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Mobile payments

Austin is a hot spot for the hot new thing in retail technology.

Mobile payments technology is gathering steam across the country, but Austin is one of the hot spots, both for deployment of new technology and for development of new software for payment systems and payment processing.

Dozens of merchants have affiliated with Square Inc., a well-funded startup based in San Francisco that is winning over smaller merchants with lower credit card processing fees.
Other companies in the field are coming here because of the tech talent base. Mozido, an ambitious payments startup, moved from Dallas to Austin early this year, drawn by better recruiting prospects.

“There is a lot of talent and energy here,” said company founder Michael Liberty. “It seemed like all the good young engineers in mobile who we wanted to recruit either lived here or aspired to live here.”

Brent Warrington, CEO of SecureNet Payments Systems, a payments processing company, moved the company headquarters and its technology development hub to Austin last year from Maryland to tap into the talent pool.

Warrington, a payments industry veteran, said the mobile payments industry is starting to take off after years of more talk than action. “There have been more changes in the payments industry in the last year than I have seen in the previous 15 years of my career,” he said.

Isis, a big joint venture of three mobile carriers, is using Austin as one of two pilot markets for its mobile payments service. The company has brought 1,000 merchant locations on board in Central Texas since the middle of last year and presently is adding about 100 a month. The company is working with Austin’s Mutual Mobile on some software development projects. It is using Gemalto, a big European digital security provider with operations in Austin, for its Trusted Service Manager security.

And PayPal, a veteran of online payments, is adding new workers in California and Austin as it focuses on making mobile payments the starting point for its new software development. The company was recruiting new talent during the recent South by Southwest festivals. The PayPal Austin development center, which is run in conjunction with its parent eBay Inc., employs about 650 people.

A newcomer to town is Visa Inc., a global payments giant, that is building a big software development center on Research Boulevard. The project, which expects to employ nearly 800 people within five years, received approval for state and local incentives late last year. Visa hasn’t spelled out publicly what the Austin development center will be working on, but part of its assignment is expected to be mobile payments.

Other payments companies in town include: Starmount Inc., which develops mobile point-of-sale software for retailers; Bypass Lane, which creates mobile payments systems for public venues and campuses; and Tabbed Out, which develops mobile software for settling tabs at restaurants and bars.

Analyst David Schropfer with New York-based Luciano Group rates Austin among the top cities in the world for mobile payments, taking into consideration the Isis pilot program here and the companies doing software development and market development here.

“Austin is a snapshot into what will happen in the rest of the country and the rest of the world in mobile payments,” he said. “I would put Austin among the top five cities in the world in terms of focus and attention that people are giving to it and the companies that are there.”

Gartner Group, a major tech consulting firm, estimates that global mobile payments will more than triple over the next three years, expanding to an estimated $617 billion. That sounds like a lot, but it compares with estimates that global retail sales will reach $20 trillion by 2017.

The key factor behind the optimistic forecasts is the public’s fascination with smartphones, which are fast becoming the dominant form of cellphone being sold worldwide with an estimated 722 million shipped last year. International Data Corp., another tech consulting firm, expects the number of smartphones shipped annually will double to 1.5 billion over the next four years. Keep in mind that there are presently about 7 billion people on the planet.

It’ll be very interesting to see how this shakes out. I can’t imagine that the market will ultimately support more than maybe two or three mobile payment technologies. People aren’t going to load up multiple apps on their smartphones, and vendors won’t want to bother with systems that their customers don’t use. Will established players like Visa and PayPal suck all the oxygen out of this space, or will the upstarts steal their thunder and become big boys and girls themselves? Place your bets, y’all.

One cannot talk about new technology without also talking about security for this new technology.

Payments industry executives say the technology is good and getting better. But security experts say the swift growth of smartphone use inevitably is going to attract fraud. And as more consumers use their mobile phones as payment devices, the potential risks can increase.

Dallas-based NQ Mobile, the leader in security software for smartphones, says it saw more than 65,000 new malware threats released worldwide in 2012, up from 24,000 the year before. Malware and phony app sites can direct unsuspecting phone users to sites where they give up sensitive personal information, such as bank account passwords.

“It is a real problem, and it is growing,” said Gavin Kim, chief commercial officer of the company. “Smartphone sales are booming, and they are becoming a much more targeted device by hackers.”

The company sells software that can identify mobile phone apps sites and protect users against malware and viruses.

Interest in the mobile phone security software is growing, but the company estimates that only about 8 percent of the mobile market actually uses security products on phones.

Certainly, the threat of malware is there for smartphones – it’s a huge growth opportunity for the bad guys, especially if smartphones become popular for making payments. The back end is likely the bigger target, but I presume that the PCI DSS standard would still apply to mobile payment systems. But threats aren’t limited to just software these days. It’s just a matter of time before there’s a vulnerability in mobile payment systems. Doesn’t mean you should avoid them, just that as with all other things related to computing that you be aware of the risks and take steps to mitigate them.

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One Comment

  1. [...] while shopping, so that when you’re done all you have to do is pay. Someday, that will be handled by your smartphone, too. I think that’s great as an option, but it’s not going to be for everyone, and it [...]

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