The big micropayment opportunity


A fully functioning, secure and easy to use mobile commerce industry would be worth billions of dollars annually, according to a new report from Juniper Research.

The introduction of camera phones, phones with MP3 players, radios and TV are changing consumers’ perception of the mobile and creating potential demand for mobile goods and services.

This is just the start, says Juniper. Mobile operators, handset vendors, banks, credit card companies, retailers and billing infrastructure companies are all pitching in with ideas, technologies and applications to take m-commerce a step further and into the realms of physical, and not just digital, goods.

Micropayments are emerging as the most likely form of physical mobile payment transaction. Small payments are easier for consumers to overcome their fears of security, but there are many key applications to attract consumers with payments of less than $12 – tickets for parking and cinemas, bus and train travel and vending machines all require small amounts of money for their goods and services.

While most businesses involved in this sector share the vision, not all are pulling in the same direction in the development and application of technology standards. This is where Simpay could step in to provide a level m-commerce playing field for operators who can then go on to offer the range of services that will undoubtedly increase their ARPU.

However, Simpay may not be suitable for further extension into applications demanding contactless payment capability. While this is a longer-term plan, in Europe in particular, it is a significant feature of the m-commerce roadmap and already strongly supported in Japan, South Korea and the US.

Banks are still looking at ways in which they can manage emerging payment methods and technologies. There have been suggestions that banks have no incentive to find cash alternatives and while at first sight this may seem true, there does seem to be a willingness to try and address the issue.

Juniper suggests this is probably through fear of losing control of any digital cash or mobile commerce revolution should it happen. With some mobile operators applying and being awarded e-money banking licenses, this fear is not unfounded. According to Simpay though, the micropayment space is a market which banks have, historically, not really served.

Banks have to be in at the ground level driving micropayment technology and methodology if they are to have a say in the future. Times will change and there is a strong suggestion that in one way or another, digital cash will happen and banks ignore it at their peril.

For banks, it is not just about cash management, it’s about relationships with businesses which facilitate cash transactions. Cash is predominantly used for low-value payments. Of the UK’s 27 billion cash payments in 2003, 17 billion were for £5 or less. This is a huge market for any business that comes up with a popular alternative to traditional cash. It doesn’t really seem a case of ‘if’ anymore, but ‘when,’ Juniper asserts.

The idea of the mobile phone providing a payment alternative to cash for some services is catching the imagination and fits into a number of emerging trends – handset development, increased digital transactions through the mobile internet and SMS, and the financial industry’s future desire to reduce cash usage.

In the short term, mobile operators stand to gain from the increased use of the phone to download ringtones and games.

In the long term, while this market for digital goods will continue, the idea that the phone could develop into a fully-fledged digital wallet with perhaps some form of wireless connectivity such as RFID, will not necessarily sit comfortably with operators. Wireless connectivity can essentially bypass the operators because it will not require the network, just the hardware.

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