In theory, the concept My Amend of mobile payments has a strong business case, given the high market penetration rates of mobile devices, such as cellular phones and PDA’s, in many parts of the world. In addition, mobile operators and financial institutions, through these devices, envision an attractive way to enable their customers to make payments. On the consumer side, users can reap the convenience benefits, permitting them to buy goods and services from any location.
In principle, a mobile device can be used as a POS (point of sale) tool. Mobile operators and financial institutions consider this concept the next logical step in making mobile devices a trusted payment device for consumers, acting as a payment instrument supplementing cash, cheque, credit card, and debit cards.
Currently, financial institutions are rolling out wireless POS capabilities to merchants who are in turn competing with a consumer’s mobile phone. In addition, several new services have been introduced worldwide in which merchants are accepting payments from wireless POS terminals. These wireless POS terminals, for example, allow merchants to offer home delivery services in which payments are presented and accepted upon delivery of goods or services at the consumer’s location.
Wireless POS terminals use the wireless networks of mobile operators to send payment instructions to a merchant acquirer’s payment server. Consequently, wireless POS services are classified as an extension of traditional payment services. Given that almost everyone will soon own a mobile phone in some areas of the world, and most merchant locations offer POS terminals as a form of payment, it is at least conceivable that the mobile device will take over a large part of the retail payment market.
Since wireless POS implementations are an extension of current payment infrastructures, users still need to use a credit or debit card to make purchases. The convenience associated with current wireless POS methods has to do with the fact that these terminals are brought to the purchase location. For example, in a restaurant environment with the user paying for their bill via debit card from their seat or groceries delivered to their front door.
Mobile devices enable the use of numerous services, services that do not need card readers, personal computers, and modem combinations, or a merchant’s wireline POS terminal. Nowadays, mobile devices have an embedded chip that can store information and provide secure authorization and identification.
The Need for Interoperability
But to make these services available to most mobile users, mobile payment service providers need to roll out services that offer interoperability. There have been numerous mobile payment pilots conducted that enable mobile devices to be used as a payment option, some of which have advanced into full mobile payment services (e.g., PayPal, PayBox, MovilPago).
To date, we’ve discovered that the key to providing a successful mobile payment service has to do with the benefits it gives the end-user and the end user’s customers: convenience, security, and freedom being a few key elements. Though the industry has a long way to go before mobile devices will become a consumer’s payment instrument of choice, to ensure the stability of a viable mobile payments infrastructure, collaboration is the key.
Both mobile operators and financial institutions have tried, with little success, to implement their own individual pilot projects. Both parties have encountered numerous difficulties. For example, mobile operators, for example, because of their extensive existing customer base, technical know-how, and billing comprehension, seemed the most likely candidates to provide mobile payment services. However, problems associated with risk management and the collaboration of numerous providers needed to accomplish interoperability have arisen.
On the other hand, financial institutions are confronted with a limited number of users and high infrastructure costs. To remedy these problems, mobile operators and financial institutions have begun collaborating to offer mobile payment services to their customers jointly. For instance, leading Dutch direct bank ING/Postbank Nederland has partnered with the Netherlands number three mobile carrier Telfort to offer users mobile access to the bank’s retail applications and link user bank accounts to Telfort’s prepaid service top-up capabilities for account recharging. In this case, these two entities are taking advantage of their natural symbiosis is a big step in the right direction.
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Right now, there are four entities needed to make a payment via credit card (acquirers, issuers, merchants, and consumers) to make a payment via a mobile device; there are five (mobile operators, acquires, issuer, merchant, and consumers). As a result, the ideal business model includes the cooperation between mobile operators, financial institutions, technology suppliers, and industry associations to create a certain amount of standardization, ensuring the successful implementation of a strong mobile payments infrastructure.
Still, numerous issues, including limited functionality available through the current generation of networks as well as a lack of standards, to name a few, are hampering the efforts being carried out by these industry players. In addition, questions regarding successful revenue-generating business models also remain.
As mentioned earlier, cell phone and PDA penetration rates are higher than they’ve ever been, with forecasted growth rates showing exponential increases in consumer adoption. Accordingly, industry focus should be centered around the business side. Right now, it is not feasible for a mobile operator or a financial institution to roll out competing services on a proprietary model that does not include interoperability.