Will m-payment take off?

The latest craze in the ways consumers can make card payments is mobile payment or better known as m-payment. However, its predicament in the Middle East remains to be seen.

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By  Angela Prasad Published  March 23, 2005

|~|E-transaction-web-2.jpg|~|People in the Middle East are comfortable in skipping one generation of technology and embracing mobile payment method.|~|The methods of payment have evolved drastically over the past decade.Gone are the days of writing checks, transferring payment card details either in person, over the telephone or via the internet.

There is a shift from the physical transfer of cash to an exchange of information between parties. For instance, when an enterprise makes a payment through a credit card, this exchange takes place between the organisation’s bank and the merchant’s bank over networks managed either by regional payment providers or global cards organisations.

Mobile Payment Forum says the emergence of e-commerce has further digitised the payment process, whereby payment details are sent over open networks with no physical contact between the buyer and the seller. The availability of high-speed mobile data networks has created a new channel for commerce, while more sophisticated mobile devices are enabling the virtual exchange of payment information known as proximity payments.

The latest craze in the ways consumers can make card payments is mobile payment or better known as m-payment. Research firm Ovum predicts there will be approximately US$500 billion in revenues by the end of 2005. Visa International claims electronic payment networks have the potential to provide cost savings of at least 1% GDP (gross domestic product) annually over paper-based systems through increased velocity, reduced friction and lower costs.

The technological leap has brought enormous benefits to consumers and merchants, however it has put extra pressure on payment service providers, banks, card companies and mobile operators to provide robust security and interoperability. Furthermore, the advent of m-payment has added another layer of complexity through the use of constrained devices with different capabilities and network limitations.

The Forum says a number of factors are threatening to arrest the development of this new medium, including the proliferation of competing network standards, as well as incompatible operating systems and devices. The major inhibitor is the lack of secure and interoperable standards of mobile payments.

Research firm Forrester says concerns relating to security, privacy and ease of use are restricting the growth of m-payments. It says the challenge for the mobile and payment industry is to convince the “conservative majority” of consumers to embrace m-payments by addressing these concerns. The analyst firm also says that only 15% of consumers feel completely comfortable sending their payment card details over mobile networks and over 65% claim to be “averse” to sending confidential information.

In the Middle East, the region’s first mobile payment service has recently gone live after a six-month trial. 2000 customers have signed up to Kuwait-based M-Net’s service. “Our goal is to empower people to efficiently manage their day-to-day expenditures, and to connect merchants to their customers’ rising demand for convenience and security in purchasing,” says Ibraheem Al-Khuzam, vice chairman of M-Net board.

“We have turned our dream into reality by launching this service. We have already secured market leading merchants and we will continue to grow our merchant network until we have mobile payment available in every retail store, coffee shop, delivery service, service provider and restaurant in Kuwait,” he adds.

M-Net claims its mobile technology is run on a secure platform with a proven global track record that was tested and operated in Europe. The technology was further developed in Kuwait by banking and IT professionals so that each transaction is executed through both Kuwait’s secure banking network and the encrypted GSM network.

“We have invested in the latest technology platform to not only meet, but exceed the high expectations of trust and security people expect for handling their money,” explains M-Net board member Adel Al Majed. “We took every necessary step to make sure the M-Net platform interacts with merchants that is technologically advanced, secure and easy to use,” he adds.

The service provider ‘s dream may have been fulfilled, however it remains to be seen if m-payment takes off. The biggest inhibitor is that Middle East is cash-based society and all forms of electronic payments are still new to the region. According to Visa, despite the rapid progress in the GGC region and a 39% increase in retail sales volume (spending at the point-of-sale using Visa cards) during 2004, “cash is still king.” The percentage of personal consumer expenditure (PCE) that was transacted on Visa cards that year stood at less than 6%.

Security is another inhibitor. Although IT vendors, banks and merchants are doing their best to provide end users with a secure environment for online transactions, consumers remain cautious. For this reason, online security was highlighted at this year’s banking summit held in Dubai.

Visa says it has developed new security specifications for m-commerce in partnership with major mobile and technology leaders. The mobile 3-D secure specification is part of Visa authenticated payment, which is a commerce program designed to ensure safe and secure online payment transactions. The specification extends existing payment authentication initiatives into the mobile channel, enabling Visa card issuers to validate the identity of their cardholders in real time.

Neil Smith, head of emerging technology risk at Visa, Central Europe Middle East and Africa, concedes that Middle East is not only an emerging market, but a cash society as well, however, he remains confident of the success of m-payment.
“I firmly believe that mobile payment technology will leapfrog PC payment penetration in the Middle East. Mobile phone usage is extremely high in the Middle East and people are going to start making payments via this medium,” Smith says.

“It may not be as high as it is in other parts of the world, but people are going to use mobile phones to make card payments. When you look around you see everyone is using mobile phones communicating and it probably sits right next to the wallet where the cash is, so it becomes convenient to use phones to make payments,” he adds.

Smith agrees that driving the economic growth of nation using cards is a lengthy process, but he says other countries have done it and so can the Middle East. The technology has advanced so much in terms of online security that people in the Middle East region will feel more comfortable in skipping one generation of technology and embrace mobile payments. “It will take a couple of years for the market penetration in the Middle East, however when it happens, it will take off rapidly. The environment is right.”

A global Insight report says countries differ in their economic differ in their economic development, but most are moving toward the economic models of the developed world in which real sector production and growth translates into consumer and commercial well being. However, real economic growth will be limited if the underlying payments system lags in innovation and the adoption of electronic payments.

“Automated electronic payments act as a gateway into the banking system and as a powerful engine for growth,” says Dr Said Al Shaikh, chief economist at National Commercial Bank. “Such payments draw cash out of circulation and into bank accounts, providing low-cost funds that can be used to support bank lending for investment—a driver of overall economic activity. The process creates greater transparency and accountability, leading to greater efficiency and better economic performance,” he enthuses. ||**||

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