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RSS feedsImagine a world where you never have to carry cash, where you could pay for a newspaper or a cup of coffee with the press of a button on your mobile phone, where you could pay for a parking meter with a PDA or transfer money to another person simply by beaming it to them over infrared.
This is a world that mobile commerce (m-commerce) could make possible, and the technology is already well advanced. What's holding it back is the business and financial mechanisms needed to handle the transactions and billing for goods and services.
Credit cards are already established as a means of remotely paying for goods, making it difficult to justify the cost of deploying alternative systems.
But credit card payment is not well suited to a Wap phone or PDA, where the lack of a proper keyboard makes entering and re-entering data difficult and impractical if the device is also used for making micro-payments for everyday items.
"Mobile payment solutions using existing devices mean that the merchants and the banks do not have to deploy a huge infrastructure to support them, as was the case with past electronic money solutions such as the smart card-based Mondex solution," explained Jim Tomaney, European marketing director at transaction software specialist ACI.
Electronic cash
This is why m-commerce services are now coming to the fore as a means not only to improve the convenience of online trading, but as a way to implement electronic money solutions.
"Consumers don't want multiple bills coming through the letter box, which is why there is growing demand for a single electronic payment solution," said Tomaney. "It should be based around a single bill from a bank, credit card company or even phone company, which people can use to handle a number of different transactions, both large and small."
There are also political issues to consider, with banks and credit card companies unwilling to hand over their relationships with merchants to the telcos.
Questions of security
One problem that is only now being addressed is security. In the same way that consumers were reluctant to entrust their credit card details to an internet retailer, so too are they concerned about the security implications of using a mobile device.
Callie Nelsen, a senior analyst at IDC's wireless and mobile communications research division, said: "End users will have to gain more confidence in the network's security before m-commerce can really catch on.
"Security actually involves two main issues. The first is confidentiality. End users will need to know that only they and the company have access to the information being exchanged.
"The second is authentication; the ecommerce companies need to be sure that the end users they are conducting business with are actually who they claim to be, and vice versa."
There is also the issue of losing the mobile device, making server-side data storage essential.
But the security issue is being addressed. Major credit card companies and transaction processing services are working on new authentication services specifically tailored to the mobile environment.
These include Pin code-based user authentication and server-side storage of credit card and banking details. To address matters of confidentiality, billing systems are also being put into place to ensure that transactions can be authorised, guaranteed and processed without the actual disclosure of a customer's billing details or identity.
Visa the action
One of the companies pioneering this approach is Visa, which wants to deploy its 3-D Secure service across mobile devices, interactive TV and even conventional web-based trading environments.
3-D Secure is based on secure socket layer web extensions already used by internet and Wap services. Users pre-register with Visa, logging their details on a server-side electronic wallet so that they do not need to keep re-entering their details.
Brian Geary, wireless commerce marketing manager for Visa International, said: "If you were shopping at somewhere such as Amazon, when you come to pay and select Visa, a pop-up window will appear separately from the main site.
"You enter your password in the box provided and submit. This generates a secure signature key file and this is accepted by the retailer as a guaranteed payment transaction."
This mechanism is being pioneered by a number of companies besides Visa, including Mastercard and Microsoft, the latter using it as part of its Passport single log-in service.
Where there's a bill...
M-commerce is unworkable without a mechanism to handle the actual exchange of credit between customer and merchant. But problems remain in not only implementing a common format across the telcos, merchants and financial institutions, but in persuading the customer to make use of the technology.
"Micro-payments are still a long way off. The conversations we have had with content providers have suggested that people still need to be educated about paying for premium content and services via a mobile device," maintained Paul Hague, managing director of billing systems specialist iSTRAT.
There has already been some progress in this area, as can be seen from the sale of mobile phone ring tones and operator logos. Users, normally children and young adults, pay for these through a phone using premium rate phone calls.
They ring a premium phone number for a set period of time (two and a half minutes at £1 a minute, for example) to pay for the product. Soft drink brand Tango has also used this to great effect to sell novelty branded items to customers.
"We are already seeing sales of about £250m a year on this basis across Europe, and now more companies are realising that they can sell services and content through a mobile device," claimed Michael Ohajuru, sales and marketing director at Materna Communications, a company specialising in the development of electronic trading solutions.
The next step is to introduce direct billing for products onto user's phone bills or direct to their bank or credit card accounts. This will allow them to use their mobile device as an 'e-wallet' in place of carrying cash or cards.
Ringing the changes
"Phone operators are ideally geared for micro-billing. Getting them to open their billing systems to third-party merchants is the next step," said Hague. So far, the mobile networks have been reluctant to do this, but times are changing.
With the introduction of GPRS data services, the major mobile networks have introduced billing based on content - specifically, packets of data sent and received - to run alongside conventional time-based charges.
With these mechanisms in place, the phone companies can begin to handle charges for other goods and services without any significant change to their business processes.
The inclusion of telcos in the m-commerce micro-payment process is critical, because existing credit and debit card services are not geared up to handle large quantities of penny sales.
Mobile and fixed-line phone companies, on the other hand, are already set up to profitably process penny sales, as they are already doing with short phone calls.
Even Visa concedes that the existing methods used by credit card issuers and banks are not economically suited to handling micro-payments. "We need to change our processing rules to handle micro-payments profitably," explained Geary.
Standard issue
The one task that still remains is ratifying one set of processes, standards and mechanisms to make m-commerce work. This has been achieved with credit cards, with individual issuing banks able to differentiate their service with varying interest rates and other value-added services.
But for m-commerce, there is still a multitude of formats which, according to Geary, need to be addressed before it can really take off.
"From a technology viewpoint, there needs to be standardisation on a single set of protocols and mechanisms for m-commerce, agreed by all parties," he said. "We have come a long way in the last 18 months, but we have still to see true interoperability. The standards need to be developed by the whole community, not just the financial industry."
With the technology and the devices in place, once a mechanism is agreed, m-commerce is well placed to become as indispensable as the credit card.
FURTHER READING
www.epaynews.com A website dedicated to tracking trends and new initiatives in m-commerce.
http://corporate.visa.com/av/ucomm More on Visa's initiatives for m-commerce, part of its 'universal commerce' initiative.
www.paybox.co.uk An example of UK retail m-commerce using text messaging technology.
See also:
All Ecommerce
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