go through for enabling the payment card on the device. Plastic cards are still very convenient to store, use and experience as a whole. When proposing the customer to use the mobile device instead of the plastic card, you need to provide the convenience of using an app on a smart phone that people choose over the computer; super fast, easy and intuitive. Learning curve must be natural. And this is not enough, smart phones have a lot of capabilities, you need to integrate components that make sense for people to use like location based offerings, personalised notifications for transactions, contextual reminders, etc. to create value over the plastic card experience. The traditional low acceptance levels of contactless readers is also not helping the mobile payment experience, but new mandates seem to overcome this issue in a few years. Also, Samsung Pay needs a special attention here, it comes with magstripe support on select devices, which is a unique proposition in the mobile payment space.

From the platform point of view, Google clearly is way ahead of Apple. Android platform for mobile payment is available worldwide right now, open and free, while Apple is selecting the countries to penetrate based on its own platform specific capabilities and restrictions. Almost all Android based mobile payment products except global players like Google, Samsung, LG, have been integrated with some financial service offerings like logging in with card PIN or mobile banking credentials, due date reminders, campaign offerings, limit monitoring, etc. Android is a platform where companies are free to choose what to and not to offer.

In the Apple world, financial institution is limited to a spot in the Apple Wallet and have no chance to provide any other service except the card image. There is no way to access the capabilities of the mobile device in order to enrich the mobile payment experience.

But when it comes to user profile, Apple is far more ahead in terms of customer base who are willing to and capable of making payments with the mobile phone. Android platform is quite fragmented, not just in terms of device attributes, but the user space is also not quite eligible for card payments. Although Android dominates the smart phone industry, Apple users are much more open to spend money on mobile apps and are more high profile than Android people.

iOS defines the user interface in a very intuitive way and iPhone users are very quick to pick up the experience as it is meant to be. Apple Pay is no exception to this. Enabling the card, making payments and deleting the card are all very smooth processes.

Android is far more behind this. Every single mobile payment application is unique for the whole process. People generally are not aware if their phone supports the contactless payments, since even same model devices have different variants in different regions.

So, when we look at the big picture, there is a long way to go for the time being. Apple is slowly gaining ground by penetrating into more countries and Android payment experience is slowly being streamlined. Masses are going to continue choosing convenience over security, price over quality and we will see how far the mobile payment products will go.

Cloud vs Payment

With the introduction of Apple Pay -and HCE before that, we started hearing about cloud payments. My initial reaction to cloud payment was “what kind of payment isn’t already in the cloud?”

In generic terms, cloud refers to data and applications that are not stored locally, but over the internet which people can access from any device, anywhere, any time just by having an internet connection.

When it comes to payment, everything was already in the cloud for like ages. The access devices to cloud was plastic cards and payment terminals. Everything was happening through online systems which was simply cloud.

So what is cloud payment in this context?

Cloud payment refers to the tokenization of current payment forms (plastic cards and their numbers) into the cloud. The device (generally a mobile phone) storing the card number has only the token of the real card number. What is token? Token is a replacement of the actual number that is usable only for a certain period of time. So that if someone steals your account information (card number), it will simply be not usable.

Almost anywhere in the world, except the US, having the card number and the expire date or the magstripe data -which is readable by off the shelf readers- isn’t enough for making a payment transaction. Thanks to EMV and 3D Secure/SecureCode, you need more than than card data, you need password and cryptographic keys. Rest of the world has been migrating to more secure payment era but the US is the weak link for a long time. Now with the cloud payment -and the EMV mandates for the US of course, US is getting on board as well.

Cloud payment is actually tokenization. Tokenization requires a smart device which can communicate with the tokenization server over internet and tokenize (change)  the sensitive card data. And of course the smart device is a smart phone. In today’s world, when we say smart phone, we mean Apple and Android. They are different ecosystems but have the same usability approach to smart phone owners.

Apple finally integrated the NFC chip into the iPhone 6. Apple worked on the payment experience a lot and have come up with something just as expected from Apple. A very convenient user experience and a very tightly controlled environment.

Android has been playing with NFC for a longer time but everyone else was waiting for Apple to get on board for mass adaptation. Android has almost same workflow with Apple, with one big exception; the payment application is software based while Apple took the more secure way -hardware. From the end user perspective, everything is mostly same.

So, what now? It is time to talk about contactless terminals. Apple and Android ecosystem is getting ready for the cloud payments, yet the biggest requirement is still the acceptance devices. Hopefully, Apple will be the main driver here. But for that to happen, Apple must move outside the US. Europe and Asia has had a contactless wave before but it didn’t hit the masses. With the cloud payment, I am hoping that it will be different this time.

We are waiting…

Host Card Emulation

You’ve probably heard a lot on HCE – Host Card Emulation. Mobile industry had a great welcome on HCE, since contactless will become a software layer and get rid of hardware dependency. Actually every stakeholder in the NFC ecosystem except the SIM card vendors was thrilled.

Google was third in the line for the NFC, -after Nokia and Blackberry, but they took the “Google way” and they are now the champions of the mobile NFC game.

So, what is HCE? HCE is an software abstract of contactless smart card. It is now specific to Android, but definitely portable to other mobile operating systems as well.

As the definition suggests, it is an emulation of a contactless smart card. What is the capability of a contactless smart card? Mainly payment, identification and transportation. What happens when one of these cards, say your id card, which you use for entering your office building is just an app on your mobile phone? Or your contactless credit/debit card? Sounds intriguing.

Before HCE, contactless smart card was being emulated by a hardware chip and software (mobile app) was needed for the hardware to be activated. Hardware component was either a chip embedded on the phone or the SIM card. Either way, a few more parties other than the owner of the handset itself was involved in the game and it was quite complicated to activate and use the NFC app. Now with the HCE, smart card is still being emulated but this time it is software rather than the hardware.

In the hardware mode, contactless (NFC) reader was working with the secure element.

Secure Element

Now with the HCE, hardware component -SE or the embedded chip is not needed. Android itself emulates the hardware. Apps will use the interface provided by the operating system again but this time there is no hardware below the API.

HCE mode

When it comes to payments,  software only solution comes with a price; security issues. The answer to EMVCo is tokenisation. The actual card data that is stored in the software layer in the app is required to be a token only, which will enable the backward compatibility with the contactless readers. But the actual payment transaction will occur in the cloud. Quite similar to Google Wallet. HCE is an evolutionary next step of Google’s approach in the latest wallet implementation, which I covered in a previous post.

HCE will open a new set of possibilities in the NFC ecosystem from contactless to remote payments. It will enable more projects, let’s see how will it contribute?

 

Current state of contactless & NFC payments

It was back in 2007-2008, when everyone in the payments space was quite sure that NFC based mobile payments will be rocketing in the next couple of years. Countless graphics/info graphics showed us how the mobile payments would boom next year.

Unfortunately, we did not see any of the upcoming figures took place in the actual stats. Today, almost all Android phones have NFC chips embedded and almost all MNOs have a mobile wallet installed or the mobile wallet project is in the pipeline. Some of them even closed down the services and kept on trying at different levels.

Well, there are solid reasons agains this booming to happen. Here are the main ones:

  1. Contactless card based payment is still not a daily requirement for the average consumer; a different way to put this: contact payment is still very convenient for all.
  2. Contactless terminal penetration is still quite low -worldwide.
  3. The NFC based mobile payment experience is not user friendly -both the enrollment and actual payment parts.
  4. MNO offerings are vague and banks have not been successful to develop a successful NFC based payment product up to now.
  5. NFC is still not a requirement for people when buying their next phone, there is no cool use case for NFC for the average people. Even bluetooth is still at its baby steps. Existing apps and services work fine over 3G/LTE/Wifi connections, people do not need any other interface for connectivity.

So, what now? NFC projects may be still at baby steps, but innovative mobile payment solutions appear frequently. Host Card Emulation (HCE) presents a great future both for contactless based or remote based payment solutions. Not only payment, but it is especially great for apps that do not require high security level that SIM card provides.

Contact card payment is still the king and we need some more time, or a disruptive approach based on mobile for NFC/contactless payments to boom.

NFC Symposium 2014

On 23-24th of January, NFC Symposium 2014 took place at Sheraton Hotel, Stockholm, Sweden. I was one of the attendants, along with mostly Scandinavian colleagues.

The speakers have been selected from a wide variety of NFC ecosystem, ranging from vendors, to airlines, TSMs to universities.

It was interesting for me to see what kind of NFC projects that the Nordic countries have been working on. Briefly; I must say, it was exactly what I was expecting to see.

NFC ecosystem’s biggest chicken & egg problem has partly been resolved on the device level, but the services on top of the hardware level is still at its early ages. Smartphone penetration is almost complete in Sweden. It was interesting for me to see that even a country like Sweden -where you can pay almost anything with a plastic cards- still does not have a variety of MNO/Bank based mobile wallets. This mostly comes out of the problem that contactless payment is still not an average consumer requirement, so nobody desires a payment card on the mobile phone.

An interesting project came from Mid Sweden University. Dr Johan Sidén presented all kinds of NFC chips embedded with moisture/temperature detection sensors, etc. It was particularly interesting to see the use case of NFC for senior citizen home care projects.

Screen Shot 2014-02-03 at 19.36.23

Valyou was also interesting to see, it is almost exactly like what’s been going on with the MNOs in Turkey, but the main driver of the product is the TSM, not single MNOs or banks. MNO wallets have been in production phase in Turkey almost 3 years now and exactly same workflow (of enrollment and transacting) is being piloted in Norway nowadays.

Valyou

 

Sweden is a great country in all aspect that you can think of -including card payments, however NFC payment is still at early ages and they will a need some time before the mobile payments with NFC to emerge on the mass level.

My article on E-Finance & Payments Law & Policy Journal

I wrote an article for E-Finance & Payments Law & Policy, a monthly journal published in the UK, about Turkey’s payment industry and the mobile payment trends. It was published on the October 2012 issue.

I tried to give an outline of the payments space in Turkey and headed over to mobile payments. Here it is:

Turkey’s payments industry and the inhibitions to m-payments

Turkey is one of the forerunners of innovative payments technology and openly intends to be a ‘cashless society’ by 2023. One of the most advanced countries in Europe in terms of countactless mobile payments, Burak Ilgicioglu, a Card & Payment Systems, Business Analysis Manager at Yapi Kredi Bank, Turkey, discusses Turkey’s successes so far in regards to mobile payments and the factors hindering widespread adoption.

Turkish banks have a very good history of developing successful card based payment products. All banks have installment products which work mostly as a personal finance product. When people are shopping for a high definition TV, they usually check the campaigns from banks to choose the electronics retailer from installment numbers. There is no finance charges or fees for installment transactions when the customer pays on the due date. All the banks have loyalty programs where customers earn bonus points, just like the frequent flyers programs in the US/UK. This even helps the government fight the shadow economy. Card payments are encouraged by the regulating bodies of the economy. The motto of BKM (the interbank card centre founded by Turkish banks) for 2023 is to reach a ‘cashless society’ on the 100th anniversary of the republic. Today, 30% of Turkey’s total GDP is processed by banking cards. Turkish banks started the card payment business back in the 80s.

BKM was founded in 1990 as the national switch, clearing and settlement processor. Turkey started issuing EMV cards in 1999 and by the end of 2011, the migration was complete. All the ATM and POS terminals now support EMV. All credit cards are EMV with the exception of debit cards; almost all the debit cards are still magnetic stripe. Thanks to Chip&PIN migration, which started in 2007, all credit cards are used with offline PIN.

Contactless

Turkey is one of the most advanced countries in Europe in terms of contactless and mobile payments. By the end of Q2 2012, 14 out of 27 banks in the card issuing business have reported that they are issuing contactless cards. More than 6 million contactless cards have already been issued. Turkey is a credit card country, most of these contactless cards are credit cards. There are, a limited number of debit and prepaid contactless cards, the majority are credit cards.

Contactless projects started to emerge in Turkey in 2006, when the Chip&PIN migration was still underway. Unlike the US market, Visa and MasterCard forced banks to use EMV for contactless in Europe. This practically means both offline and online transactions are possible due to the contactless interface. This also led to the fast development of NFC products as the natural extension of contactless cards. Contactless has been gaining momentum in Turkey for the last few years. But just like other countries issuing contactless cards, there are some drawbacks blocking the boom. The main reason is the acceptance infrastructure. There are more than 2 million POS terminals in Turkey and only 60,000 of them have contactless readers installed. It is much lower, when we compare the percentage of contactless cards with the total number of cards, which is 6 million and 51 million respectively. Another obstacle for contactless penetration is that there is not much benefit for both customers and retailers when it comes to contactless. Although some merchants – like Starbucks – are already forwarding customers to the contactless interface to speed up the transaction – there is still a long way to go.

NFC

Despite contactless cards facing issues, which have stalled penetration, NFC products have been rolled out in the last two years. We have seen NFC products in different form factors, from Micro SD cards to antenna SIMs or dongles for iPhone. As for banks, unlike contactless, there is another player on the table, which claims an even bigger share of the customer base: the MNO (mobile network operator). By nature, NFC products work on mobile handsets, especially on SIM cards. As a result, banks and MNOs share the customer. Currently more than five banks already have commercial NFC products available on different phone and SIM cards. There are three MNOs in Turkey and all of them are actively involved in NFC projects. Current regulations in Turkey require all payment transactions to be processed exclusively through banks, so MNOs are working with many banks at the same time. Almost all the pilot or commercial NFC programs throughout the world feature a single bank and MNO, but in Turkey, all the MNOs have wallets involved with more than one bank at the same time. The physical wallet experience has almost become a reality in the Turkish mobile payment products. Each MNO has already invested in their own TSM (trusted service manager) infrastructure and mobile wallet products. Yet there is still no ISIS-like cooperative organization between the MNOs and it seems unlikely it will happen in the future. There are indeed many NFC products commercially available on the market, but the most important player in the game is still missing: the customer. The number of NFC products sold is very low, when compared with traditional card products; there are many reasons for this. We can count the current contactless issues as one. In addition, NFC products require users who have a clear understanding of the personalization process, which is mostly, performed by the customer themselves. Customers are supposed to apply for a card account, install an application to their mobile phone, then authenticate themselves to the payment application on the phone. If everything goes well, then they will surely struggle to find places where contactless cards are accepted. Customer experience has still not been worked out entirely.

Mobile payments

Although the current picture doesn’t seem to be very promising, there are a great deal of good signs that mobile payments will be the next big thing in Turkey. All MNOs have dedicated teams for mobile payment services. MNOs are considering mobile payments as part of the mobile wallet product in which people will be utilizing location based campaigns, transport ticketing, access control, loyalty card aggregators, couponing and smart posters. For MNOs, it is still more like a loyalty tool, rather than a revenue generator. Banks are experimenting with mobile payment products. Banks’ perception of mobile payment products is not just buying a cup of coffee with the mobile phone. Banks consider the mobile payment experience as a step into the mobile world where the future lays. P2P payments are increasing and banks are positioning themselves in the game. Location based campaigns are another big step for the Turkish banks which already run very successful campaigns for card payments. High value payments over mobile devices will enable banks to penetrate new business models. Money transfers between bank accounts and mobile phone numbers are already a reality in Turkey, yet it will gain another perspective when NFC meets the masses with more prepaid products. Turkey is definitely a big country for card payments. It will be bigger when the mobile payment experience is part of the daily life and NFC will be the enabler of this evolution.

 

Google Wallet, the American way of NFC

Google has been working on Google Wallet for a long time. We’ve seen the first NFC payment experience via Google Wallet when it was released with a Citi prepaid card on Nexus. The first version came with a pre-installed Citi prepaid account and a 10 dollars. It was a big step for NFC world. Google made a huge step for popularizing the mobile payments. There was a minor setback when it was hacked but Google immediately fixed it.

Now Google Wallet 2.0 has been released and this time there is really an innovation that you’d expect from Google. Google is a cloud company, every Google service gets you to cloud, so why wouldn’t its wallet do the same thing? There is a great idea behind the new wallet, it keeps your card data on the cloud and uses a prepaid card on phone, which works as a frontend processor, or let’s say a contactless/NFC interface to your credit card in the cloud. This way, you can use any of your cards without actually enrolling it on your NFC phone – Nexus, in our case. What a brilliant idea, just as clear as I’d expect from any new Google service.

This is a kind of implementation you’d never see in Europe. Here in Europe, we are using EMV for NFC and it works in a more complex way. Of course it is possible with EMV but it would be far more complex than charging a transaction to a card stored in the cloud via an EMV transaction flow -and with current implementations of NFC in the MNO dominated ecosystem.

It seems we will be in wallet wars for some time more and let’s keep our thumbs up for Google for the smart move. Another big step for the NFC World.

Take a look at Google Wallet in action below:

Contactless & NFC Ecosystem in Turkey

On 20-21st of June, I attended an event from SMi Group in London on contactless and NFC. I presented the Turkish market and Yapi Kredi’s products and services. It was a great opportunity to keep updated about the contactless & NFC space throughout Europe. I met colleagues from the industry and discussed hot topics on contactless & NFC.

You can view my presentation below.

 

Paypal’s new president comes from Mobile space

Paypal announced its new president as David Marcus, the VP of mobile payments at Paypal. Apart from his highly successful carrier path, this assignment definitely points me to the fact that mobile space is the way to go. The world’s leading e-commerce company has chosen the path through mobile payments.

I think we will be seeing more Paypal penetration into the mobile payments space. You can follow him on twitter via @davidmarcus