Dialing for Dollars
By Carlo Longino, Wed Jun 18 12:00:00 GMT 2003

The latest takes on mobile payments aim for users' credit cards, not their mobile bills.

We were all supposed to be paying for everything with our mobile phones by now. The first promise of m-commerce was that handsets would replace cash and plastic as most people's preferred method of payment, especially for small purchases, and lump them on the user's mobile bill leaving them one easy payment to make each month.

There were a number of ways this was supposed to happen, the most prevalent example being m-commerce-enabled vending machines. No longer would thirsty or hungry mobile users have to fumble for change; they could simply send an SMS or make a phone call to a number posted on the machine, which would then let the customer purchase the item of their choice and charge the amount to their phone bill. Then the Japanese said this was too difficult, and developed an infrared system where users pointed their device at the machine and hit a button. Other variants on this idea emerged, like paying for parking meters and car washes, and some are still in use today, and using the mobile bill to pay for mobile content like ringtones and graphics is standard practice in much of the world.

But for any number of reasons, the idea that a phone should act as a credit card has lost much of its traction. Early tests saw manufacturers looking to implement some sort of secure SIM card that could dial in via WAP for payments and authentication, these fell by the wayside when WAP fell out of fashion. Users didn't see a lot of benefit to be paying for everyday purchases with their phone, prepaid users generally couldn't take advantage of such features, and the technology needed to link up retail outlets more robust than vending machines or parking meters was cumbersome and expensive, and much less attractive as carriers cut back their capital spending.

The latest iteration of mobile payments still sees the mobile device replacing cash or checks or plastic - but cuts the carrier out of the picture and doesn't put purchases on a user's monthly mobile bill. It simply acts as a convenient payment method that's linked to an existing credit card or bank account. Perhaps carriers realized banking and payment processing wasn't one of their core strengths. Or perhaps the burden of holding the ball for their users' purchases wasn't too appealing. Whatever the matter, handset and component manufacturers and credit-card companies are moving forward.

Contactless Payments

Visa and Philips recently announced plans that they would collaborate on developing and marketing "contactless" payment chip technology. Philips is interested in the consumer-electronics angle - designing devices that can easily access and pay for content and services - while Visa is of course interested in the payment angle - the more payments they process, the more revenue they generate.

Transactions could occur just about anywhere via a connected device. Say you're browsing online MP3s on your PDA and find one you want to buy and download, you simply wave your Visa smart card within 4 inches of the PDA's radio chip, and it processes your payment information, charges you, and allows the download. Same would go for a mobile-phone ringtone or SMS subscription or mobile video sports highlights.

But the technology could have other applications too, and the companies say they're looking at areas like ticketing, gaming, music, home shopping, and public transit. One potential application could see a mobile phone with an embedded chip acting as a bus or metro ticket or a building entry pass, or another downloading an "electronic" movie ticket bought online to a smart credit card, which could then be used to enter the theater. The applications are almost limitless, and all point to what the companies call "universal commerce."

Payphones of the 21st Century

Mastercard and Nokia are following a similar path, last month starting a trial in Dallas of Nokia handsets with covers enabled with Mastercard's PayPass technology. Testers can use the handsets, which are linked to a user's MasterCard account, at a handful of retailers and restaurants around Nokia's US headquarters in lieu of cash or standard swipe cards. MasterCard has been running a test in Orlando, Florida, of swipe cards enhanced with the PayPass RF technology.

The idea (apart from ensuring that MasterCard gets to process the payment - and take a cut of it) is that especially for small transactions that are typically paid with cash, consumers will enjoy the convenience of simply holding their phone up to a reader rather than digging through a purse or wallet. It's a boon to retailers as well, again especially in cash-dominated businesses like fast-food restaurants or convenience stores, as using the contactless payment systems can quicken transactions, a key metric in any volume-based business.

Some retailers, particularly small ones, may resist these programs, as they require stores to purchase or rent the new equipment needed to receive and process RF-based payments. But Nokia is hoping to help retailers recoup some of those costs by building in a permission-based marketing system to the program. Retailers can utilize the system to send out SMS advertisements, coupons, or promotions to those users who opt to receive them - which for some businesses could be a great advantage.

A Nokia spokeswoman gives the example of one of the businesses involved in the trial, a seafood restaurant. Fresh fish has a very limited shelf life, and whatever the restaurant doesn't sell, it has to throw away at a loss. But say the manager realizes they didn't sell as much salmon over the weekend as they'd hoped, and if he can't sell it on Monday, it will have to be thrown out. He can then send an SMS advertising a salmon special or with a coupon directly to interested users, an immediate marketing message allowing for an immediate response.

Beam Me Your Money

These technologies offer convenience to the consumer, and advantages to the retailer. There's no doubt that the public is interested in RFID payment technologies. Toll-road systems around the world now use RF transponders attached to cars to let drivers pay tolls without slowing down. 6 million US customers have signed up since 1996 for the ExxonMobil Speedpass, a key fob with an RF transmitter that links back to a credit card that customers can use to make purchases at 8,000 of the company's gas stations and convenience stores across the US and about 400 Chicago-area McDonald's. The company is even embedding transponders in consumer electronics: get your Speedpass-enabled Timex watch before they sell out.

Carlo Longino is a freelance writer based in Austin, Texas. His previous experience includes work for The Wall Street Journal, Dow Jones Newswires, and Hoover's Online.