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.

As the industry grapples with the business models around mobile broadcast TV, Roy Isacowitz, mobile marketing manager of digital TV software specialist NDS, gives Keith Dyer an insight into how the industry might develop, and where the key battles will be fought.

Mobile Europe:

Roy, as a company with activities across the pay and digital TV spectrum, and not just mobile, how would you portray the state of mobile broadcast TV development right now.

Roy Isacowitz:

We are a big player in TV in general, providing DRM, EPGs and a range of other software for TV on different platforms. I think our approach to mobile TV is that, in time, stand alone services are not going to be where the real money is. I believe that customers will not put up with separate subscriptions for television at home, and on the mobile. Eventually consumers will want to pay once, and get an entertainment service wherever they are or whichever device they are using. So this means service delivery will really become about cross platform TV, and you can already see this happening if you look at the partnership in the USA between Sprint and the cable operators. So that’s the focus for NDS, but more importantly I think our focus represents where the industry is heading

ME:

You’re talking about breaking down the commercial barriers between the different platforms, then.

RI:

Well, of course, one subscription that allows me to access the same channels wherever I am on whatever device sounds simple, but from a technical viewpoint it is very difficult to achieve. TV markets have developed around vertical markets, and are still developing along those lines. Even within mobile broadcast there are vertical markets developing around the different standards. Making these things horizontal? Well, clearly you have the obvious technical issues, for example you have to encode the video differently for a widescreen plasma TV than for a small handset. But the bigger picture is arriving at a common commercial and business model across the platforms.

ME:

And how might those models start to develop?

RI:

In many different ways. I’ll give you an example: A user subscribes to a TV operator, which manages that user’s rights. That operator will also have partnerships and systems

in place to enable place and device shifting and so on, within that one subscription. So, the other partners  act as carriers for the one holding the subscription. Let’s say you get your satellite TV from X, and you have a mobile subscription to Y. X will manage your TV subscription and  will have the partnership and systems in place to enable you to receive your mobile TV via Y, which is just a carrier for X. If you look at what’s happening in the USA right now it’s fascinating.

Sprint is a cellular operator, but it is also making a huge investment in WiMAX and is partnering with several of the largest cable operators, in the Pivot partnership. I think that’s a really exciting series of relationships, which has the potential to provide real Quad-play.

ME:

Do you think the industry is necessarily going the most direct route to this cross platform approach?

RI:

Well, I think one issue is that mobile TV so far has followed a very linear TV model, which is exactly the model that the 18-34 age group, the very people that the mobile operators are trying to reach with these services, are starting to reject in the fixed world. There’s a weird irony there. There’s a danger that the mobile world is not learning the lessons of the fixed line world. I’m a great believer in the future of mobile broadband and I’m not sure that operators beginning to do mobile broadcast today are taking it into account sufficiently. There’s also huge pressure on prices. I was told recently by an operator that the current price point that the market can bear is five, that’s five dollars, pounds or  Euros,  a month for mobile TV. I don’t think operators can provide even a basic service at that price. So this pressure on prices will lead to free-to-air and ad-supported models. And that price pressure point is where converged services, leveraging content acquisition costs and providing a greater number of services, begin to make sense.

Of course, right now the flavour in mobile is broadcast. FLO and DVB-H, particularly OMAS BCAST smartcard profile, are likely to be the dominant technologies over the next few years. It’s pretty clear that we will see significant increases in the number of operators launching mobile broadcast services in the next few years, and the cross platform approach I describe is some way off.

ME:

What do you think might serve as the catalyst for this transition to a cross-platform approach?

RI:

I’m a huge believer that WiMAX and LTE will be transformative here. I think if you look at what is currently called mobile broadband, most of what is available is a walled garden in one way or another, and the networks usually aren’t built for massive amounts of concurrent broadband users. WiMAX and LTE will provide real broadband, which, like current fixed line networks, can carry live video and IPTV. So broadband will start to give broadcast a real run for its money.

Clearly, mobile broadcast will have the momentum for the next few years, and broadcast, of course, is very good for what it does. But I see a future market for hybrid devices in which broadcast and broadband will complement each other. Converged platforms will provide economies of scale, which is why I think that price pressure, even within a vertical mobile broadcast market, will drive cross-platform take-up. And, of course. companies that have the wherewithal to provide cross-platform solutions will have a strong differentiator in the market.

ME:

Where will NDS play in this move – first to roll out mobile broadcast, but also the cross platform trend?

RI:

Well, first, there are very, very few companies that can afford to develop and maintain all the broadcast standards out there, never mind provide the range of products that NDS supplies, from DRM to interactive applications. So you have to try to forecast where things are going. With FLO, our Simulcrypt synchronizer product is being used to allow different conditional access systems to work side by side across the network, forming the basis for their open CAS platform.

In Europe we are a strong supporter of the OSF (Open Security Framework), one of the DVB-H flavours, and will be offering OMA BCAST gtowards the end of this year. In China we are very active in CMMB, with handset and SIM integrations now underway in order to provide a full end-to-end platform. And in Korea we are working with a consortium of six broadcasters on a planned TDMB project.

For operators that have a convergence strategy, and most leading telcos and broadcasters do have convergence on their roadmap, our experience adds great value. If you look at Vodafone, and  its recent purchases of fixed line providers, Verizon and its IPTV play, as well as Bharti in India and Sistema in Russia, clearly these operators are committed to convergence. TV will be a crucial part of that strategy. That’s not to say, though, that we aren’t looking at doing business with smaller, or predominantly mobile operators as well.

ME:

OMA BCAST is intended to increase interoperability between headend and handsets, is it not?

RI:

Certainly it makes things a lot easier and more flexible at the device level, as it does not demand integration at the level of individual SIMs and handsets. In another sense, though, it’s a very broad standard, which provides little leeway for the vendor to distinguish itself, to provide unique points of differentiation to its customers. There are a couple of options for us, as a conditional access company.. One is that providers of OMA BCAST solutions will compete on price, which means none of us will ever make any money. There is the possible scenario, when OMA BCAST handsets are widespread, that there’s a big OMA BCAST hack, at which point operators will realize that the standard does not provide sufficient security and will be looking to the vendors to provide non standard security solutions to deal with the hack. I stress that this is no way a business strategy! It’s more a point about where increasing standardisation and commoditisation could lead.

The other approach, our approach, is to offer a wider and better range of products and services, which NDS has in its ESGs, interactive services and applications. The third thing, again, is that we certainly believe there will be a significant shift to convergence. Most major operators already have convergence on their roadmaps and it is an important part of our roadmap.

ME:

You mention the ESG there. It brings to mind the question of whether the software on the devices themselves, the UI and the EPGs will also become increasingly crucial.

RI:

That’s an area that’s wide open. Nothing I’ve seen to date in that space has wowed me, I mean there’s been no EPG that’s amazed me. Where UIs are concerned, I still think all UIs are too linear, dominated by traditional TV, without making enough use of new technologies such as Flash and touch screen manipulation. But also there is potential around location based services, and interactivity. So there’s a lot of work to be done in that area. We’ve got years of experience on TV EPGs, and are transferring that to mobile, where the industry is still just scratching the surface of the potential.

On interactivity we have an advantage because we have been working in this area a long time, with broadcasters such as Sky, for instance, and that’s without a return path, which makes it a lot more difficult.

I also think that the phones or devices themselves are going to change. Partly, again, as a result of the WiMAX influence, I think we’ll see wider screens and larger devices, especially when operators see the quality of experience improve along with those devices.

ME:

So given your role within the IPTV world, how would you characterize your presence within mobile broadcast itself, in Europe?

RI:

NDS comes from the TV space, so when working in areas which aren’t our natural milieu, such as mobile and fixed line telco, we find it beneficial to work with partners which have been in the space for a long time. That was the case with IPTV, where we have partnered very successfully with Alcatel-Lucent, and we intend following that model in mobile as well. We are currently beginning the process of assessing and establishing mobile partnerships. Of course, many of the large players are also very active on other networks, so we anticipate that at least some of these partnerships will be pretty wide-ranging.

According to the report, players across the mobile value chain are seeking to emulate Apple’s success with the App Store by launching own-brand storefronts, such as ‘Mobile Market’ from China Unicom, ‘Airtel App Central’ from Bharti and the ‘Apps & Games Shop’ on Vodafone 360. Furthermore, the transition to an app-centric environment has also benefited more established storefronts such as GetJar, which passed 1 billion downloads earlier this month.

However, the Juniper report cautions that players seeking to launch app stores would need to demonstrate sufficient scale to be able to induce developers to provide them with unique content. As report author Dr Windsor Holden observed: “Apple has been able to achieve several billion downloads from a comparatively small handset base because customers are buying the iPhone for the apps. That’s not been the case with other handsets. So even if you have a subscriber base of tens of millions, your addressable market is a fraction of that – and spread across a variety of operating systems and handsets”.

The mobile apps report also noted that freemium was becoming the prevalent business model, with publishers increasingly offering applications free at point of sale and subsequently monetising them via in-app billing of subscription-based services, upgrades to premium content or micropayments for virtual items.