In theory, My Amend of Mobile Payments has a strong business case, given the high market penetration rates of mobile devices, such as cellular phones and PDAs, in many parts of the world. In addition, mobile operators and financial institutions envision an attractive way to enable their customers to make payments through these devices. On the consumer side, users can reap the convenience benefits, permitting them to buy goods and services from anywhere.
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, as a payment instrument supplementing cash, cheques, credit cards, and debit cards.
Currently, financial institutions are rolling out wireless POS capabilities to merchants who compete with a consumer’s mobile phone. In addition, several new services have been introduced worldwide, and 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 a purchase. The convenience associated with current wireless POS methods is that these terminals are brought to the purchase location. For example, in a restaurant environment, the user pays for their bill via debit card from their seat or has groceries delivered to their front door.
Mobile devices enable the use of numerous services that do not need card readers, personal computers, 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
However, to make these services available to most mobile users, mobile payment service providers need to roll out services that offer interoperability. Numerous mobile payment pilots have been 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 is the benefits it gives the end user and the end user’s customers: convenience, security, and freedom are a few key elements. Though the industry has a long way to go before mobile devices become a consumer’s payment instrument of choice, collaboration is the key to ensuring the stability of a viable mobile payments infrastructure.
Both mobile operators and financial institutions have tried, with little success, to implement their pilot projects. Both parties have encountered numerous difficulties. Mobile operators, for example, seemed the most likely candidates to provide mobile payment services because of their extensive existing customer base, technical know-how, and billing comprehension. 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 jointly offer mobile payment services to their customers. 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, which is a big step in the right direction.
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Currently, four entities are 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 and 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.
Conclusion
As mentioned earlier, cell phone and PDA penetration rates are higher than ever, with forecasted growth rates showing exponential increases in consumer adoption. Accordingly, the industry should focus on 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.
