Trust, usability and industry models will be key for both m-payments and m-banking initiatives.
Juniper Research thinks that by the end of 2007, the total transaction value for mobile payments will have reached $2 billion, and that by the end of 2011, fuelled by both physical and digital related payment, the mobile payments sector will be worth $22 billion. But the research company points out that in the overall payments market, where MasterCard alone generated $1.96 trillion in payments, mobile still looks like a niche service.
Even so, $11 billion is $11 billion and as it represents mostly new transaction value for the mobile industry, it is easy to see why there continues to be hype around the area, especially with that trillion dollar market to grow into.
In the past, much of the focus within mobile payments has been around micro-payments, and the payment for digital, mobile-phone related content. Yet there is now genuine opinion being formed that the phone really could now be on the cusp of forming a useful payment tool, for digital and non-digital items alike. But is the industry any clearer to working out how m-payment systems might be structured so that all partners are happy? And should the focus widen to included m-banking, given that many think that could be the application that unlocks the door to m-payment.
Diamond Management & Technology Consultant, Hamilton Sekino, a Partner in its Telecom and High Tech practice, thinks that operators face real challenges in deciding how they will generate new revenue in a mobile payments ecosystem that could be dominated by financial services firms.
"The total payments market in the USA alone is estimated to be over $7 trillion, so even if m-payments capture a small share of that, the potential opportunity is enormous. Mobile operators will need to play an active role in developing an m-payments ecosystem that ensures they capture a fair share of revenue from this opportunity," he says.
So how will operators ensure they have the role they need in this emerging payments ecosystem?
"Operators will have to work collaboratively with financial institutions and other ecosystem players to build a compelling value proposition around m-payments in order to accelerate consumer behavior shift from traditional payment methods to mobile payments. M-payments' associated fees to mobile operators will help them fill the gap in $40 billion non-voice revenues they need to generate by 2010 to sustain overall ARPU.
"A model through which mobile operators collaborate with financial institutions will have the greatest likelihood of success for implementing an m-payments strategy," Sekino said.
For instance, SK Telecom and leading banks in South Korea have teamed up to introduce the Moneta m-payment service, using Near Field Communication (NFC) chips inserted into mobile phones. Once activated, the mobile phone can be used as an e-money account, credit card, transit card, or membership and loyalty card. Moneta subscribers are able to hold multiple accounts from different issuers on a single mobile device (i.e., mobile wallet) powered by SKT.
The SKT Moneta service exemplifies a collaboration model between a mobile operator and financial services firms. Credit and account issuance is performed by the partnering banks, and payments are processed through the existing Visa and MasterCard networks. SKT develops new payment applications and is responsible for rolling out new POS readers to merchants. For those investments, SKT earns a portion of the transaction revenue from the payments.
"We do not believe that mobile operators can take these steps in isolation," said Sekino. "The best approach is for mobile operators to start working very closely with leading financial institutions and retailers to design an m-payments strategy that is aligned with the interests of the required partners to deliver a compelling value proposition and experience to m-payments users."
Further examples of cross-industry collaboration comes from Taiwan, where Far EasTone Telecommunications (FET), the number three Taiwanese mobile operator, has announced it will launch NFC based payment services in Q1 2008 and will start a trial in November 2007. Named 'Beep 'N Go', the new service is being developed in collaboration with the Taishin Bank and several merchants. Handsets will only be provided by Sagem at launch. Visa has also announced the launch of a mobile contactless payment trial involving 500 people with Chunghwa Telecom, another Taiwanese mobile operator, the Chinatrust Commercial Bank and Nokia.
FET will use a SIM-centric solution, with the payment application stored in the SIM, while in Chunghwa Telecom's case, the application will be embedded in the phone.
This means that Taiwan will become the first country in the world offering mobile debit and credit card services based on NFC. Of course, Taiwan has a head start over many other countries because
contactless payment, with services from Visa and Mastercard, is already available and largely deployed in Taiwan – meaningt here is no need to deploy new contactless readers in points of sales specifically for NFC, and consumers are also already familiar with using contactless payments.
One thing that may boost consumer confidence in mobile payment could be increasing trust and usage of mobile banking. Here there are several initiatives. In Turkey, the country's biggest bank IsBank has just announced the launch of its mobile banking application "IsCep", which was developed in partnership with Turkish mobile technology firm Pozitron.
The "IsCep" (which means IsPocket) application uses Pozitron's java-based technology, and can be downloaded to a wide range of handset devices. Once customers sign up online for the service, they are able to download the mobile banking application along with "Is Bankasi" icon to their personal devices. Through the graphical interface of the "IsCep" application, clients are able to access their accounts, check account balances, transfer funds and exchange currencies. The service also covers investment inquiries and credit card payments.
"There are more than 2.2 billion mobile phones in the world. Turkey has more mobile subscribers than fixed-line. Additionally Internet penetration in Turkey is still limited. However, the potential of internet access through mobile phones is even bigger than the PCs due to widespread use of GSM technology. We believe that this solution will also benefit customers who have limited internet access and who are willing to do online banking. " says Pozitron CEO Fatih Isbecer
The "IsCep" application is also signed and Java verified by the UTI (Unified Testing Initiative). UTI's member companies are Motorola, Nokia, Orange, Samsung, LG, Sony Ericsson,Vodafone and Sun Microsystems.
One company looking to bridge the gap between the financial services world and mobile operators in the UK and Europe is Monitise, which can number T-Systems, HSBC, first direct, Alliance & Leicester, Royal Bank of Scotland Group, Vodafone, Orange, O2, T-Mobile and Hutchison 3 among its partners. Rather than being merely a hook up between a particular bank and operator, Monitise's service is designed to be compatible with any bank or mobile network and is, it is claimed, available on 95% of the handsets currently available in the UK. The services connects directly into financial institutions using their existing payment processing connections, and is built on international banking standards.
Monitise has just announced a new range of functionality, due to be available in 2008. These include the ability to manage multiple accounts – including bank accounts, credit and pre-paid cards and loyalty card schemes – from a single application and a full range of payment services – including inter-account and peer to peer transfers, bill payment and international remittances. SMS alerts will also be available for weekly balances, accounts nearing their limit or notification of potentially fraudulent transactions. The system also introduces two-factor authentication for internet banking – providing an additional layer of security, through the use of unique passcodes and instruction confirmation to protect against internet fraud and secure payments transactions conducted online
Alastair Lukies, chief executive, Monitise plc said: "The strength of our mobile banking and payments service is its ability to connect previously disparate functions into a single ecosystem, in turn delivering a consumer friendly application. Already we are seeing the number of transactions per user increase, as consumers habitually use the service as part of their daily routine. All of our research suggested that consumers wanted to start with basic and simple-to-understand services, such as balance enquires, mini statements and mobile phone top-ups."
Lukies' strategy director Richard Johnson says that what is needed is not point software or technology solutions, such as in Turkey, but someone to foster the development of an ecosystem in m-banking and m-payments, and to act as a trusted service provider to all parties.
"The ecosystem we talk about encompasses mobile operators, who are very important partners for us, the handset manufacturers, banks and other financial services providers" Johnson says.
This sounds close the recent work produced by the GSMA, which identifies the need for just such a role. Does Johnson think the best approach is to try for another industry consortium, or to let the markets decide how things work out?
"We agree with the GSMA's view of a trusted service provider although we think perhaps their vision is a bit of a superhero role. We think you could break that down into two or three key elements, but we agree with the concept," Johnson says.
Beyond these additions to its mobile banking and payments platform, Monitise is also working with partners to increase the security and improve the experience of shopping online. This will be delivered using a range of identity and 'cardholder not present' mobile security solutions.
One niche idea in the related area of web-based transactions has come from LUUP. Using ‘LUUP Secure Checkout', LUUP account holders will enter their username and PIN number at participating web-based merchants to activate their transaction. The next step, which stands the system apart from other popular web payment systems, will be for the customer to receive an instant SMS with their security code to type into the website. This different method of verification requires the consumer to know their PIN and be in possession of their mobile phone for the payment to be approved. "'LUUP Secure Checkout' is a significant leap forward in online security," said Thomas Bostrøm Jørgensen, LUUP CEO. "We have created an innovative payment solution to permit the most secure web-based transactions available, which will lead to a greater peace of mind for both consumers and merchants."
Whether in a niche area such as web payments, or across the potential, m-payments and m-banking field, the keys are going to be useability and trust, and the business relationships between operators, merchants and financial services companies.
Fronde Anywhere's executive vice president, products and marketing Caroline Dewe makes the point. Fronde is seeking to branch out into Europe and the USA with an application which it says can re-launch banks' and mobile operators' appetites for mobile banking. Fronde sells a service which integrates a Java app on the phone with a Bank's existing online or web services platforms, using a two-step software authentication process to allow secure bankin transactions from a mobile phone.â?¨The advantage of this system over previous SMS or WAP based approaches, according to Dewe, is that banks can integrate the mobile channel into their existing marketing and banking platforms, without having to treat mobile as a stand-alone entity.â?¨Dewe said that Fronde offers a suite of products that banks can turn on, and customize, as they like at the service end, but requires only one application download to the handset. A device management tool means the bank's service will be delivered in the right form factor and means for the phone, OS and software that is applicable. This means that banks can build up services as they like,€"from simple SMS alerts to full person to person payments being made over mobile" without encountering the user experience issues that dogged early WAP deployments.
Importantly, Dewe adds that mobile operators can see the value of supporting mobile banking, not just through increased data and text revenues, but because anything that builds up trust around the mobile phone and money will be good for the operators. Dewe adds that once banks realise they can control what is delivered, and how, and that they can use the mobile channel to differentiate themselves, and integrate it into their marketing and customer service functions, we could be looking at the next stage of development for mobile banking, an area that has often promised much and delivered little to date.