With mobile payments growth progressing slowly thanks to ongoing security concerns and a lack of consumer enthusiasm, MasterCard and PayPal’s Venmo are taking a different route to the top by focusing on geolocation.

Not only can geolocation help provide consumers with more relevant and valuable offers, but it can also be leveraged to prevent fraud and add a layer of security to mobile payments. Although the talk about geolocation with mobile payments is not new, several recent initiatives bring an additional incentive to get consumers excited about payments.

“Geolocation will be an increasing and important trend in 2014,” said Brian Stein, managing director at Pervasive Path, Cleveland, OH. “As digital payments struggle to gain adoption, consumers will require benefits beyond ‘it’s easier to tap than it is to swipe’.

“Location based offers and other contextual based prompts will provide incremental value to consumers which will be essential for digital wallet adoption to grow,” he said.

“Absolutely geo-location can help drive mcommerce. By providing targeted offers, advertisers can increase the click-thru-rate to yield higher purchase conversions, and otherwise drive m-commerce sales.”

More than a tap
One of most prominent challenges when it comes to mobile payments is that it tends to be trying to solve a problem that does not exist. Meaning that it is easy enough to swipe a physical card so there are no obvious benefits to replacing that with tapping or scanning a phone.

Geolocation could be one benefit that makes it worth it for a consumer to pay via smartphone instead of a physical card.

Nish Modi, vice president of product at SecureNet, Austin, TX, believes that geolocation is a growing trend in mobile commerce.

“Geolocation-based features and technologies will be a key trend in 2014 in consumer and merchant payment solutions,” he said.

“Features as simple as providing information about where a particular transaction happened, will help in early fraud detection and charge-back resolutions. Geolocation will provide mobile merchants valuable insights in to profitable routes/locations for their business.”

A number of retailers have already tapped into this geolocation trend with beacons. This lets them see where consumers are within the store to push more relevant offers.

Beyond simply sending offers, however, geolocation may have another application with the payment itself. For instance, consumers can checkout via beacons or another geolocation technology without having to approach a cashier.

Additionally, mobile wallet solutions can integrate geolocation to ensure better security for payments and transactions.

For Paula Rosenblum, managing partner at Retail Systems Research, Miami, it is all about persuading consumers that the payment mechanism is safe. She is less confident that geolocation will totally upend the mobile payment space.

“I think there are enormous security concerns, and that’s why I’m not bullish on mobile payment adoption this year,” she said. “I’m not saying the concerns are warranted or unwarranted, but the Target data breach was a watershed moment.  It was the moment when consumers said ‘Enough’.

“I thought crypto-currencies like Bitcoin would take off, at that point, because they are fundamentally ‘trustless.’ Then an exploit was found in one of the Bitcoin exchanges.  Now the market seems pretty frozen.”

MasterPass security
At Mobile World Congress yesterday, MasterCard and Syniverse announced a partnership that will leverage mobile geolocation for enhanced payment security and convenience while traveling.

The idea is that consumers will be able to opt-in for a service that will only enable card transactions when a user’s mobile device is switched on in a specific geolocation abroad. This will help consumers while travelling who often have to deal with cards being declined as well as prevent payment fraud.

“Geolocation offers the opportunity for companies to use real-time intelligence about an opted-in end user’s whereabouts to provide that highly relevant and microtargeted information, such as special sales offers, fraud-protection verification or other personalized interaction,” said Joe DiFonzo, chief technology officer at Syniverse, Tampa, FL.

“For example, retailers can use geolocation to detect when the mobile devices of users who opt in are near a retail outlet and then send them discount sales offers,” he said.

“In addition, banks can use geolocation to verify that the location of an account holder’s mobile device is the same as the place of a purchase, which can be used to protect against fraud.”

According to MasterCard, up to 80 percent of transactions that are declined abroad are actually legitimate, so this will help curb those issues.

“While the physical and digital worlds are converging there are still many pain points that the combination of geolocation and payment technology can help to address,” said Hany Fam, president of global strategic alliances at MasterCard, Purchase, NY.

MasterCard also plans to leverage the location information to provide consumers with relevant, location-based offers.

“Utilizing the data properly – through avenues like location-based services – allows brands to use the locations of mobile devices to present relevant offers, reward loyal clients and gather valuable customer data for targeted engagement,” Syniverse’s Mr. DiFonzo said. “Paired with customer preference data in real time, geo-marketing is an important ingredient in optimizing the customer shopping experience via a mobile device.”

This announcement comes after another recent release from MasterCard which stated that MasterPass, MasterCard’s digital wallet, will be integrated into mobile applications such as Starbucks Australia and Major League Baseball for in-app purchases (see story).

While the security news is mainly connected to physical card payments, one could easily see how this could be applied to MasterPass mobile payments.

Venmo nearby
Venmo recently leveraged geolocation as well, but in a very different way. The payment app now lets users view nearby friends when they swipe to the left.

This means that when consumers are out for dinner and want to split the bill, they can open up Venmo and easily find their friends that are at the table with them.

This is slightly different since it is for person-to-person payments and more for convenience as opposed to security or targeted advertising.

However it suggests a new trend in tying together geolocation and mobile payments. Additionally, as Venmo is owned by PayPal, this could possibly translate into a wider rollout for PayPal’s own payment technology down the line.

“Geolocation offers a number of benefits to users,” said Pervasive Path’s Mr. Stein said. “From a peer-to-peer perspective, geo-location allows users to quickly identify and select nearby friends, an important feature since so many P2P transactions are initiated by a face to face interchange (i.e. splitting the check).

“Additionally, any payment transaction can quickly and easily be tied for future reference and/or historical reporting, to the user’s current location via GPS or check-in,” he said. “When you add merchants to the mix, the benefit case becomes even greater.

“Location based offers can provide timely discounts, and when used in combination with app-based ordering, having the user’s current location allows orders to be timed to complete when the user is en route to the store, much like Taco Bell’s recent offering.”

Final Take
Rebecca Borison is editorial assistant on Mobile Commerce Daily, New York