O2 became the first operator in the UK to launch a mobile wallet service this week.
If you've missed the news somehow, its wallet service will allow users to pre-load a stored value account on the phone, as well as attach existing cards to the wallet application. Users can send money from the Wallet to other mobile phones, through O2's Money Message services. They can use a barcode reader app to get instant price comparisons on things they'd like to buy. They will be made exclusive offers by O2's partners.
O2 is also relaunching its physical card, which will be contactless, meaning users can pay for physical items, meals, and withdraw cash from ATMs, using the value stored in their Wallet account. (Payments made with the physical card show up in the transaction history in the app, and are deducted from the prepaid account.)
What it has not launched, although it said it would last year when it announced the impending launch, is NFC payments. Speaking to O2 Money's CTO on the fringes of the launch, it seems that decision had a lot to do with the technical complexity involved. It seems to have been hard enough to get to this point. "We have effectively built a bank from scratch" was how he put it to me.
Of course, O2 has not built a bank, but it has built a virtual payments environment that matches much of the functionality. It must store money, carry out transactions, conform to the regulations of the UK's financial regulator, the FSA. To do this it has had to partner with IDT Financial Services, to lease an e-money license, while O2's own application for an e-money license is still pending. The e-money license lets O2 hold money and carry out transactions. IDT also provides BIN (Banking Identification Number) sponsorship for O2, allowing it to issue cards.
In fact, O2's roll call of providers is an insight into how hard it is to bring something like this to market in an integrated manner. As well as its relationship with IDT it is working with FIS for the provision of banking and payment technology, with Wave Crest for its e-payments platform, with Visa for the payments brand (merchant side) as well as on its contactless payment scheme. In terms of building the application it uses Intelligent Environments to build the app, and handle the integration of the service in terms of social networking, NFC, messaging etc. It has done a deal with Cogenta to use its product search and price comparison technologies. Not only that, it has had to do deals with 120 online retailers to secure their support for the service.
It's perhaps easy to sit and take shots at telcos for the slow pace of innovation, but if you look at all that then you can see that pulling it together, presenting it as a mass market consumer service that is simple and easy to use, is not trivial. Indeed, the dual-layer authentication required (an account password and a payment password) is already attracting a small amount of frustration from some early users, yet it's really just the tip of the iceberg in terms of the security architecture required for the service.
If you add in NFC, then you are adding in the NFC secure element on the SIM, its interaction with the NFC chip, a relationship with Giesecke & Devrient, Telefonica's TSM (Trusted Service Manager), and another layer of security to all NFC-derived transactions.
So although O2 missed its self-imposed deadline of launching before the end of 2011 by some months, and it doesn't include NFC, it might be worth cutting it some slack.
That is not least because one of the of the key aspects of O2 Wallet is that it is first to market. Users don't have to be O2 customers. This is seen as being an OTT play into other operators' customer bases, and of course it is. But much more importantly its OTT (if you like) against any potential Google or Apple wallet service, not to mention PayPal mobile. If you wanted to associate your existing bank cards to your mobile, so you could easily pay for items online using your mobile, without entering loads of details every time, then where else are you going to go, at the moment? You could perhaps download an app provided by your bank, but that ties you to that bank, rather than all your cards, and loyalty cards etc.
So no, it's not the end game for operator-led mobile payments, but it is the most comprehensive offering I can see out there. Additionally, by taking a slice of revenue from the retailers involved, O2 has found a business model for mobile payments that has, so far, met acceptance from the brands. That, too, is crucial.
Also of high note this week were results from Ericsson and Alcatel Lucent, as well as Vodafone's splash of cash on Cable & Wireless Worldwide. Finally, there's been some progress in White Space radio, with Neul announcing its live network in Cambridge. Please follow the links on this newsletter to see further analysis on these stories.
Keith Dyer, Editor