The future of mobile payments in government
- By Nolan Jones
- Mar 09, 2015
The addition of near-field communication (NFC) chips to Apple’s iPhones and Watches opened the doors for broad-based deployment of the technology, which enables smartphones to exchange data with retailers’ contactless readers, moving us closer to a world in which credit cards are resident on our mobile phones, rather than in our wallets.
And with mobile phone subscriptions worldwide approximately equaling the number of people on the planet – about 7 billion – it’s not much of a stretch to forecast that mobile phones will become the world’s primary financial transaction platform – even for government payments – in the not-too-distant future.
For government agencies, mobile payment will be a significant development on several fronts, in part because it will increase convenience and efficiency for both citizens and the agencies themselves.
Mobile payment readers someday will be commonplace in government offices, such as department of motor vehicle locations, where people will use their mobile devices to pay for license renewals.
They are also likely to become an important part of the government identity authentication backbone. A smartphone enabled with NFC could allow employees to use their own phones as their access credential to get into a building or to log into networks.
They will create even greater efficiencies in the field. An NFC credit card reader attached to a mobile device, for example, would allow a government inspector to accept and issue a permit payment on the spot, even if the inspection takes place in a remote location that doesn’t have land-line access.
Potential public sector uses extend well beyond the realm of financial and identity transactions, however. The Drive Safely app, part of a public safety app development challenge last year, uses NFC to determine if a smartphone user is in the driver’s seat of a vehicle entering an intersection. If so, the app sends an auto reply message to incoming calls and texts while the vehicle is moving.
Some states are exploring mobile pay, as well. Idaho, for example, already is using equipment that enables true remote payment processing through a store-and-forward capability, even when wireless access is unavailable.
Apple already has announced plans to bring its mobile pay system to certain government-owned parks and government-issued credit cards before year-end.
An endorsement by the federal government and increasing uses of the technology by state and local governments may provide the push necessary for the public to adopt mobile as a standard method of making payments. This, in turn, will open doors to additional government agencies adopting NFC-based mobile payments as part of their processes.
Constituents will expect mobile pay
Offering mobile payments as an option will increasingly become a sign of good customer service. Fewer and fewer constituents use paper checks to transact business with government, and mobile phones will diminish use of physical credit cards. Because that’s where the market is going, government needs to adapt to the use of electronic devices as currency.
Mobile payments also have potential to provide greater security for users’ information than traditional credit cards do because they use the two-step chip-and-PIN system Europe has used for decades.
When the user touches or waves a mobile phone by a reader, the NFC chip generates a one-time authorization code. The user then enters a PIN number or approves the transaction with a fingerprint, a more secure approach than using the information on a credit card’s magnetic stripe.
In the consumer marketplace, a mobile payments war is underway. Merchant Customer Exchange, a company developed by a consortium of Best Buy, Target, Walmart and other large U.S. retailers, launched a merchant-owned mobile payment system in 2012. Called CurrentC, it uses a QR code scanning system rather than NFC technology, and its merchant members are forbidden from accepting ApplePay. Apple, likewise, prevents other payment systems from accessing its phones’ NFC chips.
While government undoubtedly will have to offer mobile pay, it may be challenged to support all of the emerging – and yet-to-emerge – platforms. Because these systems leverage the same bank and credit card infrastructure that exists today, government likely will decide to accept a subset of the available platforms, just as it now might accept a Visa, but not a Kohl’s card.
It will be important for government agencies to choose the platforms they will support based not only on which technologies are building momentum toward making physical wallets obsolete, but also on those that provide the greatest security.
Even though the major players are reputable companies, government has specialized requirements for protecting citizen and business data. Agencies therefore must understand how mobile pay companies are collecting, handling, storing and using data they gather.
Citizens who use government services might be rightly concerned, for example, if Apple collects individual data beyond what a traditional credit card company would collect. Government must evaluate the process from beginning to end to make sure it meets strict standards and keeps private information private.
Agencies also must determine how each mobile pay system will integrate with its current infrastructure. If an agency’s back-end system isn’t equipped to accommodate mobile pay, the agency needs to determine what additional costs and workload it will incur before it commits to offering the service.
We can’t completely foresee how mobile pay will evolve, but it eventually will have an impact on every government agency. Because it will change the way we all do business, agencies need to put away assumptions, learn all they can and prepare to take advantage of its benefits.
Nolan Jones is director of e-government innovation at NIC.