Slow Progress in Mobile Payments
By Steve Wallage, Fri Dec 13 14:45:00 GMT 2002

Why? Because so many different interest groups need to be accommodated, but there are signs that greater co-operation may still prevail.

How long was it since you first saw the vending machine and mobile device demo? M-commerce has moved very slowly since then, primarily because of the uncertainty around the area. Solutions in mobile payments are progressing dreadfully slowly after a slew of initiatives in 2000 and early 2001. Researchers Analysys have identified at least six industry groupings to create standards and over sixteen initiatives which are seeking to create mobile payment systems and services.

However, there are now some signs that the different groups are starting to co-operate, and not a moment too soon.

Why the Need for Standards?

M-commerce is not simple enough for users - it needs to be made attractive. For users to want to make mobile transactions, mobile payment systems must be simple, reliable, secure and ubiquitous. Early mobile transactions required up to sixty key presses. This ideally needs to be fewer than five.

Security is absolutely key, both in terms of reality and perception. A well-supported standard, with co-operation from the financial and mobile communities, is crucial to provide this perceived security. Little research appears to have been done on what users actually want - for example, would they rather pay through their mobile telephone bill, are they happy to pay for small items (micro-payments), and would they be willing to send their credit card details over the mobile Internet?

M-commerce is also vying for attention with merchants - content providers, retailers and so on. But these merchants are also looking at e-commerce and interactive television, as well as offline opportunities. For them, m-commerce equates to tiny revenues and ongoing disappointments. Merchants do not want to sign up with a multitude of different payment systems with all the associated cost and effort. They want mobile payment systems that are ubiquitous and are absolutely reliable with strong links to authentication and settlement systems.

For the financial service providers, mobile payment is both an opportunity and threat. The opportunity is a new market and perhaps the chance to lead in this area. The threat is in new ways of mobile payment, although no mobile operators are still talking about becoming banks.

Other players in the mobile value chain are also keen to support their own solutions and promote their own view of the world. The SIM card manufacturers -such as Gemplus, Schlumberger and SEMA - are keen to see the development of the SIM card as the central intelligence of the mobile payments system. The payment system platform providers - such as HP, Lucent and Sun - are also pushing their own solutions.

Although individual companies and sectors within the market are pushing their own solutions, m-commerce will not develop without the clear support for a few mobile payment solutions. This will benefit all vendors.

The Industry Groupings

The different industry fora have been strong on getting lots of members but much weaker on pushing the market forward. Other groupings have been rather reluctant to release details of their plans or objectives, such as the Vodafone and T-Mobile initiative, which was launched in March and has since been very quiet. Such initiatives from the mobile operators have at least frightened the banks into working harder to push their own solutions.

The Mobile Payment Forum was started by American Express, JCB, MasterCard and Visa. It offers a wide range of platforms, enabling and interactive technologies and cellular network support. It has over 100 members including device, smartcard, security and content companies. Yet, it has gained a reputation for being 'anti-operator'.

The Mobey Forum is the choice of many handset manufacturers with Sony Ericsson joining on December 10. It has also the support of a range of financial organizations. In September, the Mobey Forum demonstrated transactions at a point-of-sale terminal and cash withdrawals from an ATM, using a Nokia handset with Smart Covers. Critics object to the additional complexity of using the handset and SIM as the basis for mobile payments.

None of the existing groupings seem strong enough on their own, and a merger of different groups is needed. Most have proved to be 'talking shops' rather than driving forward change.

The Competing Mobile Payment Systems

Different systems offer the option of paying through direct debit from a bank account, debit or credit card, stored value (electronic wallet) or through the mobile phone account. Some claim to offer all four options including iPIN and Macalla.

Startup groups have been the leading proponents in this market. Such companies have often targeted particular country markets, such as Mobipay in Spain. It has support from all four Spanish mobile operators, a number of banks and payment providers.

Some have already had some success - one example is Paybox which claims to be the 'most widely used independent mobile payment mechanism in Europe'. It started in Germany, and is now in four other countries with 900,000 subscribers.

The company has the advantage of simplicity for merchants and users. Users register and then choose Paybox as payment mechanism on a merchant's website. They are requested authorization via their PIN and receive a transaction confirmation via SMS. Paybox gains revenues from three areas; annual subscription from users, set up fee for merchants, and approximately 3% commission from each transaction.

iPIN sells through operators and can point to success with Vodafone, Orange and Wanadoo. It has also formed an alliance with Convergys and Sun.

However, many of these companies seem destined for failure. The e-commerce market is littered with failed start-up payment models such as beenz.

The Need for Multi-channel

Something often forgotten in the mobile payments argument, is that much of m-commerce will be a multi-channel process. Services and transactions will be linked to both online and offline systems. One of the implications is do we need a separate mobile payment solution? Much work has already been done on e-commerce payment systems such as Paypal, which is now owned by ebay. Microsoft Passport is also likely to be a strong contender in this market with its digital wallet approach.

Established e-commerce payments providers will have overcome many of the challenges facing mobile payments. They also benefit from the existing relationships with customers and merchants. One example of the progress made in the online world is the Liberty Alliance. This provides a federated network identity allowing detailed information on online users to be provided to partners. It has over 50 members with 4 billion network identities.

If a coherent mobile payment system and standard is not created, then e-commerce companies are well placed to fill this void.

The Future

Co-operation is key. Paybox is a good example as it increasingly sees its future as licensing its technology to banks and operators. It optimistically hopes that its working system can even by incorporated by the standards groups. It is looking to work with a number of different partners, and integrate with online offerings such as Internet banks.

Analysys believes that a payment solution would need to rapidly reach most merchants to be acceptable to consumers, and be readily usable by more than 15% of consumers to be acceptable to merchants.

This will not happen for a long time. Until then, a mixture of solutions will co-exist. Some will be offered by individual operators such as m-pay from Vodafone. Operators see payment systems as a great way of reducing churn. Some will be based on existing online and offline payment systems. Some will be country specific, particularly in smaller markets. A particular opportunity will be in developing countries where credit card penetration is low.

Yet, for the future of mobile commerce, there must be a consensus around a few key mobile payment solutions.

For the more optimistic projections to come true, all the fighting to develop mobile payment standards needs to stop. Co-operation and empathy need to be the watchwords. Co-operation with different members of the mobile value chain, and empathizing with the different needs of companies in other sectors of the market.

A good sign would be for the Vodafone and T-Mobile alliance to open up their partnership and work alongside existing solutions.

Steve Wallage works and writes for the451. Steve has more than 13 years of experience as a technology analyst specializing in telecommunications.