News & Views - Savantor

Reinventing the M-commerce wheel?

Tuesday, 01 March 2005

Mobile payments have been the next big thing for some time but many argue that they've failed to live up to the hype surrounding them. However current developments in the area of regulation, security/authentication, mobile content and services and most importantly within the mindset of the consumer hints at the beginning of a process that will culminate in pervasive mobile network enabled payments.

Mobile commerce is the effective delivery of electronic commerce into the consumer's hand using wireless technology. This advance has the power to transform the mobile phone into a mobile payment wallet. Already major companies have begun to establish partnerships with banks, ticket agencies and top brands to take advantage of their products and services whilst giving the consumer a new delivery channel.

As m-commerce develops, its primary aim is to provide a service and products to customers to purchase a wide range of digital and physical services in a totally secure environment. Essentially, any device that is not static has the capability of acting as a mobile payment device, whether that be a PDA, mobile phone, Blueberry or laptop using wi-fi.

There are currently two types of mobile payment. Micro payments are low priced purchases through mobile operator-managed accounts. Typical transaction types will be downloads of ring tones, music and lottery type gambling. The value of the purchase is deducted from the phone owner's bill, or in the case of pay as you go customers, from the credit on the phone. The security of this method of payment is managed through the SIM.

Macro Payments – the purchase of goods with a greater value than $15 - must be even more secure. Cinema tickets, proximity payments in store, hotel reservations represent typical transactions. This form of payment uses existing credit and debit card details which may be stored on the mobile operators' server or payment gateway, with security managed through the SIM, consumer PIN and payment gateway.

The market for this service mirrors that of e-commerce. And while these similarities help the market understand and acknowledge the needs of its customers, it should also serve as a warning for companies taking their first steps into the M-payments market. Indeed there are lessons to be learnt from the development and rise of e-commerce which could help ensure that mobile commerce evolves into the success that e-commerce dreamt of.

So, why is it vital that m-commerce succeeds and grows? Following the initial heavy investment made by the operators for 3G licenses, they now need to see a return on their investment. However, for this to happen, they must consider new revenue streams. Although current services on offer to the consumer are continuing to grow, they're unlikely to help the operators recoup what's been spent on the 3G licenses. In fact the only real way to get this much-needed ROI is entice consumers into using these new services which ensures higher air-time usage.

While it's all very well and good to encourage the customer to download ring tones, wall papers and other such items, the real revenue comes from people using their phones to download larger items. The demand is certainly present. Just last month, for example it was reported that SONY is to nearly triple the number of comic books it formats for viewing on mobile phones. The move comes as Japan's Nomura Research Institute estimates that manga fans spent an estimated 100 billion yen (£500m) a year on comics in 2004. Viewers pay 315 yen to download five manga titles a month by an artist of their choice. Even in the UK, mobile phone users are now able to watch "mobisodes" of ITV's Coronations Street – episodes made exclusively for mobiles – or get news, sport and weather from a newly launched service.

For mobile operators, the greatest m-commerce revenue opportunities relate to this style of digital mobile content that can be either browsed or downloaded. However in order for m-commerce to succeed for the operators, there are a certain number of obstacles which need to be overcome which are currently hindering its growth.

The major hindrance is, without doubt the lack of interoperability between mobile operators. In a word – they are all doing their own thing. While standards are in place for things like calling and texting between operators, the same sort of standards do not exist for the passing of security information which will be required for macro payments. The Mobile Payments Forum is currently addressing these requirements. This organisation brings together leading companies from the mobile and financial industries to create a foundation for standardised, secure and authenticated mobile payments. Founders American Express Company, JCB Co., Ltd., MasterCard International and Visa International all bring extensive experience in creating interoperable global payment standards and specifications and a knowledge of payments in emerging channels. Its members include key financial institutions, telecommunications operators, wireless-device manufacturers, merchants, content providers and software and hardware developers and vendors. This obviously helps steer things in the right direction, but the collapse of the Simpay Consortium in June 2005 hasn't helped the m-commerce cause.

Mobile phone users have been able to buy things via their handset for a while, either by a premium text message, or by proprietary payment systems such as Vodafone's M-Pay. In some parts of the world, customers can use their credit card, buy prepaid credits, or charge things from their bank account via their phone in a variety of ways, but none of these systems are completely interoperable.

This is not a good situation. Customers can only buy from merchants who are signed up with the same mobile operator as they are - meaning the merchants and the mobile phone companies have to go through the expensive business of finding each other and joining up their systems before they can start to look for people to sell things to.

Roaming customers are in trouble too. Each mobile phone network has to negotiate with each other to support each others' payment system, should people roam abroad. In the worst cases, with every country having three or more networks, the number of deals that need to be done for one company to be able to sell to every potential customer is prohibitive. It's just too much work for a small ringtone business, for example, to deal with and connect to every mobile payment system in the world.

The collapse of Simpay was a major blow to mobile operators' aspirations to create a common m-commerce platform in Europe. Established in 2003 by four of Europe's leading operators (range, Telefonica Moviles, T-Mobile and Vodafone), Simpay's aim was to deliver interoperability, regardless of the customer's operator) and cross-border roaming for portal content services. As such, a merchant signing up to one operator, would have had access to the entire customer base across Simpay's members.

Simpay's collapse, which followed the withdrawal of one of its founding members, means operators in Europe will now develop stand-alone solutions, although the lessons learnt from Simpay should overlap in some implementations.

It's almost inevitable that despite Simpay's collapse, regulators and culture will soon demand safeguards, which the operators may not be able to deliver. For example, how do you control gambling in certain regions of the world where such an activity is illegal? Equally, how to do you bar today's curious youngsters from accessing adult entertainment? No mean feat.

To overcome and address these hurdles and barriers, it's worth remembering that m-commerce is not really that different from e-commerce. M-commerce is probably at the same stage now, as e-commerce was in the mid 90s. There are lots of players, but the lack of standards is holding it back from expanding to its full potential. Currently the market is targeted at a youth audience – those who relish buying the latest ringtones and various downloads that generate relatively little revenue. But it MUST move on. The real target-audience for m-commerce are those who are time-poor and have a high disposable income, and basically want a one stop shop way of organising and paying for their lives.

Demand is certainly present for a mobile device that is capable of carrying out multiple activities. But while this group may be the owners of some of the best mobile devices, they don't want to spend hours fiddling with all the gadgets and gizmos their phones possess. People regardless of age and ability, want the process to be as simple as possible. After all, what good is it to be able to book theatre tickets, or make restaurant reservations using a mobile device, if you could just as easily pick up a phone or visit the venue in the time it takes to make the payment? Hence, another aspect in the success of m-commerce would involve the manufacturers of these mobile devices incorporating more smart keys into the handsets.

So while technically the challenge is to sort out the standards and get the interoperability in place, the next step then is to deal with the security issues, and work to dispel any myths and scare mongering over the safety of m-commerce.

If the operators are to succeed in getting their safety conscious target audience on board, the various card payment schemes have to be more active in the security of data. In short, acceptance of m-commerce amongst the low time high-income brigade has to be based on security. This is also a vital issue in terms of legal liability. After all, if a person's mobile device, which can be used to carry out transactions, and which has the person's bank details stored on it, is stolen – it suddenly becomes much more than a lost phone or lost laptop.  Currently in the UK, we know that if a credit card is stolen, then, much of an inconvenience though it is, we can rest assured that the banks will pay back the money into our accounts. However we are also aware, that if we lose our mobile phone, our blackberry, or our laptop, then we're liable to pay for its replacement if we haven't taken out an insurance premium.

The problem facing m-commerce, is this: How do you put a value on an item which stores a users bank details? If the thief goes on a spending spree with the phone that also happens to be a payment instrument, the ability to put an insurance value on it is impossible. There are numerous risk management rules in place for dealing with credit card theft and fraud. A card issuer that spots any suspicious transactions will not allow further transactions to be authorised, until they contact the card holder. Whether the same stringent authorisation processes will occur with the mobile operators remains to be seen.  But inevitably, any sort of scare story will impact on the uptake of m-payments. As we saw earlier this year when ITV aired a programme about 'the truth' behind Chip and PIN, card users got scared for a time, and merchants noted a fall in the number of people prepared to use their PIN to make a payment. The industry must be prepared for a media backlash, and equally must be prepared to tackle it.

As mentioned earlier, the lessons to be learnt from e-commerce could ensure not only the survival of m-commerce but would help it thrive. It's worth remembering that there are unfortunately very few pure e-commerce companies that have actually been successful. While the names Del, Amazon and roll off our tongues with relative ease, other purely web-based companies are harder to remember. The companies for whom e-commerce has been a successful venture are generally bricks and mortar retailers who have adopted a multi channel process. Shops like Sainsbury's and Marks and Spencer in the UK have all done astoundingly well. Why? Because customers feel reassured. They know that if the website 'mucks up', they can visit their nearest store and complain, face to face, to a real person. While consumer confidence is growing and online transactions are on the up, there is still a long way to go. M-commerce is still in its infancy, but the signs of success are promising and, providing it learns from its e-commerce predecessor, mobile commerce has the potential for a very bright future.

Another initiative that could be a major driver for m-commerce is that it would allow card issuers to get the problem of only being allowed to have one international payment brand on an ICC card. The issuer could brand the mobile device with their own brand e.g. Citibank, HSBC RBS and at the time of payment the cardholder selects which account AMEX, MasterCard, Visa debit or credit

they wish to use from a pop up menu on the mobile device. This has advantages both to the issuer who has reduced cost in terms of issuing multiple plastics and the consumer who has total control over which payment instrument they wish to use without the need to carry multiple bits of plastic.

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