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Inside the mobile wallet: How does it work?

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  • Written by  Christopher Cox, vice-president, Product Development, First Data Mobile Solutions
Inside the mobile wallet: How does it work?
The number of people using mobile payments is on the rise, and this number will only grow over time as new technologies and advancements are introduced. Today’s consumers increasingly expect a shopping experience that seamlessly crosses online and offline channels. They use multiple channels and information sources to make buying decisions and expect an integrated experience that’s timely and consistent wherever they are and at any time—a concept First Data calls Universal Commerce.

In addition to providing consumers with a new way to make payments, mobile devices represent a new channel for financial institutions to communicate with their customers. The mobile connection enables financial institutions to send information such as promotional offers to their customers in ways that are more targeted and useful to the consumer. Because every active mobile device is tied to a person with unique shopping preferences, needs, and desires, customer communications can become highly personalized. This idea of connected, customized, real-time marketing presents a new opportunity and competitive challenge.

At the core of this opportunity is the mobile wallet itself—a mobile phone provisioned with account information that allows its owner to use the phone as a payment device. But have you ever wondered how this functionality actually works? Here is a quick snapshot of the technologies that allow mobile phones to make payments.

Trusted Service Manager: The TSM connects payment cards virtually into mobile wallets securely. Over the air and in a matter of seconds, the TSM enables the user to enter the account number into mobile wallets, authenticates with the financial institution, and enables that payment credential to be used from within the mobile wallet.

Near Field Communication controller and antenna: NFC enables mobile devices to send account information securely to contactless payment readers at customer check-outs and other points of sale, and read contactless-enabled tags placed in advertising collateral and consumer products.

Secure element: This secure smart card chip inside the phone is used for storing and accessing account information. It is separate from the memory where photos, apps, and contacts are stored. Access to personal information in the secure element is protected by additional security layers.

Electronic wallet application: The application, or user interface, allows users to manage accounts and initiate payments from their digital wallet.
Provisioning and the TSM

The mobile wallet process begins with card provisioning. First, the consumer enters personal and card account information through available channels, such as his or her mobile phone or the bank’s web site. That data goes to the card issuing bank for verification. When the card issuer verifies the account and personal information, it notifies the TSM.

The TSM is the only entity that can exchange information directly with the secure element in the consumer’s phone. Once the TSM receives notification that the account information is valid, it provisions the phone’s secure element with account data that activates the account for mobile payment made from that phone only. The account information provisioned to the phone’s secure element is similar to the information on the magnetic stripe of a conventional credit or debit card.

Smart phones enabled with these technologies allow consumers to migrate the “plastic” in their leather wallets, such as credit and debit cards, loyalty accounts, gift cards, and more, to a mobile wallet. With account information stored in their handheld device, consumers can make payments with a tap of their phone on the contactless readers.
Moving Forward

Enthusiasm surrounding mobile commerce and mobile payment has increased significantly over recent years. There are many reasons why mobile commerce has gained so much attention, and now is the time to move forward. Here is what financial institutions can do if they’re thinking about making the leap:

• Think about how to turn card accounts into mobile payment accounts, and how to do this for as many consumers as possible.

• Develop a strategy to take advantage of well-marketed third-party open wallets, while also ensuring some control over the customer experience.

• Establish a TSM partner that is able to support payment products as broadly as possible. This means working with a TSM that is not bound to any one mobile carrier, and that has a large network of bank, payment card brand, and merchant business relationships. The TSM partner should also have a sterling security record, and the proven ability to keep up to date with market-driven innovations.

• Rethink current marketing and promotional strategies in the context of unique opportunities for target marketing and co-marketing that are provided by mobile wallets.

• Consider new account acquisition strategies in the context of a mobile wallet, where “instant activation” capability tied to direct-to-cardholder marketing is possible.

The year of mobile commerce is here. Exactly which technology and which companies win is yet to be determined, but the amount of investment and activity in this space has never been greater. The solutions that are set up for mass adoption will likely be the winners. 

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