Mobile devices are playing an increasingly important role in the financial industry because of their immense potential to act as a platform for a plethora of financial transactions. There is a flurry of activity around both payments and banking, with investments, operator adoption and development of innovative solutions driving the market.
According to "Mobile Payments and Keitai Credit", a new report by Gerhard Fasol, of Eurotechnology Japan, the advance of such overarching mobile payment systems paves the way for a new order in personal finance.
While the study points to a strong interest in mobile banking, it also reveals that mobile banking is still in its infancy around the globe.
To spur the delivery of the long-awaited wallet, Visa joined forces in January with Nokia, Verisign and IBM to launch a global mobile payment system that spans contactless payments, remote transactions per SMS and money transfers.
The result is the Visa mobile platform, a set of mobile services and enabling technologies that allows banks and mobile operators to develop new mobile payment
Visa has since announced Visa payWave contactless mobile pilots across Asia.
In South Korea, Visa partnered with SK Telecom in April to launch a contactless payment application on a universal SIM card that is updated and personalized over-the-air (OTA). The collaboration lets some 30,000 SK Telecom subscribers make Visa Wave contactless payments at more than 50,000 contactless readers at merchants in Korea.
"This year we will see real advancement in bringing mobile payment solutions to consumers," observes Joo Sik Lee, senior VP at SK Telecom. "A commercially scalable OTA service, modeled on the Visa mobile platform is a critical first component of our overall vision for mobile payments - and this project is an important step in moving toward that vision."
In Australia, where the trial is set to begin in Melbourne early next year, the partnership with Telstra and NAB represents the first trial allowing customers to pay for goods and services on the go using contactless-enabled smartphones with the SIM card loaded with a NAB Visa card application.
"Instead of having a wallet or purse full of plastic cards, you could soon have them all supported on a single Telstra mobile phone, providing enhanced security and convenience," said Telstra group managing director, enterprise and government, David Thodey.
In September, Visa tied up with Taiwan's Chunghwa Telecom and Chinatrust Commercial Bank to announce a six-month trial of Visa's mobile platform, sharply focused on personalization.
As part of the trial, consumers can get merchant offers by pre-registering their preferences to receive certain types of coupons or by holding their phone up to special posters located in popular shopping areas. These trigger on-demand download of specific merchant offers. On-demand offers are supported through the use of posters and other media embedded with smart NFC tags.
Taiwan's Far EasTone, meanwhile, has partnered with Gemalto in a contactless SIM-based NFC trial starting in November. This is part of the GSM Association's Pay-Buy Mobile initiative, which seeks to define a common global approach to using NFC technology to link mobile devices with payment and contactless systems.
Trial participants can make mobile contactless purchases at any Far EasTone trial partner merchant, as well as buy items via smart posters embedded with NFC tags.
Cashless society
Singapore's mobile operators are also channeling efforts into enabling contactless payments.
StarHub Mobile has teamed up with companies, including Citibank and Golden Village, to trial a contactless payment scheme that involves some 1,000 subscribers and taps a network of 20,000 acceptance points operated by its partner EZ-Link.
The wireless service is delivered via mobile phones embedded with an EZ-Link chip, which supports e-purse capabilities, and an NFC-enabled chip that enables users to obtain information, such as discount coupons from smart posters with embedded NFC chips. Data gets downloaded into the user's phone via GPRS once the phone is tapped on these posters.
Meanwhile, SingTel and electronic payments provider NETS are also doing an NFC trial, which includes a stored-value wallet with OTA capabilities, enabling users to store and top up value on the mNETS payment application downloaded to their phones.
Trial participants can use their NFC-enabled phones at 148 selected outlets with more than 400 contactless terminals that support mNETS services.
According to Suman Balani, chief of strategy and development at NETS, the focus is on improving ease-of-use convenience and removing the need for users to open their physical wallets to purchase low-ticket items.
China's slow start
Some analysts have suggested that the lack of credit cards and other electronic payment systems will hinder m-payment growth in China. However, others argue the lack of a major competitor, combined with the widespread popularity of mobile phones, may actually allow m-payment to become the payment method of choice faster in China than in countries with mature credit card markets.
But while Chinese consumers can choose from a variety of m-payment options, the tools and technologies have yet to make a real impact on purchasing habits.
Maverick China Research estimates less than 25% of China's 400 million mobile users have access to m-payment services, and less than 2% are active m-payment users.
"China's m-payment industry is stuck in a rut, with little consumer demand and no comprehensive network of operators, banks and merchants available that can match the selection, prices and convenience of online or bricks-and-mortar payment," observed Dave Carini, analyst at Maverick China Research.
Rather than pooling their limited resources together to benefit the industry as a whole, China's m-payment service providers are going at it alone, each aiming for total domination of the market.
"While they do continue to make progress in this area, user growth continues to lag behind," he said.
Why hasn't m-payment taken off in China? Carini has identified several reasons.
For one, cash is king. "Convenience, security and ingrained habit all continue to make cash the preferred payment method, even for many large transactions."
Aside from those in Beijing, Shanghai and other large cities where debit and credit cards are increasingly common, most Chinese consumers are content with the current cash-based system.
Another barrier is the complexity of the ecosystem of partners needed to deliver the services in the first place. M-payment service providers have a tough job making and maintaining the necessary network of partnerships with banks, merchants and mobile operators.
"Each partnership needs to be negotiated separately, and even with large companies, these deals often cover just one province or city rather than nationwide," Carini explained. "For users, this means that a service offered in one province might not available in another; for MPSPs, this can make establishing nationwide partnerships an extremely difficult endeavor."
To jumpstart the market, Maverick suggests that companies start with simple m-payment services - with as few partners as possible - and grow their user base before rolling out ambitious m-payment schemes involving contactless payment or similar cutting-edge technologies.
The "logical fit" is to provide mobile top-ups, letting users add value to their mobile accounts without having to purchase top-up cards. "Mobile top-ups are an ideal way to get Chinese consumers to start seeing their mobile phones as a payment device," Carini says.
Money for the masses
Beyond commerce, mobile is also empowering consumers in under-banked regions across Asia and Africa and users without bank accounts to make payments, transactions and remittances.
In the Philippines, Smart Communications and Globe Telecom are driving a seismic shift in mobile banking based on the exchange of simple text messages.
Around 5.5 million Filipinos now use their mobile phones as virtual wallets, making the country a leader among developing nations in mobile transactions.
Subscribers have to register their mobile phone, which is then linked to a cash or debit card. The card, which costs 200 pesos, does not require a bank account, but can be used to purchase goods in establishments that accept MasterCard or to withdraw cash from an ATM cash machine.
Each time a user makes a transaction, a message is sent via SMS that allows real-time tracking of how funds are used.
Smart Communications in February launched Smart Remit, a low-cost remittance service using the mobile phone as a financial service platform. It enables Filipinos in the Middle East and Europe to send remittances home. The pilot project is undertaken in partnership with MasterCard, Bahrain's MTC Vodafone, United Arab Emirates' Etisalat and leading regional banks, and is part of the GSM Association's Global Money Transfer Project.
In India, Bharti Airtel has joined with the GSM Association to launch a pilot program that will eventually enable more than 25 million Indians abroad to remit money to India through their mobile phones.
The intent is to give individuals access to a full range of financial services, even if their position in the country's socio-economic system means they don't have bank accounts.
The ubiquity and ease of mobile communications will "revolutionize the money transfer industry with its advantages, such as reach, ease of use and lower transaction costs, and provide immense benefits," according to Sunil Bharti Mittal, chairman and managing director, Bharti Enterprises.
The GSM Association continues to facilitate the development of cross-border mobile money transfer services.
It has joined with Western Union to develop a commercial and technical framework that mobile operators can use to deploy services that enable consumers to send and receive low-denomination, high-frequency money transfers using their mobile phones. The first commercial services that make use of the framework are anticipated to be rolled out by the second quarter of 2008.
"Mobile networks now cover more than 80% of the world's population and three billion people have a mobile phone, creating an unprecedented opportunity to extend the benefits of financial services to the majority of the world's families for the first time," notes Rob Conway, CEO of the GSMA. "Mobile money transfers are a key driver in the development of a potentially vast market for financial services delivered via the mobile phone."
The Western Union mobile service will connect operators to Western Union's existing global money transfer system, which processed approximately 17% of the world's remittance volume in 2006.
Once connected to the Western Union service, operators can use their own "mobile wallet" software to enable person-to-person mobile money transfers over Western Union's cross-border remittance network.
economic development of India and many other developing countries," Bharti's Mittal notes. "This initiative will bring down the cost of lower-value and high-frequency mobile remittances considerably and also enable smaller amounts to be transferred in a fast and secure fashion, thereby benefiting millions of people in the developing world."
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