Pay and Go

The concept of using the mobile phone as a means of payment is not a new one. Many turn to Japan for examples of how such services can work; how the simple handset can become an instrument to buy tickets, home deliveries and more. Alex Ritman considers the opportunities for m-payments in the region and looks at the complexities involved.

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By  Alex Ritman Published  September 5, 2006

|~|mpayments200.jpg|~|Etisalat's m-payments service (currently in beta format) will allow users to call up a number and purchase items such as tickets from on-screen menus.|~|When NTT DoCoMo spent over US$800 million for a 34% stake in Japan's second largest credit card company in April 2005, it was clear that the one of the world's most advanced operators saw a significant future in mobile payments. Japanese consumers were already far ahead of the world with regard to such services. As early as 2001, the operator was testing its first electronic money function, C-mode, allowing subscribers to pay for soft drinks at certain dispensers using their phones. Having deposited money via a vending machine into electronic accounts stored on central servers, users received a unique barcode on their handsets, which could then be read by the vending machines. That same year, DoCoMo went one step further, announcing it was giving its subscribers the ability to make payments and withdraw cash from specific cash dispensing machines. Using a handset equipped with a special chip and infrared light, customers could use the ‘Mobile Cash Card’ service to use IY Bank's cash machines without needing a cash card. Now, following a partnership between Sony and DoCoMo to develop the FeliCa smart-card phones in 2004, subscribers can simply wave their handsets in front of special chip readers to make payments. Aside from just shops, Japan Airlines has an application for issuing ticketless boarding passes and Japan Rail has recently launched a FeliCa version of its Suica mass transit ticketing system. In Europe, a plan was hatched in 2004 to sidestep banks altogether. Simpay, backed by four of the continent's leading operators — T-Mobile, Vodafone, Telefonica Moviles and Orange — hoped to snare a significant portion of content revenue by offering a single payment method and established brand for low-value transactions. Paying for products such as ring-tones, games or other content, subscribers would simply click the Simpay icon and pay for the service via their phone bill. It was hoped that higher value items such as concert tickets, along with physical goods such as vending machine items could be paid for through Simpay later on. However, just 18 months after its inception and having attracted a number of operators, the organisation announced it was throwing in the towel, T-Mobile being the first founding member to pull out. Analysts were unconvinced that the project ever had legs, questioning whether users would turn from the established brands of Visa and Mastercard and suggesting the operator's collection costs were too high to make it economically viable. In the Middle East region, m-payment services are few and far between, with just a couple of offerings slowly starting to see the light of day. Perhaps one of the longest serving Middle East mobile payment facilities is in Kuwait, where MTC-Vodafone teamed up with the National Bank of Kuwait (NBK) and several other investors to launch M-Net in 2004. The service is only available to NBK account holders and MTC subscribers, and with numerous merchants involved allows customers to not only pay for items, but also transfer money via the handset. “We have about 30-40% of our customers signed up to it,” says Golnar Mahmoudi, NBK's head of e-business, who says the easy registration process has boosted its user levels. “There is a high volume of transactions, but the ticket size is quite small; buying a pizza, things like this.” Mahmoudi says that the younger age groups, especially university students and first-time jobbers, show high usage of M-Net, but overall the uptake is still in a growing curve, with user education for such a new service still an issue. Among M-Net's signed up merchants are the international brands of IKEA and Zara, but purchases from these retailers do not constitute the majority of m-payment activity admits Mahmoudi. “When we look at analysed transactions, the bulk comes from micro transactions. The Zaras and the IKEAs, they're not as popular as Pizza Hut and Burger King deliveries.” In January 2005, shortly after M-Net launched, MTC's Kuwaiti rival Wataniya announced that it had joined forces with Burgen Bank to start a mobile payment service. At the time of the announcement, Burgen Bank's CEO said that it was working with several retailers who were eager to be part of the project, but so far nothing has materialised commercially. At the Dubai Gitex event in September last year, UAE operator Etisalat was proudly showing off its variety of m-payment services that it claimed were just around the corner. Speaking at the IT event, Etisalat's business development manager for e-business, Amir Rashid, was bestowing the virtues of the services, which he said would be launched sometime in early 2006. At the time, he spoke of payments for taxi rides, cinema tickets and other such micro-transactions, with funds transferred from the bank of the customer to the merchant with just a few clicks on the handset. But now, well into 2006 m-payment offerings are still to come to market. “We wanted to be able to offer much more robust solutions,” admits Amir Rashid. “We thought it was better to launch with fully-fledged rather than half-cooked solutions, that's why we delayed it.” The timeframe for the introduction of Etisalat's m-payment services is now towards the end of 2006 or early 2007, Rashid claims, adding that there are still components to be deployed before pilot merchants can be signed up and a trial project launched. Saudi Arabia-based Ghassan Hasbani, principal of Booz Allen Hamilton's communications and technology practice, says that the complexities of offering m-payment services run deep, and do not simply involve the deploying of infrastructure and software solutions. “The challenge is not purely technical. There are a lot of other challenges, such as regulatory, legal and security challenges, and interaction challenges between the various parties — the banks, the service providers, the infrastructure providers and the telecoms providers. There are a lot of entities involved.”||**|||~||~||~|There are two varieties of mobile payments. The simpler is the 'mobile wallet', where the transaction is purely between the mobile phone and the merchant's point of sale, with the subscriber having loaded money onto the SIM. More complex — but more feasible for this region from an end-user perspective — is the transfer of funds between banks, with the mobile being used to direct payments to the merchant. This involves more entities and much more complex cooperation between parties. There is the customer, the customer's bank from which payments are to be paid, the bank that is to receive the transfer, and finally the merchant. The operator is not actually involved in the transaction; it simply provides the infrastructure and security, sitting in the middle of all the entities. In this position, operators have a vital role to play. “They need to have end-to-end security, from the handsets, down to the end of the transaction, to the issuing bank,” says Hasbani. And this security is needed not just on the physical layer and the software layer. “It's end-to-end security for the whole network, so nobody should be able, at any point in time, to intercept the transaction and obtain customer data from it. That's the main challenge.” Identity management and authentication is key. The operators should ensure that the right person is using the handset, and this is where having a mobile network involved provides an advantage over other non-physical transaction methods. “It is stronger than internet banking, because authentication in mobile networks is already enhanced as part of a technical solution of mobile communication,” says Hasbani. The network authenticates the handsets on an ongoing basis, and then there is another layer of authentication that the user would have to use with their own bank as well. Kuwait's M-Net, which is built on a solution from Paybox, offers a secure method of making payments. Having been verified during registration, customers requesting to pay via the m-payment solution receive a call from M-Net, and complete the transaction by typing in their unique M-Net PIN. To transfer money between M-Net users, customers dial up a number, which takes them to a menu where they type in the necessary details and PIN. Etisalat's first offering will basically include an on-screen menu for customers who, having already signed up to the service with their necessary bank details, will be able to select from a variety of different payments, from household bills, to cinema tickets and traffic fines. Having chosen the product or service, and gone through the necessary confirmation screens, they will then be sent a SMS receipt acknowledging that the transaction has been made. Rashid says that Etisalat's revenue generation will come from one of three sources, either from a transaction charge, a cost directly to the merchant or using a subscription-based model. Aside from the network, there will need to be some investment on the side of the merchant. For a transaction between accounts, the seller would have to subscribe with a bank or credit card service, much like establishing a normal Visa or Mastercard service to have a swipe machine in a shop. But the benefits for those merchants who do sign up for such m-payment services are clear, providing another method of payment for potential customers. “The interesting thing also for merchants is that mobile phones bring the notion of immediacy and spontaneity with purchasing decisions. So if you see an advert that says just send an SMS and buy a cinema ticket you should be able to do it on the spot, wherever you are,” says Hasbani. Such immediacy, effectively having the point of sale in your very hands, does not exist elsewhere, and is something businesses should be aware of and leverage to their advantage, incorporating it in their marketing communication. “That's something on the less technical side that companies can do.” There are advantages for the banks as well, with reduced transaction costs, but what is unclear is the benefit for operator. Tasked with the job of connecting all the parties, providing sufficient security and also being the corporate face of the transaction, operators simply see money transferred from one entity to another. For the operator sitting in the centre of the transaction, the benefit is not so much from the mobile payments themselves, but the effects the service has on its customer base. “M-payments by itself is not a major source of revenue generation,” admits Hasbani, adding that m-payments make up just around 2% of NTT DoCoMo's overall revenue. “However, when you introduce mobile payments, it could reduce churn by up to 15%. This is what was experienced by NTT DoCoMo.” As the region experiences the sort of liberalisation already seen for a number of years across the more advanced mobile markets, there will be more pressure on operators to be innovative in their offerings in order to retain customers. As markets reach saturation point, operators will have to turn from customer acquisition to retention and become more proactive in bringing new services and lifestyle facilities to their customers. “M-payments is one of those things,” says Hasbani. The cooperation in Kuwait between the banks and operators, and the positive steps being made in the UAE show that the foundations for successful mobile payments are very much laid. There is a high propensity to utilise mobile phones for non-voice services, such as SMS, across the region that could give uptake a significant boost. While it may be some time before mobile phones are 'swiped' like credit cards in shops, there are signs that the Middle East is making significant progress.||**||

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