Mobile payment

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Mobile payment or known also as Mobile wallet is an alternative payment method. Instead of paying with cash, cheque or credit cards, a consumer can use a mobile phone to pay for a wide range of services and digital or hard goods such as:

• Music, videos, ringtones, online game subscription or items, wallpapers and other digital goods.
• Transportation fare (bus, subway or train), parking meters and other services
• Books, magazines, tickets and other hard goods.

There are four primary models for mobile payments:

• Premium SMS based transactional payments
• Direct Mobile Billing
• Mobile web payments (WAP)
• Contactless NFC (Near Field Communication)

Additionally there is a new emerging model from Haiti: direct carrier/bank co-operation.

Mobile payment has been well adopted in many parts of Europe and Asia.^[1] Combined market for all types of mobile payments is expected to reach more than $600B globally by 2013,^[2] which will be the double of the current figure,^[3] while mobile payment market for goods and services, excluding contactless NFC transactions and money transfers, is expected to exceed $300B globally by 2013.^[4]

Some mobile payment solutions are also used in developing countries for micropayments.^[5]

Premium SMS/USSD based transactional payments

The consumer sends a payment request via an SMS text message or an USSD to a short code and a premium charge is applied to their phone bill or their online wallet. The merchant involved is informed of the payment success and can then release the paid for goods.

Since a trusted delivery address has typically not been given these goods are most frequently digital with the merchant replying using a Multimedia Messaging Service to deliver the purchased music, ringtones, wallpapers etc.

A Multimedia Messaging Service can also deliver barcodes which can then be scanned for confirmation of payment by a merchant. This is used as an electronic ticket for access to cinemas and events or to collect hard goods.

Transactional payments have been popular in Asia and Europe but are now being overtaken by other mobile payment methods such as mobile web payments (WAP), mobile payment client (Java ME, Android...) and Direct Mobile Billing for a number of reasons:

1. Poor reliability - transactional payments can easily fail as messages get lost.
2. Slow speed - sending messages can be slow and it can take hours for a merchant to get receipt of payment. Consumers do not want to be kept waiting more than a few seconds.
3. Security - The SMS/USSD encryption ends in the radio interface, then the message is a plaintext.
4. High cost - There are many high costs associated with this method of payment. The cost of setting up short codes and paying for the delivery of media via a Multimedia Messaging Service and the resulting customer support costs to account for the number of messages that get lost or are delayed.
5. Low payout rates - operators also see high costs in running and supporting transactional payments which results in payout rates to the merchant being as low as 30%. Usually around 50%
6. Low follow-on sales - once the payment message has been sent and the goods received there is little else the consumer can do. It is difficult for them to remember where something was purchased or how to buy it again. This also makes it difficult to tell a friend.

Some Mobile Payment services accept Premium SMS payments. Here is the typical end user payment process:

1. User sends SMS with Keyword and unique number to a Premium Short Code.

2. User receives a PIN (User billed via the short code on receipt of the PIN)

3. Finally user enters PIN to get access to content or services.

Direct Mobile Billing

The consumer uses the mobile billing option during checkout at an e-commerce site—such as an online gaming site—to make a payment. After two-factor authentication involving a PIN and One-Time-Password, the consumer's mobile account is charged for the purchase. It is a true alternative payment method that does not require the use of credit/debit cards or pre-registration at an online payment solution such as PayPal, thus bypassing banks and credit card companies altogether. This type of mobile payment method, which is extremely prevalent and popular in Asia, provides the following benefits:

1. Security - Two-factor authentication and a risk management engine prevents fraud.
2. Convenience - No pre-registration and no new mobile software is required.
3. Easy - It's just another option during the checkout process.
4. Fast - Most transactions are completed in less than 10 seconds.
5. Proven - 70% of all digital content purchased online in some parts of Asia uses the Direct Mobile Billing method^[6]

Mobile web payments (WAP)

The consumer uses web pages displayed or additional applications downloaded and installed on the mobile phone to make a payment. It uses WAP (Wireless Application Protocol) as underlying technology and thus inherits all the advantages and disadvantages of WAP. However, using a familiar web payment model gives a number of proven benefits:

1. Follow-on sales where the mobile web payment can lead back to a store or to other goods the consumer may like. These pages have a URL and can be bookmarked making it easy to re-visit or share with friends.
2. High customer satisfaction from quick and predictable payments
3. Ease of use from a familiar set of online payment pages

However, unless the mobile account is directly charged through a mobile network operator, the use of a credit/debit card or pre-registration at online payment solution such as PayPal is still required just as in a desktop environment.

Mobile web payment methods are now being mandated by a number of mobile network operators.

A number of different actual payment mechanisms can be used behind a consistent set of web pages.

Direct operator billing

A direct connection to the operator billing platform requires integration with the operator, but provides a number of benefits:

1. Simplicity - the operators already have a billing relationship with the consumers, the payment will be added to their bill.
2. Instantaneous payments giving the highest customer satisfaction
3. Accurate responses showing success and reasons for failure (no money for example)
4. Security to protect payment details and consumer identity
5. Best conversion rates from a single click-to-buy and no need to enter any further payment details.
6. Reduced customer support costs for merchants since customers will complain to the operator.

It has however a drawback, the payout rate will be much lower than with other payment providers. Examples from a popular provider :

• 92% with Paypal
• 85 to 86% with Credit Card
• 45 to 91.7% with Operator billing in the US, UK and different smaller European countries, but usually around 60%^[7]

Direct operator billing is also known as Mobile content billing or Wap billing.

Credit Card

A simple mobile web payment system can also include a credit card payment flow allowing a consumer to enter their card details to make purchases. This process is familiar but any entry of details on a mobile phone is known to reduce the success rate (conversion) of payments.

In addition, if the payment vendor can automatically and securely identify customers then card details can be recalled for future purchases turning credit card payments into simple single click-to-buy giving higher conversion rates for additional purchases.

Online Wallets

Online companies like PayPal, Amazon Payments and Google Checkout also have mobile options.^[8] Here is the process :

First Payment

• User registers, inputs their phone number, the provider sends them an SMS with a PIN
• User enters the received PIN, authenticating the number.
• User inputs their credit card info (or another payment method) if necessary. (Not necessary if account already existing) and validates payments

Subsequent payments

• The user re enters their PIN to authenticate

Requesting a PIN is known to lower the success rate (conversion) for payments. These systems can be integrated with directly or can be combined with operator and credit card payments through a unified mobile web payment platform.

Contactless Near Field Communication

Near Field Communication (NFC) is used mostly in paying for purchases made in physical stores or transportation services. A consumer using a special mobile phone equipped with a smartcard waves his/her phone near a reader module. Most transactions do not require authentication, but some require authentication using PIN, before transaction is completed. The payment could be deducted from a pre-paid account or charged to a mobile or bank account directly.

Mobile payment method via NFC faces significant challenges for wide and fast adoption, due to lack of supporting infrastructure, complex ecosystem of stakeholders, and standards.^[9] Some phone manufacturers and banks, however, are enthusiastic.

NFC vendors in Japan are closely related to mass-transit networks, like the Mobile Suica used on the JR East rail network. Osaifu-Keitai system, used for Mobile Suica and many others including Edy and nanaco, has become the de-facto standard method for mobile payments in Japan. Its core technology, Mobile FeliCa IC, is partially owned by Sony, NTT DoCoMo and JR East. Mobile FeliCa utilize Sony's FeliCa technology, which itself is the de-facto standard for contactless smart cards in the country.

Other NFC vendors mostly in Europe use contactless payment over mobile phones to pay for on- and off-street parking in specially demarcated areas. Parking wardens may enforce the parkings by license plate, transponder tags or barcode stickers. First conceptualized in the 1990s, the technology has seen commercial use in this century in both Scandinavia and Estonia. End users benefit from the convenience of being able to pay for parking from the comfort of their car with their mobile phone, and parking operators are not obliged to invest in either existing or new street-based parking infrastructures. Parking wardens maintain order in these systems by license plate, transponder tags or barcode stickers or they read a digital display in the same way as they read a pay and display receipt.

Other vendors use a combination of both NFC and a barcode on the mobile device for mobile payment, for example, Cimbal or DigiMo,^[10] making this technique attractive at the point of sale because many mobile devices in the market do not yet support NFC.

Direct carrier/bank co-operation

In the T-Cash ^[11] model the mobile phone and the phone carrier is the front end interface to the consumers. The consumers can purchase goods, transfer money to peer, cash-out, and cash-in.^[12] A 'mini wallet' account can be opened as simply as entering *700# on the mobile phone,^[13] presummably by depositing money at a participating local merchant and the mobile phone number. Presummably other transactions are similarly accomplished by entering special codes and the phone number of the other party on the consumer's mobile phone.

Juggling payment methods, operators and countries

All operators and countries have different rules and regulations for mobile payments. Content classified as "U" (universal) rated in Europe may be classified as "R" (Restricted) in the USA. These rules affect which payment methods can be used for any given transaction.

Consumer versus merchant initiated

Payments can be initiated by both the consumer or the merchant, although consumer payment is becoming the most common since it suits the personal nature of mobile devices.

1. Consumer focused - The consumer chooses to make a mobile payment. They interact with the payment server using their mobile device to authenticate and authorize the payment. They are subsequently presented with status showing confirmation of the successful transaction or failure with a reason. Extensions to this include Near Field Communications or Contactless Payment options using additional hardware built into the mobile phone.
2. Merchant focused - This is similar to the consumer focused scenario, however the transaction is entered and completed by the merchant (or their representative). This is similar to Mobile EFTPOS except it is processed via a mobile phone/device.

Mobile payment service provider model

The four potential mobile payment models:

1. Operator-Centric Model: The mobile operator acts independently to deploy mobile payment service. The operator could provide an independent mobile wallet from the user mobile account(airtime). A large deployment of the Operator-Centric Model is severely challenged by the lack of connection to existing payment networks. Mobile network operator should handle the interfacing with the banking network to provide advanced mobile payment service in banked and under banked environment. Pilots using this model have been launched in emerging countries but they did not cover most of the mobile payment service use cases. Payments were limited to remittance and airtime top up.
2. Bank-Centric Model: A bank deploys mobile payment applications or devices to customers and ensures merchants have the required point-of-sale (POS) acceptance capability. Mobile network operator are used as a simple carrier, they bring their experience to provide Quality of service (QOS) assurance.
3. Collaboration Model: This model involves collaboration among banks, mobile operators and a trusted third party.
4. Peer-to-Peer Model: The mobile payment service provider acts independently from financial institutions and mobile network operators to provide mobile payment. For example the mHITs SMS payment service developed by mHITs Limited uses a peer-to-peer model

Notes

1. ^ "Japanese Drive Mobile Payment Market". Ericsson.com. 2010-11-02. http://www.ericsson.com/ericsson/corpinfo/publications/telecomreport/archive/2006/january/valista.shtml. Retrieved 2011-09-19. 
2. ^ Juniper Research Forecasts Total Mobile Payments to Grow Nearly Ten Fold by 2013 [1]
3. ^ By Bonsoni.com on February 10, 2011 (2011-07-24). "Research shows mobile phone payment double by 2013". Bonsoni.com. http://www.bonsoni.com/blog/research-shows-mobile-phone-payment-double-by-2013/. Retrieved 2011-09-19. 
4. ^ Mobile Payment Transaction Values for Digital and Physical Goods to Exceed $300bn Globally Within 5 Years, According to Juniper Research [2]
5. ^ Micro-payment systems and their application to mobile networks, InfoDev report, Jan 2006 accessed at [3]
6. ^ Feig, Nancy (2007-06-25). "Mobile Payments: Look to Korea". Banktech.com. http://www.banktech.com/blog/archives/2007/06/mobile_payments.html. Retrieved 2011-09-19. 
7. ^ "Payout rates from one of the major billing aggregator, Bango". Bango.com. http://bango.com/mobilebilling/payment_network.aspx. Retrieved 2011-09-19. 
8. ^ http://checkout.google.com/support/bin/answer.py?hl=en&answer=105655
9. ^ "VDC: NFC Adoption Will Be Slower Than Expected". RFID Journal. 2008-03-03. http://www.rfidjournal.com/article/view/6930. Retrieved 2011-09-19. 
10. ^ "Digimo Group NFC Dual two phase commit". Nearfieldcommunicationsworld.com. 2010-10-15. http://www.nearfieldcommunicationsworld.com/2010/10/15/34696/israel-bank-launch-nfc-mobile-barcode-payments/. Retrieved 2011-09-19. 
11. ^ T-Cash by Voilà^{[dead link]}
12. ^ "Testing out mobile money in Haiti". Mercycorps.org. 2010-11-30. http://www.mercycorps.org/koko%C3%A9visossouvi/blog/22345. Retrieved 2011-09-19. 
13. ^ http://www.trilogy-international.com/TCashCommercialLaunchFinal.pdf

See also

• Electronic money
• Financial cryptography
• Mobile Payment Using USSD
• Mobile ticketing
• SEMOPS

External links

• Dial 'M' for mobile payment, National Computing Centre, UK
• "Mobile Payment: A journey through existing procedures and standardization initiatives", Stamatis Karnouskos, IEEE Communications Surveys & Tutorials, Vol. 6, No. 4, 4th Quarter 2004.
• "Looking to Scandinivia for innovation" 160Characters.org
• The real digital divide, The Economist Mar 10, 2005
• 5 Reasons why you need to be ready for Mobile Payments
• What is a Mobile Payment? (Infographic)