The Far East Mobile Payment Race
By Steve Wallage, Thu Nov 27 08:45:00 GMT 2003
Mobile payments continue to illustrate the worst examples of different players putting their own interests ahead of the development of the mobile market. The Far East markets show the challenges and opportunities in mobile payments.
The Korean Battle
The Korean operators responded to the mobile payment opportunity early on, and have looked to quickly expand the scope and variety of mobile payment options.
The simplest option is what is known as the 'Cellular Small Amount Payment Service'. This allows subscribers to pay for online goods using authorization codes sent over SMS. The Korean operators estimate that this market will grow 150% in 2003 to around $400m. And, the online gaming industry estimate that the same service will generate 25-30% of their revenues.
The option is particularly popular with younger Koreans who can add the cost to their mobile bills rather than needing a credit card. The game providers have to pay out around 6% of the fee to the mobile operators and mobile payment provider. The three Korean operators also offer a variety of m-payment options.
SK Telecom (SKT) has been the Korean cheerleader. SKT offers NEMO, a money wiring service launched in 2002. This has the support of nine Korean banks, and allows money to be wired between accounts using the handset. The fee from the service is split between the bank and SKT.
The most famous of SKT's offerings is Moneta. This was first launched in 2001. It is a smart chip-based technology where subscribers with credit cards supporting Moneta, can insert the smart chip into their (specially equipped with a slot) handsets.
The traditional way of using Moneta has been to use IrFM or RF to send the credit card details to an acceptance device known as a 'dongle'. There are now over 300,000 of these dongles in locations ranging from retailers to restaurants to some subway stations. SKT has plans to install 400,000 dongles by the end of 2003. However, retailers are still highly resistant to investing in new equipment until demand is proven - a real 'chicken and egg' problem. SKT is only now starting to see strong growth in the introduction of its dongles after two years of pushing. Handset vendors have also been resistant to offer terminals until the market is developed. Moneta is still only supported by six handsets. SKT was so frustrated by the resistance of credit card companies that it tried to buy one, before Korean regulators jumped up.
In August, the service was enhanced to allow online payments when buying from Internet sites. After purchase, an SMS is sent to the subscriber who connects to the Moneta Online Service and inputs a password. The initial support for this service came from six Internet sites, but this figure is anticipated to increase to 100 by the end of the year.
The other two Korean operators offer some similar services. KTF has K-merce, and LG Telecom has ZOOP. Yet, the operators themselves are hardly role models of co-operation. The Moneta and K-merce systems require different dongles. Although, the two have pledge to offer interconnection, and SKT, KTF, and LG Telecom have agreed to conduct a joint promotion to boost the Cellular Small Amount Payment Service market.
The initial hopes for the m-payment services were very high in Korea. Yet, a service such as Moneta still only has around 30-50,000 users despite around 400,000 Moneta compatible handsets being available. A Merrill Lynch survey found that, in the first six months of 2003, only 21.2% of subscribers had made any purchase using their handsets. Interestingly, the greatest number of users came from the 30-39 age group (29.2%) while those above 40 years old were as likely as the 20-29 year olds to have made a purchase.
Moneta has created a lot of global interest but has been considered a failure in Korea. This may be about to change as the operators take on the painful lessons learnt, and all the parts start to fall into place from handsets to dongles to costs.
The NTT DoCoMo Approach
DoCoMo first offered its mobile payment service, Docommerce that enables users to buy items through the i-mode website and pay for them using their credit cards, in May 2003.
The service has seen been expanded to allow usage in convenience stores. This is possible with two DoCoMo handsets that have infrared transmission (IrDA) ports (the 504i and 504iS) but which account for over 8m subscribers. The trial started with around 500 retail machines, with wider commercial development planned for early 2004. DoCommerce is based on the 'Visa Proximity Payments Messaging Specification'.
The other major development from DoCoMo is FeliCa, a 40/60 joint company with Sony. This 90 employee company is working on embedding the FeliCa chips in mobile phones, which would be available from March 2004. The terminal can then be used for travel payment, money transfers and online credit services. The Sony FeliCa chips are already used in nearly 40m smartcards around the world. DoCoMo believes that new content and payment services will be developed for the system, and is trying to make it as open as possible for third party developers.
DoCoMo would love to see a surge in m-payments but its own lack of ambition - such as using joint venture companies, long trials and so on - shows that it realizes that this will take several years. It is also an admission that it cannot work alone.
Overcoming The Hurdles
Looking at the Korean development, the four main challenges facing the m-payment world are security, convenience, availability and cost. Cost is an issue in the widest sense, from wireless Internet access fees to transaction costs. According to research from the Korean Consumer Protection Board, around 75% of complaints around the wireless Internet centered on price.
Underlying this is standards. Consumers and retailers want one standard - they don't want to worry about which phone uses which system. Although the Korean operators have been accused of 'doing their own thing', the Moneta system is based on the GlobalPlatform, a smartcard industry standards body. Other operators have jumped between competing standards bodies, and there have even been suggestions that the Microsoft/Vodafone relationship is a forerunner to a new attempt at standardization.
M-payments will only really work when the consumer doesn't even have to think about using them. That's still a long way off - even in Korea.