Mobile technology is changing the electronic payment services landscape, bringing speed, convenience, portability and independence from using internet access via the desktop or laptop computer. In this article we focus on mobile payments and how momentum in the consumer market is influencing progress in the corporate arena.
What are mobile payments?
Mobile payments (m-payments) are transactions initiated using a wireless mobile device such as a mobile phone or a Personal Digital Assistant (PDA). At present, m-payments tend to be low in value (up to about £10/€14), and are used to purchase a variety of goods and services such as music downloads, travel, tickets and car parking. Whilst the term ‘m-payments’ is usually associated with point-of-sale transactions, bill payments and the transfer of funds from one person (or account) to another are often referred to in the same context.
Globally, Asia has been leading the way in the m-payments arena. Having readily embraced contactless payment cards, Asian companies are now trying out and implementing similar technology in mobile phones. One of the main players is Japan-based mobile telecommunications company, NTT DoCoMo. Their latest ‘Osaifu-Keitai’ mobile phone can incorporate a variety of functions which include operating as a credit card, ID card and a home front door key – effectively the contents of your purse or wallet.
In Europe (and the USA) the use of contactless payment cards is increasingly familiar, especially on public transport systems, and music and ringtone downloads to mobile phones have proved popular. In general, the m-payments field is less advanced than it is in Asia, but trials using mobile phones are underway and progress is being made.
The most widely used m-payments protocol is probably Short Message Service (SMS), also known as text messaging. For example, PayPal™ Mobile’s ‘Text to Buy’ service uses SMS. Product advertisers participating in the scheme display text message directions on their magazine, poster or television advertisements. Consumers then text the item code to the specified number if they wish to purchase the item.
Other methods include using the mobile internet (eg Wireless Application Protocol – WAP), voice activation or the latest technology to stimulate market interest – Near Field Communication (NFC).
Near Field Communication
NFC is a short-range wireless protocol that enables two devices to connect and communicate when placed in close proximity to one another, typically within four centimetres. NFC is essentially the next generation of Radio Frequency Identification (RFID) technology used for ‘pay and wave’ contactless payment cards, for example the Transport for London Oyster card and the VISA payWave® and MasterCard PayPass™ credit cards.
NFC improves the way devices interact with one another, speeding up connections and the sharing of information. Trials have been implemented in various locations around the world, incorporating contactless payment features with NFC-enabled mobile phones. This combination allows the phone to act as a payment method by placing or waving the phone over an NFC-enabled point-of-sale terminal in order to communicate the transaction details. An NFC connection is compatible with other wireless technologies including Wi-Fi® and Bluetooth®.
A new way
Nav Bains is the Project Director of the NFC and ‘Pay-Buy-Mobile’ initiatives for the GSM Association (GSMA), the trade organisation for mobile operators. He says, “NFC is the logical evolution for m-payments. It will bring a new way of shopping. But the potential of mobile doesn’t stop there. Imagine using your phone when you check-in for a flight, picking up your boarding card simply by placing your phone close to a reader – or for downloading product information or discount coupons by touching your phone against a poster advertisement. The mobile industry has only just begun to consider all the different applications a mobile phone could have.”
Patrick Straten, Manager of Research and Business Development at Rabobank, agrees that mobile phones are the future for payments. “In a mature payments environment such as the Netherlands, with substantial electronic cash transaction volumes and high PIN-pass card penetration, mobile payments products are a strategic priority for us. The value-added components of interactive data sessions enable insight into payments and banking information as well as combinations for loyalty programmes, in-store and on-the-go discounting schemes, and customer communication. This means the mobile phone is poised to replace the card as a method of payment.”
“The mobile industry has only just begun to consider all the different applications a mobile phone could have.”
Nav Bains, GSM Association
An increasing number of m-payment schemes are being implemented, but often these are focused on local or regional requirements, resulting in the adoption of different standards.
A number of bodies, including the NFC Forum and the European Telecommunications Standards Institute – Smart Card Platform (ETSI-SCP), are developing standards and specifications to promote interoperability between schemes, systems and devices. The GSMA is working with these bodies and has forwarded business requirements and technical guidelines as a result of the GSMA’s own research into mobile NFC services. The GSMA’s ‘Pay-Buy-Mobile’ initiative, launched earlier this year, seeks to encourage a global approach based on the findings of this research. Several mobile operators are beginning trials including KTF in Korea and FarEasTone in Taiwan. GSMA’s Bains says, “The success of NFC will be consumer-led. We need to seed and catalyse the market by showing people that it is already working in several places. In addition, many manufacturers are waiting for standards to be complete before incorporating NFC into their mobile handsets. Once these standards are in place, more NFC-enabled devices will be produced.”
Co-operation across all parties is essential if m-payments are to achieve critical mass (eg between mobile phone network operators, handset manufacturers, credit card providers, banks and merchants). This is being fostered through groups such as Mobey Forum, a global forum promoting the use of mobile technology within the financial services industry. Members include financial institutions and mobile terminal manufacturers who are committed to “accelerating the take-off of user-friendly mobile financial services by promoting open, non-proprietary technology standards”.
Individually, institutions need to keep an eye on market developments as well. Rajesh Mehta, head of EMEA Payables at Citi, says, “The m-payment ecosystem is very fluid today with new partnerships emerging on a regular basis. We are working with players across the ecosystem to develop and improve our own m-payments proposition.”
In addition, Rabobank’s Straten says, “The emerging SEPA standards for mobile payments are expected to play an important role in speeding up banking and consumer uptake of mobile payment services. The recommendations expected by the end of 2007 will allow us to focus our current m-payment developments on a larger market roll-out.”
Convincing people that m-payment services are secure may be difficult, especially when hacking and phishing crimes are still a concern in the online banking and payment world. Rabobank’s Straten is quick to reassure: “Access to our mobile products is via our Public Key Infrastructure (PKI) Gateway and a Secure Sockets Layer (SSL) connection. Users have a VASCO token to gain access to their account and for payments. This combination guarantees a highly secure solution.”
But what about the security aspects of having credit and debit cards all on the same mobile phone? Would people be comfortable with that? The GSMA believes so. They recommend using the Universal Integrated Chip Card (UICC) as the secure environment or ‘element’ in an NFC-enabled mobile phone. Bains explains, “The UICC is already an accepted standard for secure data storage and processing. Each security domain within the UICC will have its own set of encryption. On the one UICC you may have the SIM card for your phone and other applications such as Visa payWave®, MasterCard PayPass® and your Oyster travel pass, but information is not shared between them. Also, these domains can be changed and given new encryption as required.”
Other security advantages commonly cited include the fact that a missing mobile phone is usually noticed more quickly than a plastic card, it can be deactivated (or reactivated) immediately and that if a stolen phone is connected to the network it can be traced.
“The UICC is already an accepted standard for secure data storage and processing. Each security domain within the UICC will have its own set of encryption. On the one UICC you may have the SIM card for your phone and other applications such as Visa payWave®, MasterCard PayPass® and your Oyster travel pass, but information is not shared between them. Also, these domains can be changed and given new encryption as required.”
Nav Bains, GSM Association
Mobile financial services
Banks are recognising the opportunities offered by the mobile phone. SMS messaging is being used for distributing customer notifications and alerts about account balances and transactions. Now banks are facilitating m-payments for their customers as well. Reducing the expense of cash handling even for low value transactions, and having another potential means of revenue, is attractive to them. So m-banking and m-payments are blurring into mobile financial services.
In the UK, for example, several banks including HSBC, RBS and Ulster Bank are now offering mobile banking through the new MONILINK™ banking and payments service. This is a partnership between Monitise plc, a specialist in mobile banking and payments technology, and VocaLink, which runs the UK’s ATM/cash machine network. Using MONILINK™, customers can access account balances and mini statements as well as purchase airtime for top-up pay-as-you go phones. But other functions are planned for the future, including money transfers between accounts, bill payments and ticket purchases for travel. Monitise™ is to launch a similar venture in the USA.
In the Netherlands, Rabobank has gone further. Rabobank’s ‘Mobielbankieren’ is provided through Rabo Mobiel, the bank’s mobile telecommunications, banking and payments service. In December 2006, Rabo Mobiel launched as an Enhanced Service Provider (ESP) and Mobile Virtual Network Operator (MVNO) for consumers and small and medium enterprises, with the aim of providing complete mobile financial services. Their development plans include a six-month payment trial currently underway with Dutch supermarket chain C100 and the integration of micro-payment capabilities in vending machines and retail outlets with partners such as Coca-Cola.
In the global remittance market, mobile phones offer an efficient and safer alternative to cash. Earlier in the year, Citi and Vodafone launched an international money transfer service. Fund transfers are initiated via the mobile phone and either credited to the recipient’s account or received as a voucher on the phone (accessed via secure PIN) that can then be redeemed at various cash outlets, usually as airtime distribution points operated by the in-country mobile network operator. The service is already live between the UK and Kenya, with plans to expand into Eastern Europe and Asia in order to try and capture the significant flows of remittances from migrant workers.
The corporate market
As m-payments gather momentum, financial services and system providers are looking at ways to use mobile technology developments to benefit their corporate and institutional clients.
Rabobank has already enabled mobile access to its Rabo Financial Logistics Portal (RFLP). This includes real-time balance and transaction information, and the ability to authorise or release payments and create credit transfers from and to designated accounts – a feature useful for the execution of inter-company payments.
Future planned releases include a mobile financial dashboard which will give a customisable overview of a company’s overall financial position and a cash flow forecast. Rabobank’s Straten says, “A mobile device is also suitable for sending immediate alerts to our customers about events of interest to them. We are therefore developing a solution where the user can set alerts, for example, for when a book balance of an account has been reached.”
John Killen is Global Solution Architect for Cash Management and Treasury at Oracle Corporation. He outlined some of their mobile capabilities: “Proactive business workflow notifications and alerts can be sent automatically, via email to PDAs or via SMS text messages to mobile phones, based on pre-defined triggers or key events. Customers can also directly access business applications through a PDA’s browser, for example, approving expense reports and managing pending payments or treasury policies remotely.”
At Citi, says Rajesh Mehta, “We are investing in an m-payment strategy that spans partnerships with a range of companies in the mobile, technology and banking sectors. This will offer efficient mobile channels through which our corporate and institutional customers can collect, pay or intermediate in third-party consumer flows. We are keeping ourselves abreast of new developments in this area and will look to take advantage of these trends.”
For corporate treasurers, prompt data delivery promotes efficient financial decision-making. The evolving m-payments technology may well herald the ability to achieve greater or even complete accuracy in cash flow forecasting. Speedy transactions enable the rapid transmission of essential data that treasurers need to do their jobs. Being able to receive and transmit information securely ‘on the road’ – anytime and anywhere (including fund transfers and payment authorisations) – means that funding issues can be dealt with expediently.
“Proactive business workflow notifications and alerts can be sent automatically, via email to PDAs or via SMS text messages to mobile phones, based on pre-defined triggers or key events. Customers can also directly access business applications through a PDA’s browser, for example, approving expense reports and managing pending payments or treasury policies remotely.”
John Killen, Oracle Corporation
Eventually, it could be possible for desktop PCs, Treasury Management Systems and Accounts Payable and Receivable systems all to have NFC readers that will enable the immediate download of data to a mobile device. Potentially, a treasurer’s communication tool, corporate credit card, corporate ID and travel pass as well as work information could be contained on one pocket-sized device.
The ‘lifestyle UICC’ is being discussed for the consumer market – we wait to see if this technology will be translated into a possible ‘business UICC’ of the future.