Mobile Payment – is this the crucial opportunity for m-commerce?
More than two years after the development of mobile payment solutions began the breakthrough of mobile payment systems now lies ahead. This development is taking place alongside the establishment of the MMS standard (Multimedia Messaging Service) and the introduction of the UMTS technology (Universal Mobile Telecommunications System).
The market potential of mobile payment systems
Currently the market for mobile payment methods is still dominated by Premium SMS. Through this standard it is possible to receive up-to-date news, dates of matches and concerts, TV previews as well as CD and ticket offers. These services are included in the mobile telephone bill. This micro-payment concept is based on a more expensive SMS, which is sent from the mobile network customer to a standardized, five digit short dial number. These services, which are aimed at younger users at relatively low prices, have achieved an increase in the use of Premium SMS. It is predicted that by 2004 around 21% of European mobile telephone users will be using Premium SMS and reaching a market volume of EUR4.6 billion in 2006.
Introducing "Prepaid Top up Services" is the next step of m-commerce.
This is a further mobile payment service whereby funds are transferred via cash machine or directly from a connected bank account to a mobile telephone. Certain trends will follow similar to those observed in the Asian-Pacific area.
In that part of the world new vending machines communicate with mobile telephones for arrange of purposes for example to pay for drinks or groceries or whether to obtain personalised information such as city and leisure guides.
According to the latest 3G report by TNS EMNID, 42% of all mobile phone users in Europe are interested in new services provided by the third generation mobile phones with UMTS. Half of these users would also be prepared to pay an extra of up to EUR10 per month for special MMS-services and fast internet access with an email system. Those users interviewed were mainly interested in sending and receiving emails and using picture messaging (77%) by using mobile phones. Downloading music (47%) and playing video clips (40%) ranked lower.
Furthermore an interest was shown in the practical use of mobile phones to pay bills and fees in everyday life, e.g. when paying parking fees or train fares, taxi fares or similar expenses.
Market research and surveys predict that users will develop a positive attitude towards MMS- and UMTS-services.
The prognoses is that mobile payment in 2005 will reach a value of EUR25 billion within Europe and more than EUR80 billion worldwide.
The current status of development in Germany
Paybox.net plc, the first German producer of mobile payment systems (Making payment by confirming the PIN after the call is made) disappeared after more than two years in the German market due to an early exit of its main shareholder, Deutsche Bank. New payment systems are now being introduced to the public.
Vodafone, the largest European mobile phone provider introduced "m-pay" by which small amounts of up to EUR10 can be paid using a mobile phone.
There are no additional requirements: an application, registration, connection, a credit card number, a password or special software are not necessary. The account is then debited together with the mobile phone bill or is debited from the prepaid account.
There are also further mobile payment solutions, such as Payitmobile (confirmation by text message (SMS)) and Streetcash (credit card number) and it is possible to debit by an online bank transfer in combination with fun HomePay EBPP (Electronic Bill Presentment and Payment). Here invoices are sent to the mobile telephone of the receiver of the invoice by WAP-Push. The customer can then, by using a link, access his invoice directly and make payment using his mobile telephone by entering a PIN and TAN (transaction number).
Security, the main prerequisite
It will be some time until mobile telephones can actually substitute for credit card and cash. As in the case of UMTS, the main issue behind marketing new technologies is not whether the technology works, but whether there are also user friendly services on the market.
In order for mobile payment to be successful, complicated processes to complete payment must run safely and quickly in the background. According to a research study by the University of Augsburg (Germany), a majority of mobile telephone users (78%) would prefer a conventional bank as the operator of the background payment process.
Only a quarter of those interviewed were willing to trust the mobile telephone provider companies to the equivalent extent. Until today, most customers still prefer to pay upon invoice, upon receipt of delivery and direct debit to all other technical solutions to purchasing online on the traditional Internet. The issue of security is therefore to be taken seriously and should not be underestimated.
The largest obstacles to successful mobile payment systems are: lack of readiness to cooperate by the network providers (66%); lack of technical standards (60%); and high transaction costs for payment by mobile telephone (53%). Until now, the establishment of mobile payment has failed because there are several small players but no one mobile payment system solution.
Only a few days ago T-Mobile and Vodafone formed an alliance together with several network providers and service providers, alongside further European mobile phone concerns, such as the Spanish Telefonica and the France-Telecom-subsidiary Orange. The objective of the alliance is to establish a uniform technical standard for mobile payment systems which applies to all suppliers.
This "Mobile Payment Service Organisation", has as its main objective the development of a technical platform for mobile payment processes which can be used worldwide. The "Mobile Payment Service Organisation" relies on the fact that commercial success in the area of mobile phones, as has become clear with text messaging, is generally made possible by communication and interaction happening beyond the network borders.
According to initial reports, there shall only be two types of method in the future. The first is based on a credit card system, such as Eurocard, EC- or Visa card. The second shall allow for the payment of smaller amounts up to EUR 10 above the mobile phone bill.
It is to be seen whether the customer can be convinced.