AMA 108 – Learn About The Mobile Commerce Market with Dr. Windsor Holden

 

Dr. Windsor Holden is the Head of Consultancy & Forecasting with Juniper Research. He has written over 40 full-length reports while working with Juniper Research and he talks about one of his pieces, Mobile Commerce Markets, with Jason on the show today. Jason and Windsor talk about the future of mobile payments, Bitcoin, and how people can look forward to securer online transactions.

 

Key Takeaways:
1:45 – What’s the latest on mobile commerce?
4:30 – Windsor explains what host card emulation is and why it’s better.
6:20 – The involvement of Apple and Apple pay means that the mobile commerce industry will be improving a lot faster.
9:00 – Bitcoin has many hurdles to over come before it can be adopted by the mass market.
11:00 – Bitcoin fluctuates more than gold or any other currency.
12:30 – Windsor predicts that we will see a lot more tokenization in the future and less third party
interactions.
14:00 – Windsor gives out his website and how you can get his latest report on the mobile commerce market.
16:10 – Mobile commerce and paying online will be much more simple, secure, and user friendly in the future.

 

Tweetables:
Over half of Bitcoin transactions went through MtGox and 850k Bitcoins disappeared.

Bitcoin is far more volatile than gold. If you look at the way in which Bitcoin prices fluctuated via any currency.

Apple is a great educator when it comes to technology. It created a mass market for apps, handsets, and the tablet.

 

Mentioned In This Episode:
http://www.juniperresearch.com/viewauthor.php?author=62

 

Transcript

Jason Hartman:
It’s my pleasure to welcome Dr. Windsor Holden to the show. He is research director at Juniper Research. He is author of the report Mobile Commerce Markets – Key Sector Strategies, Opportunities & Forecasts for 2014 through 2019. So, for the next 5 years of mobile commerce, very interesting topic. Windsor, welcome, how are you?

Dr. Windsor Holden:
I’m very well, thanks. Thanks for inviting me on the show.

Jason:
You’re coming to us from just outside beautiful London, England, right?

Windsor:
That’s right, yeah. We’re in a little town called Basingstoke, which is about 45 minutes on the train from London.

Jason:
Good stuff. Well, tell us what is going on with mobile commerce. Apple pay is in the news a lot lately, we’ll see where that goes, but what’s going on?

Windsor:
Okay, you mentioned Apple pay, Jason, but I think what we have to do is look at Apple pay in why the context of contact-less payments. Now, if you go back a couple of years when you first had contact-less payments introduced into the US, there really wasn’t much momentum behind it and that’s certainly been the case up until maybe the start of this year. Now, we’ve since seen two really critical developments in contact-less payments. Now, what I mean by contact-less payments is where you take your phone and tap it against the point of sale terminal.

Now, the two key developments of these, first of all, the preeminent model before now has been one where the secure element, which the sellotapes, the security of the transaction was placed on the SIM card, which in turn was controlled by the carriers. The Verizons, AT&Ts, T-Mobiles. Now, that model was never attracted to other stock holders, particularly the banks and the car companies. Well, the carriers of this historic have been quick greedy depending unrealistic revenue shares. That was certainly their downfall in the content space. Now, the key to NFC is finding a secure model that is financially viable.

When the secure elements of the SIM, when it’s controlled by the operators, that’s not attractive, but under what’s called host card emulation, that secure element is virtualized and placed in the Cloud. Now, it doesn’t need any operator involved. That’s why the banks are so interested.

Jason:
Yeah, this is pretty technical. So, define operator. I mean, you gotta speak to the layman here. So, what is an operator.

Windsor:
Okay, an operator. It’s an AT&T, it’s a Verizon, it’s T-Mobile, it’s a wireless network provider.

Jason:
Okay, so what’s the issue with this and with near-field communications is that the banks did not want the encryption code to be on the SIM card in the phone. Is that it? They wanted it to be on the cloud, it’s more secure that way? Is that the issue.

Windsor:
There’s this piece of whether it’s more secure, arguably it’s more secure on the SIM, but the banks certainly feel that is it is secure enough. Essentially, the banks want to own the customer and you have a very complex and not necessarily financially viable situation where the operators were the trusted service manages. They had a significant role to play. They were demanding as they aggregated content of significant revenue cut, which the banks felt did not necessarily justify going ahead to the project. When you take the operators out of the loop, it becomes that much more attractive. You can then integrate it, if you’re a bank, you can integrate it into one of your apps and just push it straight to the customer.

Jason:
Okay, so the banks like it now. Is that where we are?

Windsor:
The banks are very much interested in it now. You’re starting to see the first partly commercial deployments, in fact. There are two maybe three in stay.

Jason:
I remember see that Wells Fargo was going to do something with it and then that seemed to evaporate. Do you know about that?

Windsor:
I haven’t picked up on the Wells Fargo piece. All I can say in Europe there’s an awful lot of interest around it, but largely because the fact you don’t need the operator involved with it. It’s the app store situation all over again. When you have the portals as a content provider, it was very difficult for you to get your content out there. With the app store, anyone can get their content out there and you got a great revenue share. So, it’s the situation over again.

Jason:
What’s going on with the banks, I mean, do they want to replace credit cards with this type of technology?

Windsor:
No. It’s an alternative way of reaching out to the customer. Purely because I think, customers are becoming more, more mobile centric. They are more accustomed to paying remotely by their mobiles and by their tablets, so in that case it’s a logical add on to be able to pay at the point of sale with them, but people talk about being the end of cash, let a lot credit cards, and we’ve got a long, long way to go before we get anywhere near that, Jason. That’s a long journey.

Jason:
So, credit cards are going to be here for a while.

Windsor:
Oh yes, absolutely. Now, talking about Apple pay itself. That’s particular potent given the Apple strength within the US market in particular. We always said the involvement of Apple in the NFC was absolutely critical if the initiative was to gain momentum. Apple is a great educator when it comes to technology. It created a mass market for apps, the mass market for consumer handsets, the mass tablet market. NFC is a fundamentally new way to pay for goods and services. When you’re a child, you buy candy from the candy store with dollars and cents.

You know how that works. When you may be 16-18, you get a bank card, a debit card, and you soon pick up how that works. This is all completely difference. It’s a fundamentally new way of paying. This is a huge consumer journey and it needs someone to be able to transmit that message to the consumer. It’s not just consumers having a handset of which they can make a payment, they need to know that they’ve got such a handset. They need to know how to make a payment, they need to want to make a payment and feel secure in the payment process.

Jason:
What does this mean for the world of payments? Does this mean the cost of these payments will go down and then I want to ask you about cryptocurrencies like Bitcoin.

Windsor:
Sure. Potentially, yes. It’s certainly off of the potential for the cost to go down if particularly then get new players in the space offering rates that are more favorable that are currently on offer. It’s a competitive market, the other players will have to respond if they want to remain competitive. Now, moving on to the cryptocurrency space, which you’ve touched on with Bitcoin, for example. There are really many, many hurdles to overcome. Now, we’ve spoken about the consumer journey with NFC. You really have to magnify that by 100 times with Bitcoin. Remember, regulators can’t even decide precisely how to define Bitcoin. Is it a currency? Is it a commodity? How do you explain what Bitcoin is to the mass market? It’s not an easy concept to grasp even if you’ve been working in the payment space. It really is something, at the moment, has a particularly niche audience or be it one, which is attracting players like Paypal and Microsoft to implement payment or top-up mechanisms that utilize Bitcoin

Jason:
What kind of mechanisms?

Windsor:
Essentially what you can do now with Microsoft, you can top up your Xbox with Bitcoin. Paypal are now permitting through the Paypal hub payments to be made via Bitcoin. These are the very first steps in the water by the bigger places to push this into the wider public awareness.

Jason:
Do you think Bitcoin has a good future or is it speculative?

Windsor:
It’s incredibly speculative. If you think about it, Jason, last year the currency plummeted from around, you know when Bitcoin fell, $900 to about $300 and that was largely down to MtGox collapsing, which baring in mind, over half of Bitcoin transactions went through MtGox and suddenly 850,000 Bitcoins disappeared. You understandably felt a bit weary about investing in Bitcoin or making transactions in Bitcoin. When you add that to the fact that when you get a Bitcoin fork where on the public ledger it can be split in two, then you can’t make a transaction on the forked ledger until that fork has been resolved. So, it’s very, very, shall we say, shaky grounds on which to create a mass market.

Jason:
Yeah, it definitely is. I think it’s very speculative. I agree with you and I think the governments and central banks don’t like Bitcoin. They may tolerant it just to keep the people happy, if you will, but overall it represents a competition for their fiat currencies. I mean, that’s the business they’re in. I mean, why would they give up that control? People say such silly things like, well, they can’t stop it if it’s decentralized. Of course they can stop it, they can just outlaw it.

Windsor:
It all boils down to what you need currency for and I actually need it to do things like pay bills and buy things from Amazon and unless until I can do that, then I’m not, I as a consumer, am not going to go down the road of purchasing Bitcoin, even as an investment, it’s very shaky. It’s far more volatile than gold. If you look at the way in which Bitcoin prices fluctuated via any currency or verse gold and silver.

Jason:
Well, I love that the Bitcoin people and, listen, I just want to say for the record I would love to see nothing more than Bitcoin and succeed and be a huge success, but I just think the practical realities say that it’s going to have a rocky road. So, that’s my stance. I love how people criticize the US dollar or any currency around the world as being fiat currency not backed by anything. Well, Bitcoin is not backed by anything at all. At least gold and silver are real!

Windsor:
The fact that you have a fork event in the block chain, which stops any currency, any transactions or threaten the security of any transaction made until that fork is resolved, that’s not a good road to go down.

Jason:
Good point, good point. So, credit card companies shouldn’t be intimated by Apple pay, then?

Windsor:
No, not at all. What’s interesting about Apple pay though and this is something to look at going forward for next year as well is it’s actually incredibly secure. On the one hand, you’ve got the tokenization, which is great and we’re going to see a lot more tokenization of transactions next year.

Jason:
Define tokenization.

Windsor:
Essentially it’s replacing the actual data. Your bank data, the transaction data, with computer generated tokens, which fulfill the same purpose, but without the third party seeing the precise details of the transaction. So, your details are never given to a third party. So, that’s the one element of it. The other is, of course, touch ID. So, when you bring those two together, that makes it more secure than any existing card transaction. I think we’re going to see..that demand is a big mobile play going forward particularly given the concern over privacy, over data storage. If you can give more and more guarantees as to the security of a given transaction, then that’s going to be more appealing to the consumer.

Jason:
Okay, good. I want you to give out your website if you would, Windsor, and tell people where they can find out more about this. Can they find that report or is that a report your charge for?

Windsor:
Right, okay. You can..our website is www.Juniperresearch.com. Now, while we charge for the full report, you will be able to download a white paper giving the summary of that report and indeed of others in our range about other topics that we’ve talked about today particular NFC and other areas of digital currency. You can download those white papers free of charge from our website.

Jason:
Good stuff. So, anything we didn’t cover real quickly. Maybe predictions for the future of how this will all play out in terms of telecom and payments. It’s a very interesting time, I mean, this is a big deal, isn’t it?

Windsor:
It is. I’ve kind of touched one of those areas just now, Jason, with regards to the next year being one where we really see security of transaction being paramount given the concerns that we had given the data leaks that we’ve seen. Consumers are becoming more conscious of the need for the transaction online and on the mobile device to be secure and when you’re bringing biometrics into the picture like touch ID, we’re going to see a lot more of that kind of application coming in to make those transactions more secure, but indeed, across mobile payments as a whole, I think the prognosis is extremely good.

One other thing to bare in mind is that, you know, we’re talking here about point of sale transaction. There’s an awful lot of remote transactions happening over mobile and what we’re seeing now is migration from the desktop over to the mobile and, in particular, the tablets as you see a raising catch commerce.

Jason:
We are moving toward, I don’t want to say frictionless kind of commerce, but the friction is being reduced, isn’t it? And by friction I mean middlemen, people that are collecting a piece of the pie. If we can reduce the cost of transactions and make them faster and easier, we all like to go to the big sites we use like Amazon, for example, because our credit card info is already there, we can buy in a click. When it’s something that’s not on Amazon, you gotta fill out all that information, of course, you can use tools for that, but still, it’s imperfect. You know, if we can really make the payments with a lot less friction, I think that’ll increase the velocity of money, speed commerce, and increase opportunity for everybody ultimately.

Windsor:
Absolutely. You mentioned releasing the friction. It’s essentially simplifying it for the people in the value chain and the people at the end of the day is the consumer and the easier you make it for the consumer to fulfill a transaction, then the greater of success will be, but one mistake that some players have made is just focusing purely on the transaction. Bare in mind mobile offers far more than just the ability to fulfill a transaction. It can all be about loyalty as well and really the entire retail life cycle from engaging the consumer to really post-purchase analysis.

Jason:
Very, very fascinating. It’s an amazing time. It’s going to be amazing how this plays out over the next 5 years. Dr. Windsor Holden, I appreciate you joining us today.

Windsor:
Thank you very much.

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