A mobile wallet uses near-field communication (NFC) technology to allow people to make payments simply by tapping, or hovering, their phones up against an NFC-capable terminal.
NFC allows phones to "talk" to the terminal, transferring funds securely from bank to retailer without the need to swipe a plastic card or punch in a PIN for transactions under $80.
Tap-and-go terminals can already be found in large retail chains like BP, Bunnings, K-Mart, Repco, The Warehouse and Telecom, plus cafes and restaurants in Auckland's central city/Britomart area, with more stores joining every day.
The trial technology is expected to be rolled out nationwide at the end of this year, says Roxanne Salton.
It would be made possible by a joint venture called Trusted Service Manager - TSM - between the three major telecommunications companies, Telecom, Vodafone and 2degrees and the four major banks, Westpac, ANZ, ASB and BNZ, through their jointly owned electronic payments provider Paymark.
A key advantage of mobile wallet is that your phone is the only thing you need to lay your hands on before leaving the house. No more wallets stuffed with plastic cards and loyalty tickets. The goal is for the mobile wallet to eventually recognise and reward customer loyalty within the single transactional tap, Salton says.
Security is, of course, a key consideration says Westpac's senior manager of corporate strategy, Chris Irvine. In New Zealand, MasterCard and Visa credit and debit cards incorporate EMV chip technology, which provides improved security against fraud compared to magnetic stripe cards. Payment cards within the mobile wallet will also utilise this technology.
Banks also gain the ability to communicate directly with customers, who can potentially call the bank's helpdesk during a transaction, and banks can call customers if they believe fraudulent activity might be happening on the phone.
Westpac and Telecom are both leading New Zealand's largest and most technically advanced mobile wallet trial. Auckland Transport also plans to enter the trial at the end of this year, once its Hop card is integrated across rail, ferry and buses. Passengers will be able to have their Hop card loaded on their smartphone.
During the trial, point of sale payments can only made by way of a Westpac credit card, but Irvine says debit cards will soon be trialled.
He says Westpac customers are showing a clear preference for mobile banking, transitioning at rates 300 per cent faster than to internet banking. "So from an innovative perspective, we're very focused on mobile banking and also the expected transition through to a mobile wallet."
But plastic cards are not expected to disappear anytime soon. "There's quite a long period where we expect customers to still hold plastic cards. It's all to do with comfort levels... customers may want to always hold a piece of plastic in their pocket in case their mobile doesn't work or they lose their phone," he said.
The future of eftpos is being considered by Payments NZ, a central body established by eight banks with support from the Reserve Bank to set the rules of engagement and protect the integrity of New Zealand's unregulated payments systems industry. So how close is the tipping point of the shift to tap-and-go?
"The New Zealand market is extremely sophisticated from a payments perspective," Irvine says. "We have no issue with buying a pack of chewing gum with an eftpos card, which is very uncommon behaviour even in the Australian market."
All the main banks and telcos are working together to get the infrastructure in place for all New Zealanders to have mobile wallet access within 12 months. "For this to be a strong proposition, we don't want to restrict customers into what relationships they can have," he said.
Owning a mobile phone with NFC capacity will be the only necessity.
Westpac is the only bank participating in the trial. But there are advantages to spending time and money developing a system its competitors would eventually benefit from, he says.
The bank has had time to test required changes to its significant systems architecture and also to closely examine the customer experience and ensure the Westpac brand is well positioned. "So at the moment, there's a single mobile wallet template. Within that, there will be scope for organisations to produce their own brand experience."
The $80 PIN limit, set by credit card companies, and be reviewed. "Eighty dollars is a big amount for some people and a small amount for others. There could well be scope for customers to set their own limits depending on their comfort levels."
The trial experience so far...
Cafe Melba owner Shawn Pope has witnessed huge customer excitement with the mobile wallet since joining the trial last November.
"For people we bring to the trial terminal, the uptake is extremely high. Once people understand they've got access, they just gravitate towards it," he says.
Huge productivity gains can be made during peak flow times thanks to the reduced transaction time of tap-and-go.
"Eftpos can be quite clunky... This way cuts down vital seconds and makes the customer experience better," he says.
The cafe is taking time to educate customers how to use the Near Field Communications (NFC) technology, which is also currently available on many credit cards and can be added by contacting their bank.
"That takes up a bit of time initially, but the reality is once they've done tap-and-go, they never go back."
"We have occasional questions on security. People worry that if they walk past the terminal with their wallet, it will take money out of their account. We explain, 'no that's not the case at all'."
The coffee retailer is excited by the prospect of adding customer loyalty functions to mobile wallet.
"Customers could come in, update their 'Melba dollars', redeem them and even order without actually queuing. That's just me as a retailer thinking, how far can this go?"
Telecom's senior product manager for mobile commerce, Roxanne Salton, says future mobile wallets, knowing their user's location could offer passing customers special loyalty deals which would bring them in the door.
"For us, we always look at the mobile wallet as enhancing in-store experience. NFC can really give retailers that extra value to their customers," she says.
Telecom has learnt many things since the trial began in November, she says.
Triallists have successfully used tap-and-go while on holiday in Australia and Singapore, turning what was previously only a theory into a reality.
It was also discovered that transactions can be made during a phone call, without interruption, and are also possible on phones with flat batteries.
One difficulty triallists have encountered is being able to identify NFC-capable terminals.
"Sometimes they have a sign saying tap-and-go accepted here." Another problem is some retailers having NFC terminals on-site but not switched on, causing customer confusion.
Another adjustment for triallists, not all of whom are 'tech-savvy', has been learning how long to hold their phone over the terminal to ensure the transaction took place.
"While it's less than half a second, we've had people lift the phone to check it's gone through and break the transaction."
The terminal did make a beep sound, but in busy environments that could not always be heard. No-one has actually paid twice yet, she says.
One phone had been lost but easily cancelled with a single call. All data was held securely outside the device and easily transferred to a new phone.
New Zealand is leading the world in the new technology, Salton says. "When we go to international conferences and show them what we've got, there's certainly excitement there.
"Just the fact we've managed to do a deal with the banks and the telcos together is already a feat in itself, because most other programmes around the world don't.
"So in New Zealand we should be very proud of how advanced we are. Being a small country, we understand what it means to work together because we can't afford not to."
