Mobile Payments-Will Consumers Adopt?
Have you ever wished that you need not carry a fat wallet in your pocket? You wallet typically has paper bills, a few coins and loads of cards (credit, debit and loyalty cards). It is a real pain carrying this fat wallet around. For small payments, the credit card still cannot be used as the cost of transaction to the merchant is a minimum of 20 cents and hence the merchants refuse to accept the cards for low value transactions. Mobile payments promises to provide an alternate payment mechanism that would not only lower the cost of transactions but also will be more secure. Also, the adoption is likely to be higher as there are more subscribers of mobile phones than the credit or debit cards especially in emerging economies. I have already predicted in one of my earlier posts that that Mobile Money Transfer would gain traction in 2009/2010 (My Predictions for Telecom Industry in 2009/2010).
Mobile payments are a subset of broader term “Mobile Transactions”. Mobile transactions could be of various types like the mobile payments, mobile ticketing, mobile banking and mobile loyalty. Mobile payments are remote or in-store payment transactions that are conducted on the mobile phones. There are various methods of making the payment from SMS to contactless Near Field Communications (NFC).
There are many benefits of mobile payments. In the emerging markets, over 75-80% of the transactions are cash based with no accountability for a large part of it. We call this parallel economy. This parallel economy is essentially created to avoid taxes but now there are concerns of terrorists getting money through money laundering which is an off-shoot of the parallel economy. To reduce the size of parallel economy, it is important to maximize payments through credit cards, debit cards and other forms of electronic transactions where there is money trail. Mobile payments are one significant step in that direction. Mobile payments would not only bring small transactions within its scope but also would have a higher reach as more people have mobile phones than other forms of electronic payments. Other benefits of mobile payments are convenience and speed of transactions.
There are three types of mobile payments: Remote payments, proximity payments and peer-to-peer payments (including remittances).
Proximity Payments – The contactless NFC holds significant promise in proximity payments and is particularly appropriate for low value transactions in high volume retail points. Mobile payments are being pushed by Visa and Mastercard as the way to pay for the estimated worldwide total of US$724 billion transactions for less than US$25 (source: MasterCard International). Strategy Analytics estimates 1 in 5 handsets would be NFC enabled in 2012. The video below illustrates the concept of NFC
NFC has significant advantages in terms of speed of transaction as it is estimated that it is around 8-9 seconds faster than card payments and approximately 20-25 seconds faster than cash payments. This should add to the convenience of the consumer. NFC implementation should result in lower cost for the retailers as the requirement for staff gets reduced significantly not only at the cash counters but also in the purchase area where staff is needed to provide assistance and information. However, the key to success of this technology would be the price of NFC chip in the handset
Remote Payments – The remote payments using mobile phones is similar to that currently being done on the PCs through the web. However, the real benefit of the mobile phones would come from the location. The location information of the consumer can be used by the merchants to further provide value added services to the consumer or would help them cross-sell other products that are location specific
Peer-to-Peer Payments – This is a big opportunity as currently the international remittances is over $250 billion a year and add to this the domestic remittance, the value of such transactions is likely to cross $ 1 trillion. On top of this, think about a situation where your kid has run out of money while trekking in a remote location and you can transfer the money using your mobile. This is a huge opportunity to miss. In case of remittances, the commissions are as high as 15% plus the inconvenience of visiting the agent’s office to send or take money. The mobile remittances promise to remove the inconvenience as well as lower the transaction cost. GSMA (GSM Association) has taken up mobile money transfer as one of its major projects. A few successful examples of Peer-to-Peer transfers are M-Pesa of Safaricom in Kenya and GCash of Globe Telecom in Philippines.
Juniper estimates that for purchases via mobile devices of digital and physical goods, contactless NFC (Near Field Communications) transactions and money transfers will together generate transactions worth over $600bn globally by 2013 with over 1 billion people using mobiles for transactions. Half of the $600 billion is expected from the mobile payments and the other half from money transfers.
All these technologies are still in the pilot phase and their success would depend a lot on the consumer acceptance. Will the consumers accept mobile payments? I would say – CERTAINLY provided the following concerns of consumers are addressed
- Security – Consumers would like the most trusted brands within the ecosystem to be associated with mobile payments. They would want surety about the security of their money as the mobile transaction could be a significant portion of their salary for people in the emerging markets. Surety from a banking organization would go a long way in allaying the consumer fears. Also, the players would need to address concerns on lost mobiles
- Convenience – By convenience, I mean that the speed at which the transaction is completed should be less than that of the credit card or cash and it should be hassle free. I was reading somewhere that there was a suggestion that the consumers should carry their identity card while using their mobile for payments to establish identity. This is ridiculous!!! Any extra effort needed on part of the consumers would not help the cause of mobile payments. This system should indeed reduce the burden of carrying multiple cards and cash
- Easy to use – Many consumers have technology phobia. They would rather use complicated but manual processes rather than technology. Hence it is important to have transactions as easy has sending sms and should be completed with one press of button. Even better if no button needs to be pressed
- Acceptability at merchant points – This is a chicken and egg situation. Consumers would adopt if there are enough merchants accepting the payments and merchants would want enough consumer pull. In this situation, having a partner in the form of Visa, Master or Amex would certainly help
- Transaction costs – The transaction costs need to be limited in this form of payment to encourage wider acceptance for low value transactions. It should provide a clear monetary benefit over other existing payment and money transfer mechanisms
- Redemption points – In case of money transfer or store value accounts, there would be enough physical locations where consumers can cash out
- Training & education – The players need to be patient when it comes to the adoption of mobile transactions. Customer training and education is the key. Road shows and awareness programs can be held in malls and other high traffic locations. The success would come only when the rural areas have sufficient adoption. In emerging markets, the players can have rural vans that can be jointly run by service providers, handset vendors and the payment players to educate the customers on mobile transactions and at the same time provide customer care
Mobile payments have a great potential for all the players in the eco-system and it could be one of the ways by which carriers can prevent their marginalization. In the next few posts, I plan to cover other aspects of mobile transactions including ticketing and coupons. Till then do give me your feedback on what the different players in the ecosystem can do to increase mobile payments adoption
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Without a shadow of doubt! for the simple reason being, Mobile phones provide an “online” payment option, without the need 2 go online. It allows for better security as people can completely do away with carrying their cards and directly pay the amount by keying in the password.Its also secure even in the event the phone is stolen provided the password is not stored in the phone memory. The ease of doing payment on phone than hitting the computer screen far outweighes the costs and efforts associated with using an online payment portal.
Good article mate. From my limited understanding of the market you are bang on. Who do you see as the main contenders in mobile payments in emerging marketplaces – are they totally fragmented and down to individual operators in individual territories or are there platforms emerging who are international? Any idea of the typical transaction costs?
Many thanks!
Rich
Hi Richard,
I am happy that you liked the article. Mobile payments market place is still fragmented with ecosystem players struggling to find a role for themselves. However, GSM Association is trying to bring a few large players on the same platform atleast for the mobile remittances (http://www.gsmworld.com/newsroom/press-releases/2009/2560.htm). In case of NFC, the platform is getting standardized but the efforts in various countries are still being made at the local level by the various operaters
Issues that consumer would face:
1. Tracking the payment and detailed transaction record – if not properly managed by services companies.
2. Linking credit cards (penetration is dismal-30 million) or bank accounts (again a small percentage of more than 320 million phone subscribers) with the mobile phone.
3. It is difficult to follow the instructions while making the payment. Can that become friendly?
4. However much you mitigate the security concern, it will still be there (as there on the internet).
5. Regional language specific instructions and payment gateways.
So, the question is whether mobile itself can be used as a credit card to make payments? I think that is feasible. Mobile’s top-up cash can be channelized to make payments, wherein service provide would manage transactions with the sellers.
With more than 92% subscribers having pre-paid connections, this would be a better call (while targeting a huge rural segment). It would essentially remove credit card companies, or banks as middle-men. But, yes, legalities need to be verified.
Some good insight in your article. As one of the early founders in mobile payment almost 10 years ago, Bango has seen the industry grow dramatically. Paying for goods and services, both on-line digital media, tickets and physical goods is now a well established global business.
However there are still many misconceptions and issues. The most excepted form of mobile payment is through premium SMS, but that is the method that has the most problems. Those issues include:
1) No clear terms and conditions – the consumer sending a text to pay has no guaranteed visibility for what they are paying for, how much it actually costs, whether it is a single payment or a subscription being started. There are no clear T&Cs for the transaction. This leads to high customer care costs, large refunds/chargebacks and legal cases being taken against mobile operators.
2) Transaction reliability – text messages get lost or delayed leading to uncollected payments
3) Payment is not linked to receipt of goods, so once you have paid, you may never see the packing ticket confirmation or your download. Many mobile content stores in the past relied on these failures – they get the money and don’t pay to deliver the content.
4) SMS is local, not global. You cannot roam to another country and pay for local content and services the shortcodes provided simply don’t work.
10 years experience has taught us that the only reliable way to achieve secure, consistent, global payment using your phone is by displaying simple payment pages on the screen, typically via web pages. This ensures the consumer knows what they are agreeing to and that the goods can be delivered. Plus it works worldwide.
Visit http://mobile.wwe.com on your PC or mobile phone to see how it works or check out http://bango.com for more details.
Mohit
I think security is the key aspect because no matter how convenient etc if you think someone will steal your money then you’re not going to use it. However, people’s perceptions of security are relative. In the developing world it might be that you perceive m-payment to be relatively secure. This is because the alternatives are less secure. In the developed world where there is a well-established alternative infrastructure then you have to ensure m-payment is more secure than the alternative.
Over here in the UK we’ve had some really bad recent publicity about the security of paying with a credit/debit card. People are really worried about security. So there is an opportunity for technologies that offer high levels of payment security.
We did a straw poll of UK customers last month and we found out that there is a relatively low level of concern about m-payment/m-wallet services. That’s a good place to start from. But be aware that the low level of concern is largely due to ignorance about the service and the associated risks. If there are security breaches early on then it will kill uptake of the service. On the other hand, people are looking for something that is more secure than cards. (You can get the paper we wrote on this for free from http://www.telesperience.com and there’s also a feature on this in the latest issue of our podzine Telesperience available from http://www.telesperience.com/download/telesperience1.html).
Beyond security issues, what’s also important is to offer the ability to choose how to pay – prepaid/postpaid/paynow/buddypay – and to allow segregation of the wallet. I might not want everything sticking on my bill – ouch! billshock! But a corporate might actually like the ability to aggregate payments in this way because it makes handling expenses (eg parking charges) much easier/cheaper – they can also keep an eye on what you’re spending and not get a nasty shock. So there has to be flexibility because you’ll want to pay in different ways according to your needs, habits and roles.
From my own personal perspective I want my oyster card in my phone so I can stop carrying it around and can autocharge it on the move. (The oyster card is a contact payment card used for public transport in London.) I also want to be able to pay for things like my son’s Wii points while moving about or send Wii points for birthday presents when I forgot the birthday and find myself on a plane… There’s two applications that would make my life easier.
Yes, consumers have already accepted mobile payments in Japan, for business models, services and descriptions, see:
http://www.eurotechnology.com/store/mobilepay/
http://www.eurotechnology.com/store/walletphone/
Whether other markets will be able to follow Japan’s example with 5-10 year delay, whether consumers will also adopt mobile payments in other markets 5-10 years after such services have been rolled out in Japan, will depend on whether services providers, handset makers and financial institutions – established or start-up does not matter – will be able to provide easy to use compelling services at reasonable prices.
Interestingly, NOKIA never took part in mobile payments in Japan – when NOKIA still did business in Japan in the past (NOKIA ended handset sales in Japan in autumn 2008), never built mobile payments into NOKIA handsets for Japan’s market.
Eventually but they need to trust the process and the service provider.
This confidence will be hard to earn. Given the current climate (Credit Crunch) they will probably want to see the service underwritten by a dependable agency (ie the governments :´-/) so that they can goto an independent source if there is a problem.
For this reason I see that the middleman will be also providing an assurance service
The other issues will be resolved given time and creativity. An example of such creativity could be an implmentation of a mixed text/audio account of the transactions – service provisioning, setting of transaction, management and status of the account and transactions, closing of the service and of course management of the account from all stakeholders perspective.
In the end the reason the Service providers will want to provide an attractive win story to all of the stakeholders. Users use it because it is safe, low cost, fast, accessible. The Service provide will get a small service fee but will see a lot of transactions therefore will see an extra revenue stream. The Government sees that the wheels of commerce are helping all especially the private consumer and the SME retailers. The credit agencies will see extra revenue from a new and high volume transaction stream. The equipment vendors will see extra service and products being sold and finally the investor will get a better return on the investment they made into setting up the network in the first place.
one of the main points that you have missed is regulation. In countries like India, this space is tightly regulated by RBI. Only banks and NBFCs are allowed to hold the float. There is nothing for the unbanked population right now.
You’ve covered several of the markets and stakeholders engaged in the various “value chains” that mobile payments interface with, however in order to see real growth you might consider breaking out the real authentication & necessary approval processes. Having been involved with some very early International examples, adoption seems to still need a confluence of factors and forces to deliver on the promise of fully integrated, secure, valued mobile (cellular) applications that empower and enhance the respective business.
A couple of examples worthy of further discussion might be “simple vending machines,” which could include both their back office and customer facing capabilities. By delivering a more interactive (2 way) experience you’re able to improve cognitive dissonance, brand positioning, workflows and consequential cost controls.
Gaming is another example that will see massive adoption, if and when regulations are enabled to deliver “games of chance” to where customers want to participate. Why should you need to visit a Turf Club, when you can receive the same data/services at the beach?
When companies really start to collaborate and innovate their business models utilizing integrated wireless platforms, “disrupted credit/cashflows” may not be as large as initially predicted but for some including service/network providers and device manufacturers that don’t embrace this opportunity, the downside could be much larger.
Emerging markets and more developed markets will probably see significant application and cost per transaction differences, but just as metrics, margins and profits vary, so will the way this Industry evolves in each market, and region. When you swipe your credit card at the gas pump next time do you really care whether the transaction traverses a VSAT network, frame, GSM, CDMA network? Possibly not, as credit card companies are now providing more preset and proactive alerts & other client information via the internet, which still seems to be working quite well.
Hi,
Frankly, I have my doubts about uptake of this in India. I see two prime reasons:
1. No. of stakeholders in the ecosystem – people would be hesistant in sharing information, first because there are several players involved (mobile company, application provider, handset company, bank, payment gateway, etc.) that increase the risk, and secondly as the value chain is not ‘visible’.
2. Poeple are averse to making payments online. I see a majority of people still dropping cheques for telephone payments or credit card bills (perceived safe and reliable options). Online is perceived to me cumbersome, one prime reason being the number of passwords to be remembered. Graduating from Online to mobile looks like a far cry.
Clear the third issue would be a lost mobile phone. I think we would be putting too many eggs in one basket. One analysis that would be interesting is the uptake of mobile banking.
This might sound ridiculous, but I think we need either retina scanning systems or finger print systems in place to make this work in India.
Nitin
Hi,
I think that mobile payments (prepaid or credit cards mainly) will increase in the next years.
I’m not sure that “next two years” will be the right ones.
Payment schemas (VISA/MC), in my opinion, are pushing on mobile payments to expand the market of electronic transaction in a very special case: low amount transactions.
If you are just buying 5$ goods, is it easier to take your wallet, your credit card or your mobile?
For higher amount, I think chip credit card can grant more security with a lower cost.
Some pilots were already done all over the world, satisfaction of customers and merchants is quite high.
The main problems on this field in my opinion are the security and the interaction between players (schemas, issuers, telco companies, acquirers); telco companies are a new ring of the “payment card” chain.
In many countries this is the only way to pay. People pay using prepaid min. There are several models of this that have been used for years (Microfinance) or direct payments for goods like cans of soda, gas, or other goods..
Look at these examples:
- The use of prepaid cards for banking the poor http://ideas.repec.org/p/ebg/iesewp/d-0752.html
- Airtime as Remittance: good deal for the poor? http://technology.cgap.org/?s=drc
This is a trend that is here and is spreading to developed world.
Hi Mohit
A good topic again that kickstarted a lot more info and ideas….
My perspective… mobile as a tool for financial transactions is definetely going be quite a boon.
Correlating the concept to a country like India, there are quite some challenges that need to be taken care of by the key players in the ecosystem. A large % of the population may own a television, a mobile phone but maynot yet have a bank account. Banking as a concept itself is still gaining acceptance. While ATMs too did mushroom everywhere, I doubt how popular they are in the rural hinterland. The perception transtition towards mobile payments will be challenging
Then comes the challenge with technology- It is imperative to develop a user experience that is easy and assuring and also taking care of the literacy issues and linguistic diversity.
NFC sounds excellent as do other methods of payment using a mobile phone; the issue is to break down the consumer resistance to “change”. The learning process is sometimes very slow. I remember back in 2003, we undertook a project with a mobile phone company to pay for drinks on vending machines; this project was dropped as it was still too early for the consumer to appreciate the idea and the credit card companies in our region had not yet confronted the issue. As you can clearly reduce the cost of transactions, all credit/ debit card companies should be interested in committing themselves to it. If that is the case, you need them to participate in the cost of both the new equipment and the marketing campaign necessary to create this change in consumer behavior. Find a niche use of the equipment to begin with and make it become, smart to use, then there will be followers. Later expand to more mundane uses. Yes, the consumer might be worried about losing his phone and the potential dangers involved with such a loss. These issues should be carefully looked at in communicating the benefits of the concept. Inevitably this form of payment will shortly become mainstream, as will the use of the phone for calls via Wi-Fi, or on 3G connections using fixed cost monthly subscriptions.
Mobile apps are getting a lot of attention these days because they’re sexy. The adoption challenge — especially for financial apps such as mobile payment — however, is more fundamental than people realize — while 85% of American consumers have cell phones, only 11% of them access mobile Web apps more than once a month. The market simply ain’t there yet. Security is obviously a big concern, but what both the carriers and developers haven’t really grasped yet is the app management problem — people have trouble finding and loading the right app to their mobile device. It’s a pain. Open source programming will go a long way toward fixing that, along with a keen understanding for what consumers REALLY want — not just what software engineers think is cool to work on. And the carriers have to stop clutching an outdated business strategy of limiting accessibility and tying people to restrictive contracts and start embracing a more flexible, fluid way of providing bandwidth and access to consumers.
Significant market adoption requires:
a well balanced business concept between mobile network providers AND banks
which is fair for both sides of this new partnership and convenient and cheap for the customer.
Actually; I do not really believe in such concept to be expected in the near future.
In terms of proximity payments, I see three broad scenarios emerging:
1.) The NFC is embedded within the phone. Security is provided through a combination of NFC and SIM card and the Bank can provide an application or provide access through WAP/SMS.
2.) A “sticky card” with NFC and Bluetooth — the NFC piece communicates with the POS and the BT with the phone.
3.) A NFC embedded within a memory card that slots into the memory card slot in the phone.
The GSMA and many OEMs are pursuing approach (1) In the long terms (read 5- 10 years), perhaps this approach may win. But the big challenges are a.) in the near term, it requires users to replace their phones with new ones with NFC if they wish to have proximity payment capabilities and perhaps equally vexing, b.) it disintermediates the payment ecosystem — does a financial user “belong” to a bank or an operator? How easily can I switch operators (users tend to switch operators more often than they do their financial institutions)
Approach (2) has the benefit of being low cost but does not allow the user to easily get access to the current amount on their prepaid accounts, easily download mobile commerce applications, etc. There are ways to go around some of these problems but I believe they are cumbersome and require a third party to intermediate — which again is a problem (third party is required when a user requires the “sticky card” to “contain” multiple prepaid/credit card information.
Approach (3) is one that we believe will work both in the near term and in the long term (perhaps complementing the first two approaches). Admittedly, we are biased in this opinion having backed a company that takes this unique approach (www.tyfone.com). The clear advantage is that it does not disintermediate the ecosystem — either banks or operators can remain in complete “possession” of the user. Challenges are that only 60-70% of the phones in the market today have a memory card slot — but that is changing rapidly (recall the FM adoption on phones — now more than 95% phones have FM whether folks use it or not.) The other challenge is the cost in the near term when the user will have to replace their current memory card with a new one with NFC — this is however, much cheaper than replacing a phone. A financial institution could subsidize this similar to the way we receive credit cards from them.
Whether proximity payments will have widespread adoption, of that I am certain. The timelines are still in question — quite a few transportation agencies across the world are adopting it and we should see retail adoption in the next few years. But the end game in my opinion will play out over the next 10 years when we see mobile phones with NFC (either in the memory card, or sticky card or embedded) taking a majority share away from plastic and cash.
Security is always a primary concern but what makes mobile (password protected payments) so much more attractive is the accessibility ‘anywhere, anytime’ which, with too much focus on RFID NFC, will be limited to ‘power source locations.’
Open it up to combine with Optical Reading NFC and it massively improves accessibility and oddly enough security as you don’t need a fixed point to carry out transactions and payments.
That in itself builds security because the individual can decide when and where to use the mobile and it opens up the possibilities as you can then simply point/read/scan, for example, any 2D code on a utility bill, retail item, poster to buy a theatre ticket etc. etc. with your mobile and transact on the spot or on the move.
Lose the mobile and apart from the pre-programmed password protection just contact your bank as you would with a credit card + of course, if applicable, the ’secure codes’ can be administered or ‘closed down’ at any time or immediately.
Just a basic outline of the possibilities that already exist.
Mark Hendriksen
http://www.upcode.com
In India, mobile payments will gain traction gradually. It is as much about building trust as it about having the right devices, security mechanisms and the necessary ecosystem.
Massive investments in training and education about banking habits, payments modes and processes will have to be made. Otherwise mobile payments will be restricted to a small set of users.
Support infrastructure will have to have a human touch especially when things go wrong.
In the Indian market, proximity payments and peer to peer payments (after necessary regulatory changes/approvals) will gain traction first. It is difficult to see remote payments becoming popular, imagine entering the various codes, MICR numbers and account numbers on the mobile phone!
Mohit: Would it be better to change the question to “Why Mobile Payments haven’t worked” and accept that they haven’t in the last 3-4 years. 4 years back it was maybe ahead of it’s time in this nation !!
Look at the 3 prominent mobile gateways Paymate, Ngpay, Mcheck in India. While we do close to 2bn USD worth of GMV in ecommerce, 60% of the payments are done using credit cards/debit cards how much of it has been on mobile
If we can answer why hasn’t it grown in last 3 years, we will know how will it grow in coming times. Why won’t it grow if it takes care of the fundamental needs of a user.
With one of the largest mobile user base in the world, we have the critical mass. What plagues the growth, is it the GPRS or app downloads or both or the screen size or is it the way we use mobile phones.
I think it is the way we use mobile phones…
1. Large no of users use it because it is great product that is easy to use and makes life simple but still primarily use it to make and recieve calls [it's a phone]
2. Few realised later on that it can also send msgs, few out of these also realised it can also play music
3. A small section of these users also realsied and now use it for chat and mail as well. So now it works as a phone and mail and a Radio [MP3 player for genX] and a mini comp.
It’s a natural progression
Eventough the nos are small, really really small there is a market out there, can we deliver on the technology & convenience of use. Can we start with micro payments worth Rs.20-30, can we make it operator/bank agnostic, can we have RBI decide for once and for all their policies on mobile banking??
Hi Mohit,
I consider myself fairly tech savvy, but making payments through my cell is a different ball game altogether. If you ask me, I would rather prefer logging on to my network provider’s website and pay my bills looking at numbers and text in full-color or connect with my bank and have it taken care of.
Security, convenience and such like are simply a matter of finding a few academics to help you figure that out.
:(
1) I NEED to see who I have made calls to and when, just in case the provider decides to add in a few “extra/hidden” charges to my INR 5K tab every month.
2) It is not about security, not about convenience, and definitely not about educating the masses. People are smart, and they learn what they have/need to learn
3) I can with all certainty say that-the idea in itself is very neat, and the fact that you will make money regardless of initial capital invested. Considering the market share ‘Nokia’ has in the mobile phone segment, it would not hurt to notice that expectations towards such a project will be high as well
4) A lot of posts here mention techniques to work around this “problem”. Certainly nothing wrong about that, though sadly, I would say there are over 2B+ people on the same boat as me
Hope that helps!
Best,
-Rohan
I believe that this is a bit crazy to do. Who knows who can get or use your information against you. If someone can hack into your computer and this is finally getting better within the banking side of it, but where is the safety of banking on your phone? I’m still weary of that and I know I wouldn’t be using my phone to use to bank with. I believe SAFETY is first because this is still new and there are all those geniuses out there that are going to find out how to get into that and scam someone
In Africa mobile payment solutions see a fast uptake. A very basic application released in Kenya recorded over 1 million subscribers in 8 months versus only 1.3 million people who subscribed to a credit card over the last 10 years. In South Africa ABSA bank recorded over a million subscribers to date. MTN (a network service provider) is rolling out in African countries this year. The fact that there are very few fixed telecommunication lines in Africa, but everyone has a mobile phone, paired with huge spaces that make it impossible to cover with ATM’s surely helps.
http://mymobworld.com
http://alexandergregori.wordpress.com
I’m not sure whether it was eventually released but Paypal were working on an awesome concept.
Your address, bank details and mobile number can all be linked to your Paypal account. If you see, for example, a poster of a product that you want, there would be an item code and a shortcode text number on the poster. By texting the item code to the shortcode, Paypal would automatically debit your bank account and then the vendor would arrange for shipping to the address logged on your Paypal account. All by sending a 5 second text……
Does anyone know if this has been trialled anywhere because I think it has great potential…..?
I think the biggest barriers to a meaningful and sustainable market might be
(a) perception of lesser security (rather transaction reliability – i.e., whether a transaction has really happened, especially when the network connection is erratic, etc.),
(b) availability on all major mobile platforms
(c) the real benefit to consumers
(d) who is the real consumer for this and
(e) shopping habits.
Unless there is a well-designed robust app that offers clear update on transaction status, especially clear transaction rollbacks when it fails, I don’t think anyone is going to use it seriously.
Secondly, what happens when you lose a mobile ? Most people anyway store their passwords on their mobiles, and they might not want to add an app that uses one such password !
You talk of lower cost of transactions. Unless those cost savings are being passed-on to the consumers, why should they care about lowered costs, especially when they still are not sure of any improved security ?
We should also rememeber that slightly high-end phones might be required for such apps and those who can afford high-end phones will likely anyway have a couple of credit / debit cards for increased convenience. Those who don’t have credit / debit cards might also, not necessarily but generally speaking, not have such high-end handsets that support a secure app for mobile payment (not sure if you also need a GPRS handset and connection for this ? if yes, you are already making it unavailable to masses). Of course, there will always be tech-enthusiasts who will try the stuff, but as a sustainable consumer base, I see challenges.
Finally, at least in India, we still like to ‘touch and feel’ a product before buying. Buying over the net itself is not mainstream. I read recently that buyers generally make up the mind to ‘own’ that thing after keeping in the hand for about 30s. That kind of creates the ‘bond’ between the shopper and the item being shopped. Internet has denied this experience to shoppers to a large degree, but is still able to show photos, user reviews, etc. With mobile shopping, even that much is not possible. So, I clearly see this as something that goes against the fun-and-feeling of shopping. This technology will have to also be a habit-breaker to succeed.
What Japan has shown is that there is potential consumer interest if the business models can be sorted out. It’s a similar story in Kenya with M-PESA.
The business ecosystem where DoCoMo and Safaricom were able to impinge directly on banking activities is more difficult to achieve elsewhere, and that’s contributed to holding up development of these services. Whether the cultural factors behind Japanese or Kenyan adoption of the technology will transfer is harder to assess but as far as I can see there’s no reason why not.
The backlash by the banks in Kenya also shows how difficult it may be for network operators in developed countries to develop mobile payment services without support from banks. Unfortunately the more players there are involved the business the more difficult it is to construct business models that work.
Possibly the most interesting area is whether m-payment services can by-pass the existing payment networks. Putting a payment app in an NFC phone and then transacting through the existing networks is trivial, once you sort out the business models (which is definitely not trivial). However, if you were to figure out how transact through the mobile network instead you might find that the number of intermediaries taking their cut is vastly reduced and the business models vastly simplified.
Anyway, personally I don’t think you’ll have huge consumer adoption problems but the business models are difficult anywhere you don’t have a single entity like DoCoMo controlling nearly everything.
Interesting article. As you rightfully say, there is still a very fragmented approach, even within the mobile arena. Now add the banking world to it, local governments and cultural differences and it becomes a very complex playing field, with a lot of unknowns. Mobile payments COULD take off, IF indeed all elements and players in the value chain work together…. I hate to burst the bubble, but I don’t see that happening anytime soon. Nonetheless, there is great potential for mobile payments and I am sure that in 2013 it will start playing a significant role, although I think Juniper’s predictions are slightly overstating. For instance, here in The Netherlands the payments switching organizations (including banks) have joined forces and the chip-card has been introduced (bank debit card with some cash on it for small payments). Also, they have started a campaign to stimulate PIN transactions for smaller amounts. So yes, hard cash (coins and bills) are losing field and mobile payments will take some of that pie. But the piece of pie will vary from one country to another, depending on the local situation.
Security is an issue that Service operators need to address seriously and go beyond their current lethargy. For instance: a lost mobile handset means that the subscriber has to furnish an FIR before the handset can be blocked by the operator. The same does not apply in case of a credit card loss. One phone call in enough to report a loss and protection from fraudulent use. I guess the operators are far too focussed on their net adds every month to worry about smaller VAS / utilities seriously.
Technology-wise, the article is spot on but many points that pertain to the aspects of business have the words “is likely to” or “promises to”. There is also one very important party that gets barely a mention: the vendor. A vendor pays fees to credit card and debit card companies. What sort of fees would a vendor have to pay for mobile payments? To a vendor, credit card and debit card companies guarantee payment even if the buyer defaults on payments. Will a telco offering mobile payment do the same? Unlikely. In the case of GCash, a user has to purchase GCash credit for use in transactions, which, if you really think about it, is a debit card except it won’t fit into your wallet.
Remote payments? The words e-bay and fraud come to mind.
Peer to peer payments is closer to mobile banking than mobile payments except that the recipient doesn’t always have to have a bank account. Remittance fees are now extremely competitive. In Dubai, large banks charge 75 to 80 dirham fee. A supermarket with remittance services to India and the Philippines charges just 15 dirham. Western Union charged the same rates with a nominal tax charged although I’m not sure who followed who. It goes to show that there is very little money to share should telcos team up with remittance firms although I wouldn’t be surprised if less favourable exchange rates were offered to compensate for additional costs.
And finally, you can’t link mobile payments with money laundering. Money laundering is seeing a guy carrying two suitcases full of cash and offering to buy a number of condominium units with no questions asked. Now try buying even a single condominium unit with mobile payments. But seriously, a parallel economy exists for a reason or people can no longer buy a single stick of cigarette or a cup of cooking oil from neighbourhood shops.
Dear friend,
Mobile payment is the next generation Single Payment Vallete for all banks.
This is my dream on the Mobile Payment,
for Billpayment
Vendor should identify the customer mobile
customer has to give his Authorisation for the Bill payment.
For cash withdrawal
ATM should identify the customer mobile
Cusomer should enter his Password or authorisation from his mobile
Cash will be dispensed
For Money transfer
Third party software should be loaded in mobile for better transaction.
All the security concern should be addressed in this model with Bank , customer and vendor.
your colloboration Model will work in this, but more fine tuning in the security featurs are required.
Lets see what will be the future model.
I am quite sure about success of the mobilephone payment in long term but in next 2years? i am slightly skeptical about near term. majority of the people around the world are not that technology friendly and use of credit card is no brainier, its simply, mobile phone is more complicated to common man.
In India credit card is not a big success, because peoples mentality about using thr own money, majority of the people uses debit card as better payment option compared to credit card. still majority of the transaction happen thru cash and debit card only.
In longer term, probvably 5+ years you may see mobile payment frequently.
Mohit, your article tends to indicate that their will be only one model. I don’t think this is a foregone conclusion. By comparison, I carry cash, credit cards, debit cards and pre-paid cards in my wallet. Why should a mobile wallet be any different?
Visa & MasterCard WILL play and will try to dominate this space. The banks love the idea of being able to provision the phone with credit card and debit card functionality if it can be done securely. The cost savings over manufacturing and mailing credit cards is huge.
The problem is that Visa and MasterCard have not figured out a way to do micro-payments profitably without cannabilizing their more profitable credit card and signature-based debit card business based on Interchange. This leaves the door open to one of the other models in the micro-payment space; thus, my conclusion that their will likely be more than one model in play. I am not smart enough to figure out which of the other three models will be the second player.
Hello Mohit,
Very interesting article you wrote there. I’m not a dedicated specialist to this field but I’m indeed watching this trend next to the integration of RFID tech into Mobile Phones.
I could maybe suggest a few reasons that are potential reasons that mobile ticketing is not taking off :
1. Security & Authentication issues
Despite any technical argumentation you might oppose : the cellphone will take a very long way to be considered as a secure device. It has not been it so far : you’ve got viruses, bugs, system hangs, all things that are not even a question with a simple credit card.
2. Global adoption
This technology shows of course many advantages, but to be efficient, demand & offer have both to agree to switch to this new mode of payment. I’m not sure that Cellphone manufacturers are ready on one side to provide massively such devices, and on the other side the retailers, online services etc. being also equipped to accept such new payment processes.
This will require new standards – wolrdwide – a things that could take years to get fixed, depending on the market’s pressure.
3. Social issues
A cell phone is a fashion device in many cases. Some people have more than one, some use different phones everyday etc. Phones are fragile, get lost, broken, worn out etc.
In a life where your phone becomes a credit card, you better keep an eye on it. This potential revolution will promise some sleepless nights to people that have simply forgotten their cellular in the car, but are thinking they’ve lost it.
From the social point of view, I’m not sure that this is going an overnight revolution. It’s a question of trust in the device opposed to the fear of being potentially exposed or hackable. And when it gets to the customers money, no approximatives are allowed.
In France, Banks are trying for nearly 10 years to introduce ‘Moneo’, an alternative method of payment, linked to the credit card that allows almost instant proximity payment without using a code (max 30€ payment, just sliding the card, ideal for buying bread, cigarettes etc.). It doesn’t work at all, despite it’s totally free and you don’t even need to use a different payment method.
Never underestimated the user’s resistance to innovation especially when it goes down into his wallet.
I don’t want to comment this too much – jsut a few ideas – as this is a very large and productive topic, but I would suppose that you’re a bit ahead of current times. I believe myself that the cell phone revolution is not finished yet and that the ‘device’ in itself has not achieved what it will finally do in our everyday’s life. Mail & Entertainement have joined digital cameras & phone to end up in devices we wouldn’t dream of 5 years ago (look at the iPhone).
The next step would probably be embedded RFID chips allowing first to collect information on a proximity basis (ads displayed in the street, tourist’s informations, whatever), then allow minor payments on limited amounts. With the adoption growing, the limits would then be pushed back and finally come to a point where a perfectely secured (vocal or biometric authentication), stable collection of devices would then allow secure transactions. This on an internationally shared standard to ensure maximum security. It’s probably the main obstacle right now and such new types of services will need to be standardized. Something for the GSMA & some others to ponder over.
But it will come soon enough, I’m definitely conviced of that
Antoine FERRAZ
In Bangladesh the mobile payment cant take off because of lack of trust between Banking sectors and Mobile operators. Everytime mobile operators take up the issue with regulator (which is Bangladesh bank), the association of bankers objects to this idea since they fear that mobile operators will take away their businesses.
But consumers are ready to adopt this technology since its secure, fast and easy to use. It will open up a new window for e-commerce to grow in this country.