Mobile Payment - A Hard Nut to Crack
By Wendy M. Grossman, Mon Jul 30 00:00:00 GMT 2001

Mobile payment is going to grow at a turtle's pace.


By 2005, Forrester predicts, mobile payment services will take in only EUR26 billion, about 0.5 percent of consumer spending. The report names unwilling consumers, incomplete services, and insufficient technologies. Why so slow? For anyone who's followed the progress of the World Wide Web, this isn't really a surprise.

At the virtue of choices

The Web is littered with the ruins of failed payment schemes. The first of these, Digicash, began life as early as 1994, and sought to use fancy encryption to create the online equivalent of anonymous cash. Its founder, mathematician David Chaum, wrote a ground-breaking article on how to make such a scheme work for Scientific American. Cleverness and privacy protection weren't enough - the company filed for bankruptcy several years ago. Cybercash, another early contender, came up with the notion of an e-wallet in which you could keep cybercoins and pay tiny amounts for content. The company moved into selling financial software and has been acquired by Verisign. Beenz, which has spent the last couple of years trying to create a Web-based currency out of what are essentially loyalty points, is still in there pitching. But a year ago it was expanding internationally and hiring everywhere; now it's closing some of its international offices and downsizing its workforce. The latest scheme is the wackiest: e-gold. No kidding - you open an account and deal in an electronic currency backed by gold bullion. The Libertarian Party of California accepts donations in it.

At least theoretically, the mobile world has choices the fixed-line Web didn't have. Take smart cards. For them to make any dent in e-commerce, every PC owner would have to acquire a reader. Never going to happen. But people change mobile phones with amazing frequency, and building in a dual-chip system to handle secure payments (as the bank-led consortium Mobey wants to do) or a second slot for a smart card is much easier than converting hundreds of millions of computers. Even so, some analysts are unimpressed with this approach, and their reasons match the reasons why some early Web currencies failed.

The logical move

"To make a compelling argument a mobile payment system needs to be based on systems that are out there today," says Duncan Brown, an analyst with the London-based market research firm Ovum. "To get any technology change out there is a hard sell - things like smartcards, dual-slot phones, and so on. At the other extreme, systems like Paybox have a strong case for themselves."

Sure enough, what succeeded on the Web was good old familiar credit cards, once there were secure systems to protect the information in transit. Schemes like Paypal even allow individuals who would never qualify for or need merchant authorization to accept credit card payments for goods they sell on auction sites such as eBay. Micropayments, the Holy Grail that would open the way to charging pennies for content, if they happen at all, seem most likely to succeed via aggregator services of this kind.

And this is Brown's point. People already had credit cards and were in the habit of using them for mail order. Using them to buy online was a logical next step. By contrast, Chipknip, a smart-card based electronic purse scheme supplied by the Dutch bank consortium Interpay, found that only five percent of the 14 million cards it issued had ever been used - after four years.

Mobile wallets have the same problems as their Web-based counterparts. Do you trust the company that stores your information? How often will you arrive at a merchant's to find that they don't support the m-wallet you have but some other scheme? Certainly this is a solvable problem - MasterCard and Visa did it, slowly superseding the dozens of single-store and oil company charge cards consumers carried back in the 1970s. But, as Brown says, "The mechanism that underpins the co-acceptance of MasterCard and Visa was difficult to come by, and it needs to get to that stage with wallets. At the moment, you're dealing with several dozen small technology companies."

What's in it for me?


Forrester's report highlights just this kind of problem. Interviews with a variety of retailers established that interest in mobile phone payments was strongest among service retailers (parking lots, cinemas, public transport, takeout restaurants, package delivery companies) rather than online or bricks and mortar outfits. For most service retailers, the big appeal is lowered transaction costs - the city of Amsterdam estimates that 15 percent of the money it collects in parking meters goes to pay for money handling. It's trying out a mobile phone payment system (you phone a special number when you arrive and again when you leave) provided by Libertel-Vodafone and Taxameter.

For consumers, the benefits are less clear. In the case of the parking trial, the carrot is that consumers will be able to pay for precisely the amount of time they actually use, rather than guessing how many predetermined blocks of time they need. Forrester doubts, though, that this type of trial - and the company includes longer-running trials such as those in Finland allowing people to use their phones to buy from vending machines - can scale to mass-market size. Problems such as integrating with existing billing systems, customer support , and pricing models are a long way from solved.

It's clear that the idea of using the phone itself has potential - a survey at the end of 2000 showed that 59 percent of Europeans never leave home without it. In a sense, we already use mobile payments anyway, when we get useful information via SMS or buy ring tones, paying through phone bills or prepaid accounts. Games that keep us from being bored when we've run out of stuff to read in transit are a good possibility, too.

But, as both Brown and Forrester say, any scheme that requires consumers to change their behavior is a very hard sell unless there's a compelling benefit. Avoiding long queues for service will almost certainly be one of them; getting last-minute flight or train updates to allow you a few extra minutes in your office is probably another. But some of the grander schemes seem less likely to succeed. If you want to buy a plane ticket, surely you're not going to fuss around on a mobile phone with a tiny screen trying to locate a deal so you can have it appear on your phone bill. No - you're going to use the phone to call a travel agent or an airline and book a ticket using a credit card. I guess you could call that one version of m-commerce.

Wendy M. Grossman is a freelance writer based in London, and author of net.wars. Her new book, From Anarchy to Power: The Net Comes of Age is out.