The way ahead for mobile payments

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Following the release of a Mobile Payments report by Consult Hyperion director David Birch, MPW took a look at the highlights. The full report can be downloaded by clicking here. (440kb, PDF)

“It’s not that long ago that we were being told that mobile payments were the wave of the future and that we’d soon be using our handsets instead of credit cards in the supermarket. By now (i.e., 2003) over half of all mobile payments should have been in shops and at vending machines, whereas the majority are actually for ring tones and horoscopes.

Mobile payments have had little impact on the average consumer and schemes that started off with the mass market in their sights (like Paybox in Germany) have begun to re-focus on other market sectors. Yet the basic m-payment proposition remains strong.

Mismatch in the market

We think there has been a mismatch between the services consumers say they want and the services that they are actually being offered. What the public want is simple – ‘Point your phone at the car park machine, ticket comes out, £1.80 on your bill’ – but what they get is complicated -open this account, register for this, remember these passwords, you must have a credit card or be with a particular operator and so on – or doesn’t work because it’s out of coverage area, underground and so on. Where there is a simple mechanism consumers have adopted it.

Hence the current interest in the mobile industry around the formation of the Mobile Payment Services Association (MPSA), newly rebranded ‘Simpay.’ Simpay members between them have 270 million customers worldwide and represent a powerful market space, with as many consumers as Europe. Let’s hope that Simpay is a way of bridging the gap from potential to actual revenues in a much shorter time than it took for interoperability with SMS.

There is some early evidence to suggest that they may be on the right track. In the near future, they intend to concentrate on easy payment for digital content, expanding into other retail areas in time. The digital content available may be limited at present, but as consumers and service providers begin to explore the possibilities afforded by a richer mobile environment, the content landscape will inevitably open up.

Given that the operators are now working on the critical factors of brand and interoperability, how exactly will the mobile payment transaction work? On the whole, European m-payment schemes have been built on the GSM or GPRS networks and have been more successful on-line than off-line.

Physical POS

At the physical POS, the need to call either the POS itself or some central facility in order to make a transaction has turned out to be a rather limiting requirement. In other parts of the world, efforts are being made to avoid this limitation by moving toward direct communication between the handset and POS.

If consumers could log on to anything using their phone just by punching in the same PIN code (or, in the future, putting their thumb over a fingerprint reader at the bottom of the key pad), then they might use those services more often. Having authenticated once in a session, they could browse multiple service providers, with the mobile operator passing on some standard form of digital identity to support the security and CRM requirements of the providers.

Getting this right is even more important than getting the payments right. Without a simple m-passport, too many mobile services will just be too much hassle to use, however easy it is to pay for them.

While many of the early entrants in the m-payments field have ‘bundled’ the authentication and payment processing, the idea of the SIM containing some kind of digital passport, which the operators allow other service providers to use, is particularly appealing as a means to support a wide variety of transactions, of which payments are only one case.

The regulatory environment is changing, to not only allow but encourage competition in