The future of mobile payments: Are we heading toward a cashless society?

Imagine a world where you would never think about withdrawing cash from an ATM. You'd never stand in line to buy a train ticket, or wait for a cashier to ring up items at your favorite store.

Today, digital-payments technology is transforming our daily lives. But according to MasterCard's chief emerging payments officer, Ed McLaughlin, making payments easier isn't about buying the things you want. It's about doing the things you want, whether that's paying for your groceries if you've left your wallet at home, or sending money to loved ones overseas.

On the eve of Mobile World Congress 2015, BI Studios spoke with McLaughlin about why digital payments are so secure, what's involved in pushing the industry toward the global standard of EMV (Europay, MasterCard, and Visa) technology, and whether he thinks cash could become obsolete.

Tell me a little about your role at MasterCard.

I joined MasterCard almost 10 years ago. Most of my career before then was with technology startups like Logicworks and PayTrust. I've previously held global product roles at MasterCard and now I'm the chief emerging payments officer. I manage all the ways that people use their MasterCard to make payments that aren't based on plastic, including EMV technology, contactless payments, and one-touch online checkout tools like MasterPass.

What will MasterCard's focus be at this year's Mobile World Congress?

The theme we've chosen for Mobile World Congress is "Connecting You to What's Next." At MasterCard we're working on connecting consumers to new ways to shop and buy. We believe that every connected device you have will become a commerce device. So we will talk about not only how you can use your phone to make a payment, but with things like MasterPass, everything you own - from your connected car to your game system to your smart home - can all be commerce-enabled. It's about giving consumers more and more convenient ways to shop and access their accounts.

People who have been cut off from the entire digital world can now have the same access you and I have.

How do you feel emerging payments will affect our everyday lives?

I think what's forgotten is that people aren't always trying to make a payment. They payment is a byproduct of them trying to do something else. And what motivates all of us and what drives these big shifts in behavior is when you can make things fundamentally better. If you've ever had to scramble around to find a ticket or go to the kiosk while your train is pulling into the station, the ability to buy your ticket right from your mobile phone with one touch is just better.

But I think what's probably even more inspiring is all the work we're doing around financial inclusion. Now we can use mobile and technology to reach and help people in ways we never could before. For example, we have a joint venture with BICS and eServeGlobal called HomeSend, which allows people to easily receive money from overseas into their mobile money account. We're working with industry leaders like EcoCash in Zimbabwe that allows people to receive money into a MasterCard mobile account and in turn use a companion card at an ATM or merchant. People who have been cut off from the entire digital world can now have the same access you and I have.

Apple Pay boasts a physical hardware component, which supposedly makes it more secure. But existing near field communication (NFC) platforms like MasterPass, LoopPay and PayPal have always stressed security. Does the future of contactless payments depend on having physical hardware?

One of the foundational principles we have at MasterCard is that we are working to make digital transactions as or more secure than anything we could ever do before in the physical world. We always say that the way to make transactions and data truly safe is to make them useless if they're used out of context. Apple Pay features MasterCard's digital enabling system - our token engine that provides a unique credential that's bound to that handset as well as a unique key (found in EMV technology) that's used to sign every transaction. So now, every transaction becomes a one-time transaction.

It's really the combination of that secure token as well as the EMV-like cryptology we're using to sign each transaction that makes it so profoundly secure. It's important to ensure that whatever the container that holds the token - whether that's embedded on a chip in the handset or if it's stored and accessed remotely - is secure.

With the Target and Home Depot breaches last year, there was an expedited push for credit cards to move from mag striped to EMV chips. Why has the industry been lagging behind in the US from a security standpoint?

We had been pushing hard for the highest level of security possible well before the Target breach. I think when it happened, in some ways it helped everyone recognize that this is what we had been talking about and why we were saying it was so important. The first big step we took for EMV security was actually in April of 2013 when we certified that all of the acquirers and all the systems that supported transactions in the U.S. were ready for EMV. The next big step will be in October of this year where we'll have what's called a Liability Shift, and this will benefit those who invest in more secure systems.

Merchants who invest in EMV terminals - what we call a world terminal - aren't liable for anything that happens in that transaction. When a bank invests in putting a chip on the card and a breach happens with a merchant that hasn't upgraded, the merchant is going to bear the liability for that transaction. The Target breach provided a little bit of a catalyst in the market, but we already set those plans out well in advance.

Earlier you mentioned that MasterCard plans to transform all connected devices into commerce devices. How do you envision that happening?

Consumers are adopting more and more devices based on how they fit into their lifestyle, and there will be different ways to engage based on that. For example, when I do all my travel planning on my PC at work, I choose to click the MasterPass button to check out easily. When I'm on transit to London, I may tap my phone for a genuine MasterCard transaction to get on the tube. When I get home I might want to order immediate content through my smart TV.

It goes a step further when you think about the Internet of Things and connected devices. Eventually I can tell my home heating system, when it's low on fuel, to reorder and just send me an alert after. As systems get more and more intelligent, people will weave them into their lives and use them for a variety of things they're already doing.

Do you think that cash will eventually become obsolete?

We still live in a world where nearly 85% of transactions are still made in cash. Because things are so much better and more convenient when you move to digital, we'll see it displace cash more and more. You see countries like the Nordics on the verge of being a cash-free society, and then markets like Japan where cash is still huge.

I think the world will move to digital, but it's going to take a long time for that to happen. People even ask me when credit cards will go away, and I think the answer is always when the last person wants one. What you see over time is that people are constantly optimizing and finding what works best for them. But in a world that's 85% cash, there's just so much upside with what we can do through both digital transformation and financial inclusion to make things better.

It's never about the payment. It's about making the thing you're trying to do that much easier.

What do you predict is next for emerging payments?

I think how merchants sell things will continue to change. The idea of having a clerk guard a cash drawer in case someone shows up with cash, rather than be out there answering my questions and helping me shop, will hopefully look archaic.

The store of the future may look more like the cashless cabin on your favorite airline. If I see the thing I want and I'm holding it in my hand and the clerk asks if I would like to buy it right there, then I can. That personal interaction will be improved. So it's not that digital becomes colder and more abstract, but instead you actually free people up for better interactions. I think that's the real promise of going digital and how we can make shopping frictionless. In the future I could easily see myself standing in the aisle of a store. I'll say, "I really want that," touch a button on my smartphone, and it's shipped to my house. It's never about the payment. It's about making the thing you're trying to do that much easier.

This post is sponsored by MasterCard.

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