In theory, the concept of mobile payments has a strong business case, given the high market penetration rates of mobile devices, such as cellular phones and PDA?s, in many parts of the world. In addition, mobile operators and financial institutions, through the use of these devices, envision an attractive way to enable their customers to make payments. On the consumer side, users can reap the benefits of convenience, permitting them to buy goods and services from any location.
In principle, a mobile device can be used as a POS (point of sale) tool. Mobile operators and financial institutions consider this concept as the next logical step in making mobile devices a trusted payment device for consumers, acting as a payment instrument supplementing cash, cheque, credit card and debit card.
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Currently, financial institutions are rolling out wireless POS capabilities to merchants which are in-turn competing with a consumer?s mobile phone. Several new services have been introduced around the world in which merchants are accepting payments from wireless POS terminals. These wireless POS terminals, for example, allow merchants to offer home delivery services in which payments are presented and accepted upon delivery of goods or services to the consumer?s location.
Wireless POS terminals use the wireless networks of mobile operators to send payment instructions to a merchant acquirer?s payment server. Consequently, wireless POS services are classified as an extension of traditional payment services. Given that in some areas of the world almost everyone will soon own a mobile phone, and most merchant locations offer POS terminals as a form of payment, it is at least conceivable that the mobile device will take over a large part of the retail payment market.
Since wireless POS implementations are an extension of current payment infrastructures, users still need to use a credit or debit card to make purchases. The convenience associated with current wireless POS methods have to do with the fact that these terminals are brought to the location of the purchase. For example, in a restaurant environment with the user paying for their bill via debit card from their seat, or for their groceries which have been delivered to their front door.
Mobile devices enable the use of numerous services, services that do not need card readers, personal computers, and modem combinations or a merchant?s wireline POS terminal. Nowadays, mobile devices have an embedded chip that can be used to store information and provide secure authorization and identification.
The Need for Interoperability
But to make these services available to the majority of mobile users, mobile payment service providers need to roll out services that offer interoperability. There have been numerous mobile payment pilots conducted that enable mobile devices to be used as a payment option, some of which have advanced into full mobile payment services (e.g. PayPal, PayBox, MovilPago). To date, we?ve discovered that the key to providing a successful mobile payment service has to do with the benefits it gives the end user and the end user’s customers: convenience, security, and freedom being a few key elements.
Though the industry has a long way to go before mobile devices will become a consumer?s payment instrument of choice, to ensure the stability of a viable mobile payments infrastructure, collaboration is the key.
Both mobile operators and financial institutions have tried, with little success, to implement their own individual pilot projects. Both parties have encountered numerous difficulties. Mobile operators, for example, because of their extensive existing customer base, technical know-how and billing comprehension, seemed the most likely candidates to provide mobile payment services. However, problems associated with risk management and the collaboration of numerous providers needed to accomplish interoperability have arisen. Financial institutions on the other hand are confronted with a limited number of users and high infrastructure costs. To remedy these problems, mobile operators and financial institutions have begun collaborating to jointly offer mobile payment services to their customers. For instance, leading Dutch direct bank ING/Postbank Nederland, has partnered with the Netherlands number three mobile carrier Telfort, to offer users mobile access to the bank?s retail applications and link user bank accounts to Telfort?s prepaid service top-up capabilities for account recharging. In this case, the fact that these two entities are taking advantage of their natural symbiosis is a big step in the right direction.
Right now there are four entities needed to make a payment via credit card (acquirers, issuers, merchants and consumers) to make a payment via mobile device, there are five (mobile operators, acquires, issuer, merchant and consumers). As a result, the ideal business model includes the cooperation between mobile operators, financial institutions, technology suppliers and industry associations to create a certain amount of standardization which will ensure the successful implementation of a strong mobile payments infrastructure.
Still, numerous issues, including limited functionality available through the current generation of networks as well as a lack of standards to name a few, are still hampering the efforts being carried out by these industry players. In addition, questions regarding successful revenue generating business models also remain.
As mentioned earlier, cell phone and PDA penetration rates are higher then they’ve ever been, with forecasted growth rates showing exponential increases in consumer adoption. Accordingly, industry focus should be centered on the business side. Right now it is not feasible for a mobile operator or a financial institution to role out competing services on a proprietary model that does not include interoperability. Mobile operators and financial institutions must work together to implement mobile payment services that marry a consumer?s bank account with their mobile subscription. Offering payment services should not be seen as a competitive advantage, but rather as a necessity which will drive the success of the rollout of mobile commerce.
Today we see several initiatives taking place including the creation of various industry associations designed to address the different issues associated with the mobile industry. With these activities underway-mobile operators and financial institutions are beginning to work together to roll out new payment services. Pre-paid top up, for example, is the first real commercial mobile payment application that is being introduced into several markets. Financial institutions and mobile operators are collaborating to enabling mobile subscribers to electronically pay for their pre-paid wireless accounts using several banking channels such as telephone banking, Internet banking, and ATM and mobile banking, completely automating the ?top-up? experience using SMS (Short Message Service).
Currently, payment instruments are stored in virtual wallets residing either on the mobile device or centralized on the open network service platform. Consumers register for the service through their financial institution, mobile operator or service provider, depending on how the service is setup. The registration is necessary to link the consumer?s subscription data with their financial information and provision the mobile device for the service. Future methods may see users using their mobile device as a way to simply access their bank accounts, whereby the mobile operator?s function will be simply to transport the data. In addition, smart cards issued by financial institutions may begin to become more prevalent.
As mobile services and infrastructures evolve we will begin to see the true notion of mobile payment instruments living up to the hype of ?anytime, anywhere payments.? Soon, mobile payments will become an integral part of consumer lifestyles, replacing the payment instruments we have hidden in our wallets today. It is clear, that the co-operation between mobile operators and financial institutions is needed to build a viable mobile payments offering. It is also clear that the next logical payments industry step is to provide consumers with the ability to make payments for goods and services on their mobile devices. The only true concept of ?anytime anywhere payments? is conceivable through access via a mobile device. ‘Where there’s a wireless, there’s a way’ and the key to the success of the industry is as simple as giving consumers what they want.