Payment Plans

Getting people to pay for things via their mobile phones is an achievement that has largely eluded the industry so far. Despite continuing interest from operators and the financial industry, several barriers need to be overcome if m-payment is to gain interest from consumers and retailers alike.

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By  Richard Agnew Published  August 31, 2003

|~||~||~|Getting people to pay for things via their mobile phones is an achievement that has largely eluded the industry so far. Despite continuing interest from operators and the financial industry, several barriers need to be overcome if m-payment is to gain interest from consumers and retailers alike.

The opportunity to push mobile devices into the payment arena has long appealed to network operators and financial institutions, although they have had little success in transferring this interest to retailers and consumers so far.
Umpteen rival development groups and consortia have been set up to try and produce the de facto m-payment system and grab a slice of what is expected to become a considerably-sized pie.
But various issues remain to be tackled if m-payment is to gain traction and compete effectively with cash and credit cards at the point of sale, including the incompatibility of existing systems. More attractive revenue sharing models also need to be brokered with retailers to persuade them that m-payment is a worthwhile investment.
In the Middle East, however, both operators and banks are aiming to begin that process in earnest over the coming months. For example, Comtrust, the e-business arm of UAE monopoly operator, Etisalat, is preparing to trial a proprietary m-payment system next year, developed as part of its partnership with the Central Bank of the UAE.
The system is designed for micropayments and macropayments in business-to-government, citizen-to-government, business-to-business or business-to-consumer applications, and will be added to the online payment service which allows the bank’s customers to purchase goods and services over the web through the UAE Switch network.
“We planned mobile payments to be the next step [in the partnership],” says Tariq Habib, senior manager of Comtrust, adding that the system will debit rather than credit based with special accounts provided by the member banks. “This is easier from the clearance perspective and there is greater debit penetration so users are likely to prefer it,” he adds.
Comtrust is planning to start trialling the m-payment solution internally with a view to launching it next year. Authentication and transaction messages sent between users and banks will be based on common standards. The user interfaces will also be tailored to local preferences and to enable the other banks that join the scheme to develop their own branded service. “The user interfaces will allow the Comtrust customer to have the Comtrust experience and customers of another provider to have their own experience, but the functionality will be the same,” says Habib.
Globally, moves are afoot to bring the various different m-payment systems into check and allow applications to be targeted at a wider base. Multiple initiatives have been set up over recent years by handset manufacturers, operators, banks and credit card companies to come up with solutions for m-payment, but a single solution has yet to win out.
“One of the reasons behind the [lack of] success of m-commerce was what you could call the greed, the desire to be the winner and take everything,” says Habib.
“This was not possible. This is a new space and it is not possible for one player to come and take all the market share, we must work together. Unless an inter-working solution is developed, it will be difficult,” he adds.

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Simpay, the latest venture to attempt to deliver a common, industry-wide m-payment solution, was launched in July. Created out of the Mobile Payment Services Association by founding members Orange, Telefonica Moviles, T-Mobile and Vodafone, the group says it will attempt to drive interoperability forward by delivering an open, commonly branded solution to consumers and retail partners.
It has targeted one billion sales transactions paid via mobile phone per year within five years, and will initially focus on micropayments for items such as MP3 downloads, ringtones and games which will then be charged to the phone user’s account. Larger payments, such as travel bookings and theatre tickets, will be facilitated through credit and debit cards.
But what chance will Simpay have of achieving the critical mass necessary to make it a success and bring the industry together? Membership is restricted to mobile operators, including mobile virtual network operators (MVNOs.)
But the four founding operators’ collective customer base is seen as a huge advantage in terms of attracting other participants. The group added at its launch that it was in talks with fourteen other mobile operators to join the club.
“The Simpay venture is, to a large extent, where we see attention around mobile commerce being focused,” says Phil Taylor, senior analyst, wireless consumer applications, Strategy Analytics.
“It brings together some of the largest network operators worldwide and is attempting to define a standard on its own. It will look at the work that has been done by other bodies and take what it likes from those. Simpay will be looking to exert control across the operators that are part of its membership,” he adds.
The venture is targeting a 2004 launch for its solution. But interoperability, and attracting other partners, is only one of the barriers it will face.
Also likely to prove both challenging and lengthy will be the effort to persuade retailers to buy into m-payment, something that took the credit card giants themselves several years to achieve.
Experience from m-payment projects attempted so far suggests that while operators and service providers will want to grasp their own share of the market and corral a significant share of revenues gained, they will have also have to offer revenue sharing terms and economics that are as attractive as well-established systems such as credit cards. For example, Paybox, the Deutsche Bank-backed m-payment venture, is perceived to have failed to establish itself as an independent provider because it was offering less competitive terms to the credit card companies it was attempting to rival.
“M-payment or any competing system is going to have to provide very competitive terms to merchants, and particularly big merchants, if they are to going to have traction. Why should retailers get involved with m-payment, if the providers haven’t come up with good enough economics?” asks Taylor.
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The campaign to promote m-payment to retailers has also yet to get off the ground, although the collective marketing resources of Simpay members are expected to make a difference. “Until now, we’ve seen virtually no effort from service providers to encourage merchants to offer m-payment to their customers. It may well be that Simpay changes that, because it does include some very large customer groups, but the jury is out until we see some action on the ground,” says Taylor.
Habib also bemoans the lack of retail applications that consumers could use as a limiting factor in m-payment’s development. Comtrust began a market assessment of m-payment in 2001, but decided to hold off due to the lack of services in development.
“As an enabler, we needed applications or somebody with an idea for services that could benefit from the infrastructure, but there were no applications at that time that needed to be supported,” says Habib. But he is confident that these are in the pipeline. “A more collaborative business model needs to be adopted, and this will pave the way for applications that are commercially viable. This is one area which one hopes will happen in the next year,” he adds.
If consumers react favourably to the initial services, more retailers are likely to follow. But this means that service providers need to focus in on the services that users need and tackle traditional wariness about parting with cash over systems they don’t already trust.
Although credit cards are relatively insecure, providers will have to get over the idea to consumers that m-payment is secure.
On the technical side, Comtrust, along with many other operators and service providers, is working on a public key infrastructure (PKI)-based system to supplement the security inherent in GSM networks. “We have worked on PKI security on top of the basic GSM security to develop a system that can make the mobile a trusted payment device and authenticate different applications,” says Habib.
“We have tested PKI technology, but due to the absence of m-payment applications, we have not driven it. [However,] we will have the payment services available to be piloted next year, along with PKI capability,” he adds.
A recent study from Forrester Research suggests that the insecurity of credit card systems — which will be used to supplement m-payment solutions — is the major inhibitor to the development of m-commerce, with 52% of mobile phone users surveyed citing it as their main concern. But Taylor believes that fears over security could be outweighed if m-payment services are focused on convenience, as proved to be the case with credit cards themselves.
“Credit cards are a pretty insecure method of payment and it hasn’t inhibited their use, except online,” he says. “Mobile networks are providing substantially more security. For consumers, it’s more about how high the costs are and how convenient [the service] is to use, and whether the retailers they want to shop with are going to allow them to use it,” Taylor adds.
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It also takes time for consumers to get used to new methods of payment, as evidenced by the time it took for credit cards themselves to gain significant take-up by users.
“A lot of the discussion around m-commerce and m-payment has been flawed and overoptimistic,” Taylor argues. “People have assumed that because over 75% of Europeans have mobile phones, this will automatically translate into use of those phones for payment. That is not going to be the case,” he adds.
Lingering, societal dependance on cash, for example, was believed to have put paid to the effort of Smart Communications, one of the leading operators in the Philippines, to introduce its m-payment system.
“[The system] saw really no use whatsoever, as the society is heavily dependant on cash, and there’s very low levels of credit card usage,” Taylor adds.
And, of course, the mass market for m-payment will also only emerge once user-friendly handsets are in wide use and the mobile infrastructure to support services is in place.
“The limited functionality of handsets, in terms of convenience and being user-friendly, meant that m-payment could not move ahead,” says Habib.
“We have waited for more powerful devices, more user friendly interfaces on the handset, and with [their availability], the user experience can become more controlled and services can be offered more consistently,” he adds.
After its internal trials, Comtrust will be positioning its m-payment system initially for services in the e-government sector and for Etisalat to offer mobile bill payment, for example. The launch could also coincide and provide a boost to the mobile services on offer when the operator opens up its 3G network. This is also scheduled to take place in the second or third quarter of 2004.
“I see the second quarter or third quarter 2004 as the time when there will be applications available, and this will potentially open up new avenues for infotainment providers” adds Habib.
But it will still take time for merchants and consumers to join up en masse. “The fundamental barrier that m-payment faces is that it has to provide an advantage over and above established methods of payment,” says Taylor.
“It is going to take a while for m-payment to acquire a sufficient number of merchants and users to see a benefit over cash. It’s going to be well over five years before we see significant levels of usage,” he adds.
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