Will Simpay Be That Simple?
By Carlo Longino, Mon Aug 25 15:00:00 GMT 2003

A new carrier trade body hopes to promote a common m-payment system, but will it work?

A few months ago, we reported on several m-payment initiatives that cut out mobile carriers, leveraging the convenience of a mobile phone as a means of payment linked to a credit card or bank account. But carriers haven't let their visions of a micropayment world disappear.

In June, European carriers Orange, Telefonica Moviles, T-Mobile and Vodafone renamed an m-payment association they'd formed earlier in the year Simpay, and reiterated their goal of establishing a standardized m-payment system in 2004. Simpay is an organization open to any mobile carrier that's just looking to define a standard system or scheme for carrier-aggregated mobile payments. It would subtract small purchases from a user's pre-paid credit or add it to their monthly bill, and for larger purchases, would use a consumer’s credit or debit card. The system is envisioned to support both online and offline purchases.

It's no secret that alternatives to debit or credit cards are needed by mobile operators, particularly when marketing products and services to the ever-important teen market, and Simpay is attempting to answer one of the major shortcomings of previous micropayment plans – a lack of interoperability, meaning that retailers must be set up to use each different carrier's system. A system like Simpay means retailers can use one system to sell to users on all participating carriers.

But this system, and others like it, raise as many questions as they answer. First off, what’s the incentive for retailers and consumers to use something like this in the face of something as simple as reverse-charge or premium SMS? For simple purchases of mobile content like ringtones or graphics, premium SMS is a simple, powerful solution. Why replace it with something needlessly more complex?

The only incentive for retailers would be if Simpay's processing fees are lower than what carriers currently withhold from premium SMS. In the UK, if a user sends or receives a premium SMS priced at GBP 1.50, the content provider gets paid roughly 80-95 pence, depending on the carrier and monthly volume. This might be acceptable in a business such as delivering ringtones, where margins are pretty high, but will other retailers (who often begrudge the 2-3% processing fees that credit card companies charge) go along with this?

And what is the incentive for an offline retailer to accept m-payments like this? It makes sense in applications like parking meters, public transport and movie tickets, and so on – all places already seeing mobile payments, generally via SMS – but for a convenience store or newsstand, it can't make sense. These businesses have razor-thin margins and their success is typically built on volume, and anything that slows transactions will be rejected out of hand – especially if it comes with an onerous processing fee.

Can you imagine standing in line to buy a newspaper behind someone trying to make a purchase with their mobile and having to connect up to a server and enter a PIN, then wait for the retailer’s system to acknowledge purchase and payment? In these offline environments, instant solutions, like the infrared payments being tested by Visa and NTT DoCoMo in Japan.

And is using one of these services really going to be that much simpler than punching in your credit card number, which would be required for anything other than small purchases? If the charge is going to end up on that bill anyway, and either your carrier or the retailer levies an extra fee for Simpay or other m-payments, why use it? And is the convenience worth the risk of storing your credit card number or bank details on Simpay's servers?

This points to another major stumbling block for m-payments: convincing consumers that the services are safe and secure, especially if a phone is lost or stolen. Most current virtual wallets can't be used for much other than tones or graphics, but what happens when they’re linked to a credit card and can be used for all kinds of purchases, online and off?

It looks like Simpay and others have their work cut out for them to convince the public to use these services. A recent UK survey of 2500 Net users found that only 7% said they would sign up for this type of service, with a resounding 64% saying they wouldn't. Those are some pretty substantial numbers to turn around.

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.