Lets get physical - Mobile World Live

Lets get physical

05 JUL 2010

By Tim Green, from Mobile Entertainment Magazine

Mobile payments have come a long way since reverse-billed SMS. But they’re still mostly used for downloads. Think of the potential if the phone were to pay for real-world items. That’s exactly what PayPal, Visa and the rest are doing right now.

Every year, Americans alone spend $5.6 trillion on stuff. Imagine if the mobile were used to process just a tiny fraction of that spend? You’d have a multi-billion dollar business.

It’s a nice idea. But it hasn’t happened yet. In most parts of the world, mobile payments still apply to virtual goods only. Such payments started with the first PSMS transactions around a decade ago. Today, we accept the mobile as a channel through which to buy a ringtone, a vote on a TV show or even an expensive city guide app. But not yet for buying physical goods or moving money to other users.

Of course, the potential has always been there. The ubiquity of the phone and its personal nature makes it the perfect medium for small ticket everyday transactions. It was always held back by the clunkiness of PSMS – and even when carrier billing grew widespread, there were still the 30 to 50 per cent operator charges to hold it back. At the same time, data coverage was patchy and expensive and handsets were relatively unsophisticated.

Despite this, there were early attempts by Mastercard, Barclaycard, Visa, PayPal and others to establish a presence in mobile. None worked especially well. Mastercard tried to get its PayPass contactless tech into phones with little real success while PayPal never replicated its overwhelming online progress in wireless. This was mostly a user interface issue. Its service was all PIN-protected and SMS-based because in those days (2006/7) there weren’t the smartphones and the always-on connections to facilitate any kind of meaningful alternative.

Now, obviously, there are.

Flat rate data, faster networks, acceptance of the mobile web, smartphone proliferation and, most of all, apps have conspired to bring the ‘traditional’ payments giants back into the space. This time it looks as if they’re here to stay. And their participation surely suggests that the age of mobile as a payments medium – not just for digital downloads, but for real-world goods and services – is imminent.

The analysts certainly think so. Juniper reckons mobile payment transactions will double in value to $200bn by 2012 while GIA says the sector will gross $264.8 billion by the year 2015.

Needless to say the combination of touchscreen and mobile app has been a gift to the payments giants. PayPal’s upgraded iPhone app has been downloaded well over a million times since launch in March, and the firm has also built Android and BlackBerry versions. The app lets people manage their accounts, withdraw money or collect it from others. It even features the ‘bump’ function for moving money instantly with other users merely by ‘bumping’ the phones together.

Of course, it’s all very nice getting users to install your app, but the real challenge is to get merchants to build your payments channels into their services. This is why PayPal created an open payments system, PayPal X, which it touts enthusiastically to the market. The idea is to get developers embedding PayPal for in-app purchases that can occur in one-click without having to leave the app.

Now, PayPal claims to have 100,000 PayPal X. Predictably, others have followed. Last month, MasterCard made available its APIs for the same purpose.

The mobile app is clearly popular with users. However, there is an even more direct system for moving money by mobile: contactless scanning using ‘near field communication’ or NFC. So far, ‘contactless’ technology has been a bit of a non-starter (outside of Japan, where operators have mandated it and made the ‘Felica’ system very successful). High profile trials such as the one between O2, Transport For London, Nokia and Barclaycard Visa in 2007 never made it to full commercial launch because of the inability of the participants to create sufficient handsets and readers.

Intriguingly, it now looks as if the mobile app might just offer a way back in for the contactless mobile chip. A few weeks ago Visa teamed with DeviceFidelity to launch a case that plugs into the bottom of the iPhone via the dock connector. This ‘In2Pay’ peripheral has a slot for an SD card, which contains the contactless NFC chip. When used in association with a downloaded free app, it can pay for items like any contactless credit card.

Similar plans have been unveiled by Barclaycard, which is arguably the biggest driver of NFC, having issued more than six million contactless cards in the UK since 2007. The fact remains, though, that none of the major UK retailers is currently using the system.

Hovering above all discussions of mobile money is the security factor. Online scams have, justifiably, made people worried. But there is a strong argument that mobile is actually safer than the wired web. Richard Johnson, chief strategy officer at Monitise, the UK company that powers mobile money services for all major banks in the UK except Barclays, explains why: “With mobile, you set up a transaction limit, so that reduces the risk.

“Also, there are two authentication factors in mobile. Something you know – your password or PIN. And something you have – your phone. That’s more secure than the PC. Having said that, we have found that users prefer at the moment to use their mobiles for balance checking and payment alerts, rather than actually moving money itself.”

Johnson says a quarter of Monitise’s two million customers currently use the app, a quarter use interactive texts while half use simple alerts. It’s a softly softly approach, but the potential is obvious. “By 2018, there’ll be no more paper cheques and people will feel much more comfortable about virtual payments. So, while we’re happy to focus on alerts now, we will experiment with basic ideas such as ‘text a tenner’ that will help people settle small debts from the mobile phone,” he says.

For evidence of how to make such concepts work, the ‘mature’ telco markets will need to look to Africa. Or more specifically, Kenya. Here, the renowned M-PESA mobile payments system operated by local operator Safaricom, has literally changed people’s lives. M-PESA hooks into the 100,000 small retailers in Kenya who already sell mobile airtime. More than 17,600 have signed up (outnumbering Kenya’s 840 bank branches). Customers pay to have money credited to their mobile wallet, which they can then use to pay for goods or transfer to others so that they too can buy stuff – or exchange credit for cash – in the same shops.

It’s currently used by 9.5m people, or 23 per cent of the population, and transfers an astonishing 11 per cent of Kenya’s GDP each year. The system has transformed the lives of people who used to queue for hours to pay bills with cash. Unsurprisingly, it’s being copied all over the world, with Nokia-backed Obopay becoming a prominent force in the space.

For more from Tim see http://www.mobile-ent.biz/


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