MasterCard's approach to mobile payments is driven greatly by the series of mobile phone innovations simultaneously occurring around the world, according to the network's group executive for mobile.
Speaking at a mobile payments conference in New York Thursday, Mung Ki Woo outlined the major global trends in mobile payments: "We see the arrival of mobile telephony as a very positive evolution of the electronic payments space and it's happening at the same time on smartphones, normal feature phones and turning those devices in point of sale devices," he said.
Consumers have gotten used to the idea that their phones are not just for communication and can be used for other tasks in their day-to-day lives, like shopping.
"Phones bring convenience because consumers want to do transactions over their smartphones. Their smartphones are Internet-connected devices and a growing proportion of consumers want to go on their smartphones and conduct e-commerce transactions," he said. "So we need to provide a new payments experience."
It's no longer acceptable to expect consumers to enter in a 16-digit card number, three-digit card validation code and a ZIP code to make an online payment on a mobile device, he said, adding that MasterCard is working to develop a simpler experience for e-commerce transactions.
Woo said MasterCard's mobile philosophy encompasses both proximity-based and online payments, with an emphasis on Near Field Communication for in-person transactions. This multichannel approach is exemplified by the company's recent decision to extend its PayPass branding to include both online and contactless payments.
"We believe in this convergence future where you will have this single service on your phone for both the proximity and online experience," he said.
The PayPass initiative also includes tools for mobile app that developers can use to integrate other payment technologies into the MasterCard network. And he stopped short of calling the offering a mobile wallet, which Woo said are developed by companies that interact directly with consumers.
"Our position in the value chain is that we are a B2B company. We don't see services directly to consumers," he said, adding, "We are providing products and services to our partners who will provide services to merchants and consumers."
"With mobile, we're going to stay exactly in the same place," he continued. "There is absolutely no plan to go direct to consumers."
Evaluating the state of mobile payments in developing countries, Woo said that feature phones, which have only basic functions like the ability to make calls and send text messages, are becoming payments devices in many markets, albeit in a fashion less sophisticated that what smartphone users are accustomed to.
"There is a discrepancy between the rate of adoption of mobile telephony and the rate of adoption of traditional banking," he said.
While less than the adoption rate of mobile phones in the U.S., Woo estimated that feature phones have a penetration rate of 50% to 60%, which encompasses the majority of adults when the elderly and child segments of the population are excluded.
As consumers continue to find new ways to use mobile devices, merchants are finding smartphones and tablets are convenient point of sale devices — and not just using attachments like Square's card reader.
"Smartphones and tablets are going to be leveraged by dongles and new features inside the devices to serve as payments terminals," he said.
Parallel to that dynamic is a growing adoption rate of mobile payments by consumers, Woo said. The demand isn't coming from a rejection of traditional plastic cards, but from the enhanced experience that mobile transactions provide consumers
"You now have the ability to make your card speak to the consumer," which creates opportunities for enhanced engagement, Woo said.
And these days, consumers are more likely to have their phones with them at all times than all of their plastic cards.
"The main idea is there's going to be this new generation of services which will encompass payments and will deliver a better and richer consumer experience to payments," he said.