There has been an interesting debate emerging in the media and blogosphere over the last few weeks about the growing dominance of software in all facets of life, and Yann Ranchere’s views on the financial industry in particular have got us thinking. He believes that more and more payment systems, and especially near-field communications technology, will move from hardware to software-based solutions.
While we are indeed witnessing a growing number of software-based payment solutions entering the market, it remains to be seen whether they will have staying power, for one simple reason: as the volumes and value of transactions on these new platforms increase, so will the risk of fraud.
Identity theft is one of the biggest concerns in the internet age, and is also the reason why authentication is such an important factor for payment systems. Today, pure software-based technology can only be protected by passwords, which we all know carry significant security risks when used in isolation. With merchants carrying the liability of fraudulent transactions, this is likely to deter many from adoption. Add to that two other important ingredients merchants are looking at in a payment solution – speed and simplicity – and we see the appeal of software-only systems fade slightly.
Cybercrime is becoming more sophisticated by the day and the security element of any payment solution – be it e-commerce, mobile, credit card or other – is growing rather than decreasing. This is why hardware-based authentication, including tokens or chips, are far more secure. Unless the new software players are willing to take the liability for fraud off the merchants’ shoulders, it seems very unlikely that software-only payment will reach critical mass.
However, this does not mean that software innovation will be inhibited. While I do believe that software will revolutionize payment systems, many solutions will still need to be coupled with hardware-based authentication and encryption and in the long-term move towards biometrics –-based authentication such as fingerprinting and iris-scanning. In short, software developers need to make security a priority before fraud spoils all the fun!