Yogesh Oka

Yogesh Oka

By Sridhar Chityala, Partner
(Originally written for PaymentWeek)

The words Payments, Disruption, and Interest seem synonymous.

Very few business domains have attracted as much interest as the world of payments.

Google, Amazon, Apple, Facebook and even Starbucks to some extent have all entered the payments game and yet their core business is anything but payments.
What is spurring this momentum?

The prolific growth in mobile payments is a clear driver in conjunction with the broad reach of smart phones and message capable conventional mobile phones. The mobile payments market is expected to grow from about $14 billion in 2013 to $280 billion by 2018.

Also look at the announcements of PayPal, Starbucks, Amazon and Square on volumes of mobile payments processed by them in 2013 and the first quarter of 2014 and the numbers are very compelling. The dollar value of payments processed is in the billions.

Transaction volume is driven by a number of technologies that are at play here.

These include mobile apps, card readers in mobile devices called dongles that can process card based payments (Square, Amazon etc), mobile wallets with the much touted NFC capability, mobile wallets with HCE (Host Card Emulation) capability (being pushed by Google), and the emerging Bluetooth Low Energy (BLE).

Apple (iBeacon) and PayPal (Beacon) are behind the BLE push and they’re rapidly gaining interest in the marketplace. There are over 300 million iPhones that can connect to Apple’s iBeacon platform excluding millions of Android phones.

What is BLE technology and how does it drive a payments transaction?

Bluetooth Low Energy is a communication frequency that runs on a smartphone and has a range of 40 to 50 meters (as compared to a NFC phones which are narrow band). The BLE enabled phones are immediately recognizable when a customer walks into a store or venue that has an antenna or antennas installed there.

As an example, I walk into Wal-Mart or a CVS Pharmacy that is BLE equipped and at both these venues, Apple’s Passbook app or PayPal Mobile app is able to immediately recognize the signal of the iBeacons or Beacon.

This capability opens a new vista into the world of payments.

Think of the Apple’s App store on your mobile device. You buy a book, software or subscribe to a sports channel or buy a ticket.

At checkout, you enter your credentials and your payment is initiated and processed. You get an email confirmation of the purchase. There is no physical interaction, and the payment between the merchant and Apple happens in the back end.

Extend this into the world of retail.

Imagine Wal-Mart and Apple or PayPal and Wal-Mart have a partnership to accept payments through BLE.

When a customer walks up to checkout for goods and says that he wants to pay with his iTunes account or PayPal account, all he does is enter his details on the mobile app and the confirmation of the payment goes to the merchant register. A receipt is sent to the customer and the customer collects the receipt for his goods at the store and walks away.

There are no scanners, no physical usage of the payment card, no swiping, no transport of data between the POS device to the processor, etc.

The technology sounds very intriguing and given that between Apple, PayPal and Amazon, there are hundreds of millions of customers registered with a payment method combined with the enormous trust that has been built with these brands makes this model extremely attractive.

The data that is collected can now be mined and in partnership with the participating stores, a range of marketing and loyalty offers can be presented to the client. Payments, marketing offers, discount coupons, special promotions, and location based services – we are probably at the precipice of a new ecosystem.

Let’s also examine the economics and operational aspects of this model.

From a customer vantage point – there’s no extra cost. Smartphones are equipped with BLE technology, they’re already a registered PayPal or iTunes account holder and they have the mobile app.

From a merchant vantage point he has to install the BLE antennas and they are very modestly priced. They fully integrate with Apple, or PayPal or Amazon, and these companies are testing this platform today.

For illustrative purposes I have used Apple and PayPal but there is nothing limiting financial institutions and tech companies who desire to play in this new BLE beacon ecosystem.

The technology offers great potential and is one that may find resonance with all players in the ecosystem – merchants, customers, service providers, processors, issuers, and even networks.

Payment networks may look at this with some skepticism, namely whether this could open up a new world with a different payment scheme that bypasses their model – this remains to be seen.

The operational model of accepting and supporting payments from many players including Apple, PayPal, Amazon, Facebook or any other provider is perhaps being addressed.

The adoption models for any new payment scheme is driven by simplicity, convenience, ubiquity, trust, security, reliability and the experience reflecting an integral part of their daily lives.

Finally the cost to the customer and merchant to deploy the model seems low enough to be very promising.

Both Apple and PayPal enjoy a loyal customer base that supports this model. They have the intrinsic ability to market and execute. The next wave of retail revolution and payment enablement may begin with BLE.