Is There a Future for Wireless Payments?
By Andrea Orr, Tue Jul 24 00:00:00 GMT 2001

Can new technologies bring wireless payment systems mainstream?

Soft drink vending machines aside, wireless payment services have thus far failed to transform the way most high-tech consumers buy things. But many companies have not given up, and say the secret to unlocking this vast market lies in finding the right services to target.

In 1999 when many new Internet companies were promising to revolutionize the way people shopped, Palo Alto, California-based PayPal said it would revolutionize the way people paid for their purchases.

In an impressive demonstration on just how mobile shopping could one day become, PayPal let the venture capitalists who were funding the company use its cutting edge technology to beam their first round of financing from a cellular phone to the PayPal bank account. At a time when consumers had still not taken en mass to sending their credit card numbers over their PCs, the wireless cash transfer was held up as a glimpse of the future of paperless and cordless payment processes.

Fast-forward two years and it turns out the future is not... well, not so futuristic. While PayPal has managed to build a thriving business, it did so only after coming back a bit from its initial vision. When its wireless cash transfer service failed to take off, it retooled to focus on payments sent to and from PCs. Although a wireless PayPal service remains available, the overwhelming majority of the $2 billion in online payments the company has processed to date have been completed over computers rather than cellular phones or PDAs.

"We do have a wireless capability but it is not exactly widely used," says Vince Sollitto, a spokesman for PayPal. "It's not too popular, probably well less than one percent of our 200,000 transactions per day are wireless-based."

So what happened?

If consumers like the convenience of shopping over the Internet, the assumption was, they would surely take to the added convenience of completing a purchase from a plane, a car or any remote location. Around the time PayPal was launched and enthusiasm for all bleeding edge technologies had reached a fever pitch, much was made of the soda machines in Finland that accepted payment from cell phones. Consumers wouldn't have to carry coins, anymore, just beam virtual cash from their phones.

High-tech urban legend?

Indeed, this is now the preferred way for consumers in some places to quench their thirst. But a revolution in the soda-purchasing industry is not really a sweeping revolution.

"It's really funny, wireless payments are mostly an urban legend," asserts James Van Dyke, an analyst with Jupiter Media Metrix.

"Somebody already seems to know someone whose cousin's neighbor did it once, but you can never seem to track them down."

But while many companies like PayPal have shifted their focus, others continue to see promise in wireless payments. Citing projections like that of Celent Communications, which says that wireless payments will account for 24 percent of all Internet transactions by 2002, some developers say there is a vast market that has yet to be tapped. But there are some big logistic and technical hurdles in the way.

One of the biggest logistic problem is so obvious it has often been overlooked. How do you make wireless services convenient?

"Sure I have my wireless phone with me at all times," explains PayPal's Sollitto, echoing consumer feedback. "But I'm also at my computer or pretty close to it, a good part of the day."

Too many wireless payment services have failed because the developers just assumed that packing the power of a wallet into a cell phone would provide added convenience. Consumers have resisted this notion. Even the famous soda machine example is not really a great demonstration of wireless convenience. Plenty of people find it easier to carry coins than carry a mobile phone and learn how to place charges on it.

Still, companies like Israel's Trivnet and iPin, based in Belmont, California, maintain that attitudes will change. The problem with the wireless payment industry to date, they argue, is that most of the solutions have focused on products and services that work just fine with some old payment system. Many of the physical goods consumers buy don't seem to lend themselves to a high-tech wireless payment solution. Even when there is no cash involved, debit cards work fine.

On the other hand, think of all the new things that have recently been made available over mobile devices. A lot of Internet content is now being offered for free, not because anyone wants to give it away, but because there is no good way to get consumers to pay. Doesn't it make sense to equip the same device that provides the content with a mechanism in which consumer can pay on the spot?

Trivnet and iPin are working on systems that do this, securely and seamlessly.

"The idea is to enable mobile operators to take an active role in online commerce," says Trivnet spokesman Paul Solomon. Trivnet says all the mobile operators pushing wireless Internet services are sorely in need of a wireless payment solution. Given the questionable future of online advertising, these companies will probably eventually find it is essential to charge consumers for online content. Consumers, Trivnet believes, are more likely to pay for things like online horoscopes and weather reports, if they can pay small fees as they go, a la carte so to speak, rather than receiving a steep bill at the end of the month.

"Nobody wants the monthly bills of subscribers to get too high," explains Salomon.

Freebies no more

Three months ago Trivnet began a commercial pilot payment system with Cellcom, the largest mobile operator in Israel, to incorporate a technology so that Cellcom can charge customers for mobile purchases made without requiring the customer to enter personal details or credit card information every time they complete a transaction. Cellcom says it is now working to come up with a range of products and services that are relevant to its customers' mobility.

IPin is also believes it is impossible to underestimate what consumers will pay for.

"The reason a lot of things are free today is that there is no way to pay for them," argues iPin's vice president of strategic development Bruno Perreault. He says the challenges Napster has had implementing a workable payment system illustrates the problem.

Through its partner companies, iPin is targeting some existing markets such as mass transit toll systems, but it is also eyeing other brand new markets that are much closer to the mobile device. These are things many people probably never thought about paying for, like ring tones.

Think your mobile operator was just being nice by giving you a selection of ring tones? IPin says that if there was a way to charge you for your ring tone, they would. And soon, it says, there will be. Similar things like logos and graphics that embellish and personalize people's PDAs and are especially popular among teens, all add up to a sizable market, iPin believes.

Unlike Trivnet, iPin does not think that a system for instantly transferring money is required. Instead, it says consumers who are already receiving a monthly phone bill should be able to charge these add-ons to that bill.

Although the U.S. market has often been slower to adopt wireless services, there are some signs of promise here as well as overseas. Last month, Cingular Wireless, the nation's second largest mobile phone company, announced plans to roll out its own micropayment system that will enable consumers to make purchases from their phones. Cingular identified customized ring tones as one of the most promising uses of this new service.

Yet, even those companies who see a strong market for wireless payments systems say the technical challenges are considerable. The underlying technology needs to be built small enough so that it fits in a cell phone, but advanced enough so that it can process a credit card charge with minimal instructions. If consumers are ever to take to wireless payments, after all, ease of use will be critical.

At the same time, the security problems are tougher in wireless devices that are easily misplaced or stolen. Jupiter Media Metrix' Van Dyke says developers have to incorporate not just the regular security found on e-commerce sites built for PCs, but other non-repudiation features, such as biometric or constantly changing digital IDs, so that the device remains secure even when it falls into the wrong hands.

Still, it is worth reiterating that consumers will have the final say on whether these services fly, and to date they appear ambivalent. Western Union, a worldwide leader in money transfer services, was one of the pioneers in wireless transfers, but has backed away from that market.

"We have the capability but not the demand," said a spokeswoman for Western Union. "We just found that there wasn't a market need right now."

From Silicon Valley, Andrea Orr covers developments in the mobile world for TheFeature. She is also a correspondent for Reuters in the Palo Alto, California, bureau.