Mobile, Web Payment Standards to Stem from Industry Collaboration

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No two digital wallets are alike, but there is a growing interest within the payments industry in standardizing a base layer for digital payments.

"Standards lower barriers to innovation and development costs," said Ian Jacobs, Web payments activity lead at the World Wide Web Consortium (W3C), which is in the process of developing Web payments standards that could help all stakeholders in the payments value chain.

The W3C was formed in 1994 by Tim Berners-Lee, the inventor of the World Wide Web. The consortium's goals are to devise vendor-neutral, open and interoperable standards for the Web.

Generally, the W3C standardizes the very base layer of applications. For example, in payments, the group doesn't care whether a consumer wants to pay via an automated clearing house (ACH) transfer from a bank account; with a credit, debit or prepaid card; or even with Bitcoin or another cryptocurrency. Instead, the Web payments interest group wants to standardize the process of paying online, to make it just as easy to use one method over the other.

Because of this, standards should improve consumer usability and choice, Jacobs said. Users "should be able to use their preferred instruments with more merchants from more devices," he said.

By standardizing the acceptance of multiple payment methods on the Web, the work could also open online shopping to those consumers coined under- or unbanked. This could improve the financial health of those individuals and in turn, the society overall, Jacobs said.

Web payments work started in March last year, when 100 industry experts came together in Paris to talk through some of the technology, some of the success and some of the fears driving Web payments change. Following the workshop, in October some participants formed the Web payments interest group. The group's job is to figure out the requirements, use cases and architecture for undertaking a project like this. (Full disclosure: I participated in the March workshop and have kept up with the group since then, but am not a member of the Web payments interest group.)

On April 16 the interest group released the first public draft of the use cases document. The hope is that it gets broad feedback from a variety of stakeholders. Development of the architecture for Web payments has already begun and the group hopes to propose a charter in August so that more substantial work can begin by the end of the year.

A number of other standards groups — including EMVCo, ISO, the FIDO Alliance and ASC X9 Inc. — develop in the payments space and the W3C has been liaising with them to make sure its standard is interoperable.

The Web payments interest group has garnered significant attention recently, signing on key players in the payments space, including several members of the 12 Reserve banks that make up the broader Federal Reserve system; Target Corp.; Visa Europe; Gemalto SA; the Merchant Advisory Group, whose leadership includes an executive from Walmart; several large telecommunications providers; WorldPay; Ripple Labs; Ethereum; Google Inc. and Alibaba Group. In total 68 representatives from 36 organizations have joined the group and four experts have been invited in. Apple is absent from the Web payments group.

Over the past several years, numerous stakeholders have been wary, if not threatened, by standardization, but the payments industry seems to be ready to work together. During Mobile World Congress in Barcelona this March, several presenters cited standardization of payments a trending topic of 2015 and beyond. 

This wasn't the case more than a decade ago when the W3C started developing a standard for micropayments on the Web. That project was scrapped as both the market and the W3C were not ready or able to standardize for financial services.

"But that has changed," said Jacobs. "The success of mobile computing, the demand for greater security and the interest in cryptocurrencies have driven a lot of innovation but also fragmentation."

One of the key focal points for the Web payments interest group is digital and mobile wallets. The interest group would like to define a framework for a wallet API that allows providers to compete on services while also breaking up the battle being fought at the point of sale with differing technology, to the disadvantage of the consumer.

This deliverable pokes at the sometimes understated conflict going on in-store with some providers deploying NFC contactless iterations of mobile wallets (Apple Pay, Google Wallet), others using QR codes (MCX's CurrentC) and still others that may favor Samsung's use of LoopPay to mimic swiped card transactions with a wireless signal.

Another focus for the interest group is security, identity and authentication. This will likely be a more nuanced challenge. One benefit Jacobs mentioned for the consumer was the ability to transact without sharing sensitive information with merchants or other third parties.  Using the momentum Apple Pay has created for tokenization, the W3C sees Web payment standards reducing the need for merchants to store sensitive information, he said.

By moving to tokenized data, merchants can lower their compliance burdens under the Payment Card Industry data security standard. But this could also cause concern with merchants that use customer data to send targeted offers and build loyalty programs.

But the Web payments group hasn't overlooked this; one of the goals is to make sure merchants' branded payments mechanisms, whether co-brand cards or loyalty points will be visible and easy to use at checkout as well, Jacobs said.

Plus standards will make deploying an e-commerce solution less difficult and make adopting new innovation seamless for merchants, said Jacobs.

The cost of updating has been one of the biggest hurdles for merchants — especially small merchants — in launching websites, adopting new payment options and staying compliant and secure.

"Ultimately what we want to do is make Web payments and more broadly financial services available to everyone...for minimal additional costs," said David Ezell, a software architect at Verifone who's represented the National Association of Convenience Stores (NACS) at the W3C since 2001.

The Web payments work is especially important for the retailers Ezell represents.

"The second-biggest expense [for fuel sellers] is paying interchange on credit card purchases," Ezell said. And fuel is an extremely low-margin item for convenience stores. Interchange usually falls far lower on the list of expenses for other retail industries, he said.

NACS represents some of the largest convenience stores but also many small businesses; most NACS members have between two and 20 stores.

Many small merchants have years-long contracts with card acquirers and set their stores up to accept and manage payments in a certain way. It then costs a substantial amount to change the process. Once the merchants have bought in they don't have a lot of negotiating power with their acquirers; competition at the level of small- and medium-sized businesses stifles because the merchants are locked in.

A Web payments standard could make it easier for retailers, including convenience stores, to switch between providers and accept other, cheaper forms on payment. While that could cut into the revenue of card schemes and banks, Jacobs said making it easier and more secure for consumers to transact online means they'll spend more frequently and in greater volume.

And the telcos, which are having a tough time finding their place within the mobile payments market, could even find the standards helpful. For instance if fuel retailers begin pushing their customers to the mobile channel so they can pay with a bank transfer, there's a case for using the telcos' data for fraud mitigation. Orange, Deutsche Telekom AG, SK Telecom and AT&T participate in the Web payments interest group.

"Our membership expansion is mirroring the technology convergence," said Jacobs. "The mobile industry, the publishing industry, the entertainment industry and now the automotive industry are investing in the Web as the cross-device app platform.

Once the Web payments charter is approved, it could take 18 months to finalize the standard, Jacobs said. Along the way, stakeholders will implement the standard's elements, he added.

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