Picture the scene: local supermarket, checkout counter. You’ve just finished the long and exhausting weekly shopping expedition and you’re at the point of paying. You go to take out your wallet and, lo and behold, you grasp only thin air. Somehow, in the midst of a frenetic working life, you’ve managed to leave it at home, along with all accompanying cash, debit and credit cards.
Game over, surely? No, not any more — all you need to do is take out your smartphone and swipe, making use of the latest mobile technology in mobile wallet apps.
This technology is taking off all over the world and has already been introduced in developed markets such as the US and emerging markets such as the Philippines, Kenya and Romania. The UAE is at the forefront of developments and is set to be one of the first countries to have a fully integrated digital payment platform supported by its entire banking sector, following an announcement by the UAE Banks Federation in June this year as part of the UAE’s Smart Government initiative. This project will create a framework in which mobile wallets will be managed by a distinct entity and regulated by the Central Bank.
Mobile wallets are exactly what they sound like. They allow you to make cashless purchases and to transfer money through your mobile phone. This works by linking your bank accounts with your phone number, allowing for digital payment solutions that capitalise on the latest technology while retaining key banking security standards. The technology will enable users to register their debit and credit card details in a secure online environment with a link to an application on their mobile phone, which is then used to make payments at supported retailers. One such mobile wallet system is the recently launched Apple Pay app for use with the iPhone 6.
This new technology faces three main challenges.
Mobile wallets require arrangements and partnerships to be in place between several organisations in different sectors. These arrangements will take time to document and negotiate.
Partnerships between major telecoms operators, governments, retailers and banks have characterised the development of the mobile wallet. Each organisation has different goals. For example, governments will want a streamlined service that is standardised. Retailers’ concerns include the investment requirement to upgrade point-of-sale and back-office systems to support near field communication (NFC), as well as the fact that the installed NFC devices have not yet reached critical mass and consumer usage of mobile payments is still low. While the stakeholders are important, it is making the service useful and attractive for the consumer that really matters, and these developments will be crucial.
Mobile wallets will be a wealthy source of customer and transaction data. Stakeholders can use this data for advertising purposes and to provide bespoke value-added services within the mobile wallet platform. They could licence the data to a third party or even sell it.
Many players will want a controlling stake in the mobile wallet value chain, as the winning service providers will be in a position of considerable power. Stakeholders will have to manage concerns about how personal data is used and shared, along with the data’s vulnerability to privacy and security breaches.
Further, risk from physical theft, fraudulent attacks and unauthorised access will need to be allocated between parties, as the potential for consequential loss is vast and properly drafted limitation-of-liability clauses become important. Contractual requirements relating to security standards, authentication, cyber security and recovery of data will therefore feature heavily. Only last month, the consortium MCX (a mobile wallet offering made up of a group of retailers) disclosed that it had been hacked while piloting its own mobile wallet, CurrentC.
Most people thought Apple was declaring victory in mobile payments with the launch of its iPhone 6, but many argue that the mobile wallet war is just beginning. Most commentators agree that at the moment we are witnessing a proliferation of mobile wallets, but clearly the market cannot support an exponential number. Google and PayPal, which already have mobile wallets on the market, are increasing their efforts. Experts think the most likely scenario is that consumers will gravitate to one or perhaps two services.
The UAE’s move to standardise the practice, while still in its infancy, should go a long way towards identifying the mobile wallet technology that will be used in the country.
Saleem Adam heads up Trowers & Hamlins’ IT practice in the Middle East. Joseph Suliman is a solicitor in the UAE offices of Trowers & Hamlins
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