Enabling Mobile Payments for Closed loop Private Label Cards

Written by Gurpreet Ubhi (above), Director of Corporate Strategy at WEX

It’s been one year since the launch of Apple Pay and the jury is still out in terms of its success, but one thing is for certain – Apple has brought momentum into the mobile payment landscape which none of the past behemoths (Google, Verizon, AT&T) have done.

Near Field Communication (NFC) is now a default in all new POS equipment, issuers are lining up to be on the mobile payment bandwagon, and networks are pushing standards (tokenization and EMV) to ensure success.

While this is all great, a big piece of the puzzle has been missing in most of the mobile wallets solutions – support for closed loop private label cards. Private label cards have grown steadily in terms of purchase volume. As per a report from Business Intelligence, volume on this private label cards increased 17% over the last 2 years, reaching $254 Billion in 2014 (approximately 5% of total card purchase volume in US). While this might seem small, it is still twice the volume of Discover cards. Mobile wallets have recognized the gap in their wallet portfolio and are ramping up support for private label cards. Recently Samsung and Apple announced support for Synchrony Financial (largest U.S. private label card provider) managed private label cards.

To understand what is required for a closed loop payments provider to integrate into a mobile wallet we need to first understand the basic wallet transaction flow. Below is a basic NFC wallet sequence:

• Mobile wallet interacts with a POS terminal based on the NFC protocol (PayPass for Mastercard, Zip to Discover, Express Pay for Amex and PayWave for Visa)
• EMV complaint message with tokenized card number is received by the POS reader
• Routing system / acquiring switch routes the transaction based on the token BIN
• Transaction is received by the closed loop processor and the token is sent to the Token Service Provider (Internal or External)
• TSP returns the PAN to the processor which validates the closed loop data (credit limit, fraud, etc.) and return a transaction approval

Based on this transaction flow, two of the most important things for a closed loop provider for mobile wallet integration are:

•  Access to the NFC protocols to interact with the POS terminal
• Token management capabilities

While there are multiple token service providers in the market, the long tail for closed loop providers will be the access to the NFC protocols. Current POS terminals only support NFC protocols from the open loop network providers. Private label will require major investment and patience to push for their own NFC protocol specifications. This will be yet another thing they will need to push through the value chain along with their proprietary network specifications. This might be too much as uncertainty still remains of long term viability of NFC. Private label networks so far have resisted from leveraging open loop assets but the lure of mobile wallets and fanfare around Apple might just convince them to go to the dark side. Moving to the dark side will mean licensing the NFC protocol from their good friends at Mastercard, Visa, AMEX or Discover. Synchrony Financials is the first private label provider to move to the dark side and partner with Mastercard (see link) to enable Apple Pay adoption for their portfolio of customers.