Treasury Today Country Profiles in association with Citi

Mobile payment technology

Financial institutions and mobile phone operators are looking into ways to harness the convenience and global reach of mobile phone technology to provide financial services. We look at the different types of payments that can be made using mobile handsets.


It is estimated that by 2012, 150 million people around the world will be using their mobile phones to perform banking and payment services, according to Juniper Research. A growing number of people in Africa, Asia and Latin America use their mobile phone to manage their accounts and transfer money. The Global Commission of International Migration recently reported that worldwide annual remittance flows using mobile phones already total $300 billion from economic migrants sending money home to their relatives.

In Europe, the European Commission (EC) is keen to encourage the e-money market to grow. The adoption of proposed changes to the E-money Directive, along with the implementation of the Payment Service Directive (PSD) later this year, is set to make it easier for payment service providers to enter the market while also helping to bolster consumer confidence in e-money technology.

Regulatory clarification

According to the current E-money Directive (2000/46/EC), electronic money is the electronic alternative to cash, which enables users to store funds on a device, such as a mobile phone or card. The PSD covers money remitters, payment transactions carried out by telecom operators and also payment service providers that offer more traditional payment functions, such as credit transfers, direct debits and card payments. When a telecom operator makes a payment to a third party on behalf of a payment services user, the transaction falls under the remit of the PSD.

In an attempt to increase the use of electronic payments, on 24th April 2009 the European Parliament voted to reform the E-money Directive. The reforms are designed to increase uptake of electronic payments by reducing the barriers that have hitherto impeded market growth. The EC predicts increased competition among payment service providers will prompt the e-money market to grow, with consumers more likely to choose electronic payment instruments such as smart cards and mobile phones to make purchases.

Mobile financial services

The area of mobile financial services encompasses a range of financial activities that owners of a mobile phone can utilise. Sometimes the terms are used interchangeably, which can create confusion in an already complex area. At present there are three leading segments of the industry:

  1. Mobile payments.

    These are transactions initiated using a wireless mobile device such as a mobile or a Personal Data Assistant (PDA). The term covers a range of transactions, from the purchase of ringtones to the transfer of funds between users.

  2. Mobile banking.

    This is an application that allows users to access bank account information via their mobile telephones. Mobile banking services may either be client-driven, where the user makes an account enquiry, or passive, such as when the user receives automatic low-balance notifications.

  3. Mobile money transfer.

    This enables individuals to use their mobile phones to send and receive monetary value on both a domestic and cross-border basis.

Mobile payment channels

There are three payment channels that currently characterise the market, each of which differs in terms of how the payment is made and where the funds are located.

  1. Prepaid payment account.

    The user creates a prepaid account with a payment service provider using the mobile handset and loads this account with funds with a debit or credit card. They can then proceed to make transactions, with the funds being debited from the account.

  2. Credit/debit card based payment.

    When making a mobile payment, the user inputs their credit card details in order to complete the transaction, similar to completing an online transaction. The mobile handset is simply a medium through which the user can make a payment.

  3. Bill payment.

    Customers make a payment to the merchant using their mobile phone. The value of the transaction is charged to the user’s mobile phone bill. The consumer will then settle the bill at a later date.

Payment systems

There are several technology platforms that allow for the delivery of mobile financial services to the end user. The five principle systems are:

  1. Short Message Service (SMS).

    The consumer sends a payment request via an SMS text message to a short code. A premium charge to fund the transaction is then levied on their phone bill. The merchant selling the goods (or service) is usually informed that the payment has been successfully completed before the goods are released. This method of payment has been by far the most successful to date and is geared mainly towards the purchase of digital goods such as ringtones, electronic games and digital ‘wallpaper’.

  2. Direct mobile billing.

    This is one of the simplest methods of paying for goods and services. The consumer uses the mobile billing option to pay for goods and services from an online merchant. Once the payment has been authenticated, the consumer’s mobile account is debited. For direct mobile billing, users do not require credit or debit cards, nor do they need to have registered with an online payment institution such as PayPal Mobile.

  3. Mobile web payments.

    By accessing a web page from the mobile phone, the user can browse and purchase items. At present there are two ways to complete the transaction: consumers can either input their credit card details into their mobile phones or use a service such as PayPal Mobile, which requires users to have opened an account and enter a PIN each time they wish to make a transaction. This payment system uses Wireless Application Protocol (WAP) technology. A WAP browser delivers the basic services of a traditional browser in a simplified form to the mobile handset. Successful schemes include PayPal Mobile and SmartPay in China.

  4. Near Field Communication (NFC).

    This technology allows the mobile phone to be used in a similar way to a contactless card. A contactless chip, similar to those used in smart cards, is integrated into the mobile phone. The chip communicates payment instructions when passed over a reader module. Near Field Communication relies on radio-frequency identification (RFID) to communicate information. This technology has been very popular in Asia, with successful schemes run by NTT DoCoMo in Japan and SK Telecom in South Korea.

  5. Person-to-person payments.

    This allows the transfer of funds between mobile phone users. Users add money to their mobile accounts using a credit card or electronic bank transfer and manage their accounts via their mobile handset. There have been several high-profile partnerships in this area of m-payments such as between Citi and Obopay, and between Western Union and GSMA.

Corporate market

So far, developments in the mobile payments area have been focused on the consumer market. However, as these services expand, banks are continuing to improve mobile banking provision for corporates. In the near future it is likely that companies will be able to check the status of all their accounts by mobile phone osn a real-time basis, enabling treasurers to make effective decisions remotely and improving cash flow forecasting. Some financial institutions are already offering mobile access to certain platforms, and developments in this area are likely to continue.