Mobile payment, also referred to as mobile money, mobile money transfer, and mobile wallet
generally refer to payment services operated under financial regulation and performed from
or via a mobile device.
Instead of paying with cash, cheque, or credit cards, a consumer can use a mobile phone to
pay for a wide range of services and digital or hard goods.
Although the concept of using non-coin-based currency systems has a long history, it is
only recently that the technology to support such systems has become widely available.
Mobile payment is being adopted all over the world in different ways.
In 2008, the combined market for all types of mobile payments was projected to reach
more than $600B globally by 2013, which would be double the figure as of February, 2011.
The mobile payment market for goods and services, excluding contactless Near Field Communication
or NFC transactions and money transfers, is expected to exceed $300B globally by 2013.
In developing countries mobile payment solutions have been deployed as a means of extending
financial services to the community known as the "unbanked" or "underbanked," which
is estimated to be as much as 50% of the world's adult population, according to Financial Access'
2009 Report "Half the World is Unbanked".
These payment networks are often used for micropayments.
The use of mobile payments in developing countries has attracted public and private funding by
organizations such as the Bill and Melinda Gates Foundation, USAID and MercyCorps.
Models There are four primary models for mobile payments:
Premium SMS based transactional payments Direct Mobile Billing
Mobile web payments Contactless NFC
Additionally there is a new emerging model from Haiti: direct carrier/bank co-operation.
Financial institutions and credit card companies as well as Internet companies such as Google
and a number of mobile communication companies, such as mobile network operators and major
telecommunications infrastructure such as w-HA from Orange and handset multinationals
such as Ericsson and BlackBerry have implemented mobile payment solutions.
SMS/USSD-based transactional payments Premium SMS / Premium MMS
In the predominant model for SMS payments, the consumer sends a payment request via an
SMS text message or an USSD to a short code and a premium charge is applied to their phone
bill or their online wallet.
The merchant involved is informed of the payment success and can then release the paid for
goods.
Since a trusted physical delivery address has typically not been given, these goods
are most frequently digital with the merchant replying using a Multimedia Messaging Service
to deliver the purchased music, ringtones, wallpapers etc.
A Multimedia Messaging Service can also deliver barcodes which can then be scanned for confirmation
of payment by a merchant.
This is used as an electronic ticket for access to cinemas and events or to collect hard goods.
Transactional payments by SMS have been popular in Asia and Europe and are now accompanied
by other mobile payment methods, such as mobile web payments, mobile payment client and Direct
Mobile Billing.
Inhibiting factors of Premium SMS include: Poor reliability - transactional premium SMS
payments can easily fail as messages get lost.
Slow speed - sending messages can be slow and it can take hours for a merchant to get
receipt of payment.
Consumers do not want to be kept waiting more than a few seconds.
Security - The SMS/USSD encryption ends in the radio interface, then the message is a
plaintext.
High cost - There are many high costs associated with this method of payment.
The cost of setting up short codes and paying for the delivery of media via a Multimedia
Messaging Service and the resulting customer support costs to account for the number of
messages that get lost or are delayed.
Low payout rates - operators also see high costs in running and supporting transactional
payments which results in payout rates to the merchant being as low as 30%.
Usually around 50% Low follow-on sales - once the payment message
has been sent and the goods received there is little else the consumer can do.
It is difficult for them to remember where something was purchased or how to buy it again.
This also makes it difficult to tell a friend.
Some mobile payment services accept "premium SMS payments."
Here is the typical end user payment process: User sends SMS with keyword and unique number
to a premium short code.
User receives a PIN User uses PIN to access content or services.
Remote Payment by SMS and Credit Card Tokenization Even as the volume of Premium SMS transactions
have flattened, many cloud-based payment systems continue to use SMS for presentment, authorization,
and authentication, while the payment itself is processed through existing payment networks
such as credit and debit card networks.
These solutions combine the ubiquity of the SMS channel, with the security and reliability
of existing payment infrastructure.
Since SMS lacks end-to-end encryption, such solutions employ a higher-level security strategies
known as 'tokenization' and 'target removal' whereby payment occurs without transmitting
any sensitive account details, username, password, or PIN.
To date, point-of-sales mobile payment solutions have not relied on SMS-based authentication
as a payment mechanism, but remote payments such as bill payments, seat upgrades on flights,
and membership or subscription renewals are commonplace.
In comparison to premium short code programs which often exist in isolation, relationship
marketing and payment systems are often integrated with CRM, ERP, marketing-automation platforms,
and reservation systems.
Many of the problems inherent with premium SMS have been addressed by solution providers.
Remembering keywords is not required since sessions are initiated by the enterprise to
establish a transaction specific context.
Reply messages are linked to the proper session and authenticated either synchronously through
a very short expiry period or by tracking session according to varying reply addresses
and/or reply options.
Direct mobile billing The consumer uses the mobile billing option
during checkout at an e-commerce site—such as an online gaming site—to make a payment.
After two-factor authentication involving a PIN and One-Time-Password, the consumer's
mobile account is charged for the purchase.
It is a true alternative payment method that does not require the use of credit/debit cards
or pre-registration at an online payment solution such as PayPal, thus bypassing banks and credit
card companies altogether.
This type of mobile payment method, which is extremely prevalent and popular in Asia,
provides the following benefits: Security - Two-factor authentication and a
risk management engine prevents fraud.
Convenience - No pre-registration and no new mobile software is required.
Easy - It's just another option during the checkout process.
Fast - Most transactions are completed in less than 10 seconds.
Proven - 70% of all digital content purchased online in some parts of Asia uses the Direct
Mobile Billing method Mobile web payments
The consumer uses web pages displayed or additional applications downloaded and installed on the
mobile phone to make a payment.
It uses WAP as underlying technology and thus inherits all the advantages and disadvantages
of WAP.
Benefits include: Follow-on sales where the mobile web payment
can lead back to a store or to other goods the consumer may like.
These pages have a URL and can be bookmarked making it easy to re-visit or share.
High customer satisfaction from quick and predictable payments
Ease of use from a familiar set of online payment pages
However, unless the mobile account is directly charged through a mobile network operator,
the use of a credit/debit card or pre-registration at online payment solution such as PayPal
is still required just as in a desktop environment.
Mobile web payment methods are now being mandated by a number of mobile network operators.
Direct operator billing Direct operator billing, also known as mobile
content billing, WAP billing, and carrier billing, requires integration with the operator.
It provides certain benefits: the operators already have a billing relationship
with the consumers, the payment will be added to their bill.
Provides instantaneous payment Protect payment details and consumer identity
Better conversion rates Reduced customer support costs for merchants
One drawback: the payout rate will be much lower than with other payment providers.
Examples from a popular provider: 92% with Paypal
85 to 86% with Credit Card 45 to 91.7% with operator billing in the US,
UK and some smaller European countries, but usually around 60%
More recently, Direct operator billing is being deployed in an in-app environment, where
mobile application developers are taking advantage of the one-click payment option that Direct
operator billing provides for monetising mobile applications.
This is a logical alternative to credit card and Premium SMS billing.
In 2012, Ericsson and Western Union partnered to expand the direct operator billing market,
making it possible for mobile operators to include Western Union Mobile Money Transfers
as part of their mobile financial service offerings.
Given the international reach of both companies, the partnership is meant to accelerate the
interconnection between the m-commerce market and the existing financial world.
Credit card A simple mobile web payment system can also
include a credit card payment flow allowing a consumer to enter their card details to
make purchases.
This process is familiar but any entry of details on a mobile phone is known to reduce
the success rate of payments.
In addition, if the payment vendor can automatically and securely identify customers then card
details can be recalled for future purchases turning credit card payments into simple single
click-to-buy giving higher conversion rates for additional purchases.
Online wallets
Online companies like PayPal, Amazon Payments, and Google Wallet also have mobile options.
Generally, this is the process: First payment:
User registers, inputs their phone number, and the provider sends them an SMS with a
PIN User enters the received PIN, authenticating
the number User inputs their credit card info or another
payment method if necessary and validates payment
Subsequent payments: The user re enters their PIN to authenticate
and validates payment Requesting a PIN is known to lower the success
rate for payments.
These systems can be integrated with directly or can be combined with operator and credit
card payments through a unified mobile web payment platform.
QR Code Payments QR Codes 2D barcode are square bar codes.
QR codes are an easy way to inject info into a mobile phone.
This makes it easy to create communication such as visit a website or copy useful text.
QR codes have been around since they were invented in 1994.
Originally used to track products in warehouses, QR codes were designed to replace traditional.
Traditional bar codes just represent numbers, which can be looked up in a database and translated
into something meaningful.
QR, or “Quick Response” bar codes were designed to contain the meaningful info right
in the bar code.
They’ve been a successful marketing tool in Asia and Europe.
In Germany a startup called GO4Q introduced mobile shopping / window shopping based on
QR codes in October 2012.
The system evolved and mobile payment was added by december 2012.
GO4Q is using standard card payment procedures and thus not regionally limited.
It requires a single registration.
On business and consumer side, usage is possible with any smart device.
Mastercard, in 2012, also rolled another mobile payment app, QkR, which is being deployed
in Australia and for a test run at Yankee Stadium.
Users can scan a QR code through the app and buy food or other items through the app and
have it delivered to them.
Since November 2012, QR code payments were deployed on a larger scale in the Czech Republic
as an open format for a payment information exchange - a Short Payment Descriptor - was
introduced and blessed by the Czech Banking Association as the official local solution
for the QR payments.
Due to technical limitations, the format is applicable only within the European Union.
Contactless Near Field Communication Near Field Communication is used mostly in
paying for purchases made in physical stores or transportation services.
A consumer using a special mobile phone equipped with a smartcard waves his/her phone near
a reader module.
Most transactions do not require authentication, but some require authentication using PIN,
before transaction is completed.
The payment could be deducted from a pre-paid account or charged to a mobile or bank account
directly.
Mobile payment method via NFC faces significant challenges for wide and fast adoption, due
to lack of supporting infrastructure, complex ecosystem of stakeholders, and standards.
Some phone manufacturers and banks, however, are enthusiastic.
Ericsson and Aconite are examples of businesses that make it possible for banks to create
consumer mobile payment applications that take advantage of NFC technology.
NFC vendors in Japan are closely related to mass-transit networks, like the Mobile Suica
used on the JR East rail network.
Osaifu-Keitai system, used for Mobile Suica and many others including Edy and nanaco,
has become the de facto standard method for mobile payments in Japan.
Its core technology, Mobile FeliCa IC, is partially owned by Sony, NTT DoCoMo and JR
East.
Mobile FeliCa utilize Sony's FeliCa technology, which itself is the de facto standard for
contactless smart cards in the country.
Other NFC vendors mostly in Europe use contactless payment over mobile phones to pay for on-
and off-street parking in specially demarcated areas.
Parking wardens may enforce the parkings by license plate, transponder tags or barcode
stickers.
First conceptualized in the 1990s, the technology has seen commercial use in this century in
both Scandinavia and Estonia.
End users benefit from the convenience of being able to pay for parking from the comfort
of their car with their mobile phone, and parking operators are not obliged to invest
in either existing or new street-based parking infrastructures.
Parking wardens maintain order in these systems by license plate, transponder tags or barcode
stickers or they read a digital display in the same way as they read a pay and display
receipt.
Other vendors use a combination of both NFC and a barcode on the mobile device for mobile
payment, for example, Cimbal or DigiMo, making this technique attractive at the point of
sale because many mobile devices in the market do not yet support NFC.
Cloud-based mobile payments Google, PayPal, GlobalPay and GoPago use a
cloud-based approach to in-store mobile payment.
The cloud based approach places the mobile payment provider in the middle of the transaction,
which involves two separate steps.
First, a cloud-linked payment method is selected and payment is authorized via NFC or an alternative
method.
During this step, the payment provider automatically covers the cost of the purchase with issuer
linked funds.
Second, in a separate transaction, the payment provider charges the purchaser's selected,
cloud-linked account in a card-not-present environment to recoup its losses on the first
transaction.
Audio signal-based payments The audio channel of the mobile phone is another
wireless interface that is used to make payments.
Several companies have created technology to use the acoustic features of cell phones
to support mobile payments and other applications that are not chip-based.
The technologies Near sound data transfer, Data Over Voice and NFC 2.0 produce audio
signatures that the microphone of the cell phone can pick up to enable electronic transactions.
Direct carrier/bank co-operation In the T-Cash model, the mobile phone and
the phone carrier is the front-end interface to the consumers.
The consumer can purchase goods, transfer money to a peer, cash out, and cash in.
A 'mini wallet' account can be opened as simply as entering *700# on the mobile phone, presumably
by depositing money at a participating local merchant and the mobile phone number.
Presumably, other transactions are similarly accomplished by entering special codes and
the phone number of the other party on the consumer's mobile phone.
Mobile payment service provider model There are four potential mobile payment models:
Operator-Centric Model: The mobile operator acts independently to deploy mobile payment
service.
The operator could provide an independent mobile wallet from the user mobile account(airtime).
A large deployment of the Operator-Centric Model is severely challenged by the lack of
connection to existing payment networks.
Mobile network operator should handle the interfacing with the banking network to provide
advanced mobile payment service in banked and under banked environment.
Pilots using this model have been launched in emerging countries but they did not cover
most of the mobile payment service use cases.
Payments were limited to remittance and airtime top up.
Bank-Centric Model: A bank deploys mobile payment applications or devices to customers
and ensures merchants have the required point-of-sale acceptance capability.
Mobile network operator are used as a simple carrier, they bring their experience to provide
Quality of service assurance.
Collaboration Model: This model involves collaboration among banks, mobile operators and a trusted
third party.
Peer-to-Peer Model: The mobile payment service provider acts independently from financial
institutions and mobile network operators to provide mobile payment.
For example the MHITS SMS payment service uses a peer-to-peer model.
See also Electronic money
Financial cryptography Mobile Payment Using USSD
Mobile ticketing SEMOPS
SMS banking PayMate Wallet
Universal card Notes