A ‘Swiss Army Knife’ for Payments?

As more and more transactions move to mobile, banks may need additional ways to authenticate customers and enable transactions.

Before Apple Pay launched, utilizing near-field communication (NFC) to send payment tokens to compliant terminals, industry watchers speculated that the company might go with Bluetooth Low-Energy (BLE) instead, given merchants’ well-documented loathing of NFC. And before that, the hot new thing was host-card emulation, or HCE, pioneered by the Austin, Texas-based startup SimplyTapp, which scored a major win when HCE was blessed by Visa and MasterCard and baked into Google Android 4.4, aka KitKat.

If this alphabet soup of initialisms sounds like insider baseball to you, you’re not alone. The biggest conundrum for banks looking to develop mobile wallets pre-Apple Pay was which horse to bet on. You must place a bet, you cannot wait, the pundits said. (We probably said something like that, ourselves.) After Apple Pay launched, the question was, when are you going to incorporate Apple Pay? But iOS marketshare is stuck at around 40% of the market. So what about the other 60%?

The prototype device at right, developed by a consultant at Axxiomme, is intended to ease some of this anxiety for banks. Banks are getting better about authenticating users and transactions on the mobile device, but particularly for high-risk transactions, including wire transfers from treasury management departments, more is needed.

“Banks face challenges with digital payments,” Kris Hansen, managing director of the financial consulting firm Axxiome, told Bank Innovation. “We looked at banks and we saw gaps, and we saw capabilities. We want to develop this utility to help with all of these.” Hansen, who worked up the prototype, said it will eventually assume the form factor of a credit card, given sufficient demand, to help banks cover those gaps.

Call it a VIP Token, an additional authentication factor for payments and other mobile transactions. Don’t call it, as we did above, a “Swiss Army knife” for payments — there are copyright issues with that — but that’s the idea.

The device, which will serve as another trusted authentication method for users, will be compatible with RFID, BLE, NFC, iBeacon, biometrics — you name it. Its most likely early use case is for high-value clients looking to authenticate risky transactions, though it could be used beyond that, and indeed, beyond financial services. The next-generation iteration will likely contain a fingerprint scanner a la Apple’s TouchID.

Hansen hopes to see a proof-of-concept of the device this quarter — an agreement has been reached with a bank in Singapore to test the device. But Hansen is looking for North American partners, as well, banks that are looking to further bolster security for clients transacting in mobile.

New companies such as Trustev and Avoka are working on ways to help banks authenticate mobile users more accurately and painlessly, but bank-branded, trusted devices will always make the risk management department breathe a little easier.

Learn more about digital banking and security at Bank Innovation 2015, March 2 to 3 in Seattle.