M-payments face major hurdles

11-04-2003

by Andrew McLindon

The idea of a cashless society is as elusive as the paperless office. But initiatives in Asia may point the way forward for the West to reduce its dependence on cash through mobile payments.

Every day in Ireland, bus and train users scrabble for change for their fares as they rush to get on board. In Hong Kong, commuters simply hop on and swipe a card or even their mobile phone past a reader to pay their fare. Later on, they can use the same payment method to buy a skinny latte in their local Starbucks or a Big Mac in McDonalds.

These so-called "proximity payments" are growing in popularity in Asia. The Hong Kong system, called Octopus, has over 9 million users, and nearly all Hong Kongers between the ages of 15 and 65 possess such a contactless payments card. In South Korea consumers can use a similar card for a range of banking applications such as credit card payments, as well as to pay for bus, taxi and metro services.

These cards can act as e-purses, where users transfer money onto them, or they can act like a credit or debit card. In many instances they are small devices or cards that can be attached to a key ring, but in some cases, as in Hong Kong, the card can be installed in mobile phones.

Similar initiatives have been attempted in the West with some success. In America, for example, around 7 million people regularly use their Speedpass card to pay for petrol and McDonalds. But Asia holds a firm lead over both the US and Europe in m-payments.

This is amplified when it comes to moving such payments onto mobile phones. According to one expert, we are still a long way off from the idea of your mobile phone becoming the equivalent of a mobile payments device, letting you pay for a range of goods simply by pointing it at a till or pressing a few buttons.

There a number of major hurdles, according to Edward Kountz, senior analyst for emerging technologies at financial services research firm Tower Group.

Speaking to an audience in Dublin last month at the Mobile Payment Forum's seminar, Kountz said that operators, merchants and financial institutions still have to agree how much money each will get from every m-payment transaction. Another problem is that banks and operators disagree on issues such as technology standards and security.

But the greatest hurdle of all is probably getting people to use the technology. Kountz pointed out that it takes time for people to change their habits and generally they won't do so unless there is a good reason. He also asked whether carrying around money or a credit card is really so inconvenient compared to paying with a mobile phone, particularly if the charges are high to use the new device.

Until those problems are sorted, mobile phones will continue to be used for micro purchases such as ring-tones, logos and car parking, but not for buying shop-based goods like a sandwich or a newspaper or a new shirt, said Kountz.

But, he predicted that eventually RF (Radio Frequency) transactions, such as those used in Speedpass and Octopus, would be mobile-phone based -- the technology will first become part of a mobile's casing, and then an element of its chipset.

Irish m-payments solutions company Network365, which sponsored the Mobile Payments event, also believes that Europe is some way behind Asia in terms of m-commerce.

"Europe is still at the first phase of the development of m-commerce, where people can use SMS to make purchases," said John Hurley, vice president of marketing at Network 365. In comparison, he said Asia has moved onto the second phase, allowing different payment methods to be used for purchases over mobile devices. Companies there have also broached the third phase, where payments are possible simply by waving a phone in front of a cash register; charges are then made to their phone bill or credit card.

One reason for Asia's lead may be that its people tend to be more enthusiastic about new technology than Europeans, but another possibility is that debt-laden telecoms companies in Europe just aren't prepared to take a chance on the technology.

"Although contactless payment technology has proven itself very useful for public transport payments and access to buildings, the technology is still a gamble," wrote James Adams, an analyst at research firm Datamonitor, in a recent report. Adams says the problem is that the technology must be made interoperable. At the moment, the company that makes the cards for a specific application must also make the terminals, which can amount to a hefty investment.

There are signs, however, that movement is being made in this regard. In February Orange, Telefonica Moviles, T-Mobile and Vodafone said they would cooperate to develop worldwide standards for m-payments. Their aim? To allow consumers to buy practically any item using only their mobile phone. It's certainly a step in the right direction.