Earlier this week, Capital One became the first U.S. bank to release tap-to-pay functionality in its Android app, giving in-store shoppers a way to pay with their phones that’s powered by a financial institution they trust.
Eighteen months ago, rulings by Visa and MasterCard gave banks the chance to become big players in the emerging industry of mobile payments. They are finally starting to take advantage.
Earlier this week, Capital One became the first U.S. bank to release tap-to-pay functionality in its Android app, giving in-store shoppers a way to pay with their phones that’s powered by a financial institution they trust. Industry insiders believe other U.S. banks will follow suit, using a technology newly built into Android’s operating system*, called host-card emulation, that allows apps to access payment information stored in the cloud.
At a high level, the development means that shoppers will have more choices for mobile payments as the idea of paying in stores with phones becomes more popular. It also means that Android Pay and Samsung Pay mobile payment services could lose out on attracting users who aren’t technology early adopters and trust their bank’s app for payments more than one made by a big tech company.
Beyond that, it’s too early to quantify what affect on future mobile payments revenue competition from banks might have for Google or Samsung. That’s because neither one takes a cut of mobile payment transactions like Apple does with Apple Pay, so mobile wallets aren’t direct revenue generators for them. A Samsung exec, however, said at a press briefing this year that the company could eventually charge merchants to place deals in the Samsung Pay app. It’s logical then that competition from banks could put some dent in that future business.
The incentive for a bank like Capital One is to get as much share as possible of phone-based payments as that payment method grows in popularity. In a mobile wallet like Android Pay, which will eventually contain Capital One cards, the bank is competing for each transaction against other credit cards that a customer has stored in the app. In the Capital One app, on the other hand, there is no competition because other cards aren’t allowed. And that is a good thing for Capital One, of course: Banks earn a fee every time someone uses one of their credit cards, whether through a physical card swipe or the tap of a phone.
Capital One’s tap-to-pay feature has been added to its existing Capital One Wallet app for Android devices, which also let’s bank customers track their spending and redeem reward points. The app can be used at any store whose checkout equipment uses NFC, a technology also employed by Apple Pay and Android Pay. The percentage of stores with this equipment is growing rapidly in the U.S., but still comprises well under half of all U.S. storefronts. Samsung Pay works at more stores than any of its mobile-wallet competitors, because it employs both NFC and a technology called MST that is compatible with a large percentage of older store equipment.
* Banks can’t add tap-to-pay features to their iPhone apps because Apple doesn’t let third parties use the NFC technology in its phones. That is, if you are a shopper and want to tap and pay with an iPhone, you have to use Apple Pay. Some industry insiders believe Apple could make an exception for some institutions in the future, but they haven’t up to now.