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Dial 'M' for mobile payment

The explosive growth in the number of mobile devices has resulted in an increased demand for users to access, pay for and use a growing array of services. But with such services frequently incurring small charges, are traditional payment mechanisms appropriate, or should we be looking at alternative options? Susie Lonie gives her views.

Around the world mobile operators have invested in upgrading their networks to address the growing consumer demand for data services. Demand has grown as high-quality mobile devices offering colour screens, rich audio and quality graphics have begun to open the eyes of operators, service providers and consumers alike. This improving quality and service delivery has opened up mobile technologies to the world of music, video, pictures, games and information provision. However, as Ovum's principal analyst, John Delaney, observed earlier this year in his report Billing for content - it is rocket science: 'the running of a content delivery network is very different from the running of a communications network, and among the biggest differences is the area of billing.'

There is a widespread agreement among the industry-watchers and analysts that the consumer data market for entertainment services is heading for unprecedented growth. According to Gartner's noted Wireless Data Applications in Western Europe report, it is a market that could be worth $10.5 billion by 2007. However, the mechanisms for collecting such a massive influx of extra revenues are, in many ways, as important as the services being sold. Clearly the transactions mechanism has to work for the network operator and, for services to be economical, it needs to leverage the billing organisation and systems that have been acquired to bill millions of customers for the hundreds of millions of calls they have made or, in the pre-paid environment, intend to make at some point in the future. More importantly, the collection mechanisms also need to work for the customers making the purchases - here the payment system needs to be trustworthy, easy to understand and easy to use, so that the 'effort' involved in making a purchase is commensurate with the value of the goods that are being bought.

Increasing interest in mobile payment mechanisms
Mobile operators were notably amongst the first to address these issues. None more so than Vodafone, the company built on the equal provision of voice and data communications - in fact its name was derived from a combination of the words VOice and DAta. However, while the delivery of the two services is integrated at the network level, it does not follow that they are perceived or used in the same way by customers. Essentially, voice communications is a person-to-person (P2P) medium, whilst data is often a business-to-consumer (B2C) and, increasingly, a business-to-business (B2B) medium, providing a channel for delivering digital media. As such, data services require a payment mechanism - indeed, without it, there would be little incentive for anyone to develop applications to 'sell' to mobile phone users. Not surprisingly, as the number of mobile handsets around the world has exceeded the one billion mark, there is substantial interest in mobile payment mechanisms among retailers, banks, vendors and payment networks. More recent initiatives such as the establishment of the Simpay organisation have helped to develop a focal point for the many ongoing activities around the world that are contributing to establishing a environment where it is easy to pay for goods and services via mobile devices.

The issue of micro-payments
Whilst the requirements of online purchasing have been well addressed, and are served by a number of established mechanisms, such as PayPal and credit cards, these are not directly applicable in the mobile market place. First, there is the phenomenon of pre-paid mobiles. These enjoy substantial ownership among budget-conscious customers, and credit and debit card ownership tends to be below the national average among these groups. Secondly, because of the transaction fees that are levied, credit and debit cards are not viable for very small charges - for example, a payment of 50 pence for a ring tone, or a couple of pounds for a Java game would be disproportionately increased with the transaction charges that are made by the banks and 'card' companies. In 2002 Vodafone launched their own service for collecting micro-payments, Vodafone m-pay bill. In two year's this has established itself as a huge success with one million-plus Vodafone live! UK customers using it to make purchases.

For the customer, micro-payments are a convenient way to buy, with the charge either added to their phone bill if they have a contract relationship with the mobile operator, or debited from their credit for pre-paid phone owners. This ability to make secure micro-payments, together with the huge customer take-up across mobile operators, has served to prime the market for the host of new mobile data services that will inevitably develop as the network delivery speeds increase from the current level offered by the 2.5G or GPRS network, to the new generation 3G network. It also, of course, poses increased challenges to the customer management systems of an organisation; in the case of Vodafone, with over 13 million customers in the UK, this means administering the billing processes for millions of small charges that come together in the monthly bill run.

Business information
Whilst the market for micro-payment-enabled services started with consumer 'desirables', such as icons, ring-tones and wallpaper, the introduction of pay services from high profile information brands such as Reuters, CNN, the AA, Dow Jones, and London Transport, to name a few, has broadened the market and growth is now expected in the B2B market, with corporate users attracted to news and information services.

Control is a key consideration in a business-to-business environment where the users of the data are not necessarily those who are responsible for paying the bill. Group administration is one solution being developed by Vodafone. A feature that will allows telecoms managers to allocate data service credit to individuals or groups, and control the types of service that they spend the credit on - for example, driving conditions along the M4 would be acceptable usage for a 'road warrior' executive, racing conditions at Newbury may not be!

Beyond mobile-based 'data' services, there is great scope for growth in the micro-payments market in what is called the UPOS, or Unattended Point of Sale, sector. One application, for cashless car parking, is currently available in Central Dublin. Each parking ticket machine is marked with a telephone number that you call from your mobile device. The parking charge can be added to your parking account or put on your next phone bill accordingly. Besides the convenience factor, any small payment management system that can reduce the amount of cash and number of people involved in the process will inevitably reduce the incidence of fraud as well. Beyond the scope of the current execution, further refinements could be considered. These include a remote top-up service, which sends a text message 15 minutes before the ticket expires and offers you the option to pay for more time!

As micro-payment opportunities spread beyond phone-only services, the issue of interoperability inevitably moves higher up the agenda. After all, it would not be desirable or fair to have parking meters that only responded to a single network operator's phones! For this reason Vodafone founded the Simpay organisation ( along with other international mobile operators Orange, Telefonica Mobiles and T-Mobile. Simpay's objective is to create an easy, secure and convenient framework for ensuring that mobile phone payments can take place successfully on a larger scale between operators, content providers, merchants and mobile merchant acquirers alike - across operators and across borders. Principally intended for lower priced digital items, such as downloading a music file, game, map, video clip, or services such as parking, the transaction is debited from the customer's phone bill, or another account run by their operator in just the same way as m-pay.

Simpay provides cross-operator and cross-border opportunities for users to buy goods simply, quickly and securely, using the mobile device that they always have with them. While mobile devices are a long way from replacing our cash or our wallets, as one of the world's most popular personal consumer devices, they necessarily have a developing role to play in the way people access, pay for and use a growing array of services. In this environment, m-pay and the new complementary services such as Simpay, will be successful because they fulfil the need to make remote micro-payments for goods and services that cannot be paid for easily by the credit card in your wallet - or indeed that pile of loose change in your pocket!

'Not surprisingly , as the number of mobile handsets around the world has exceeded the one billion mark, there is substantial interest in mobile payment mechanisms among retailers, banks, vendors and payment networks'.



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