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Wave-Pay-Go -- For mobile payments to catch on in the U.S., consumers, banks, merchants and carriers must work together.
(Bank Systems & Technology Via Thomson Dialog NewsEdge) Imagine, while taking a taxi to a meeting, you click your mobile phone to check your bank balance, text your daughter her allowance and wave your phone over the taxi's reader to pay the driver - "wave-pay-go."
This is routine in Asia. NTT DoCoMo already has signed up more than 15 million subscribers who use the Tokyo-based mobile communications company's ketai (mobile phone in Japanese) as wallet phones. And the trend is slowly spreading westward as players such as MasterCard (Purchase, N.Y.) and Nokia (Espoo, Finland) test mobile phone payments using MasterCard's PayPass contactless reader technology combined with a chip embedded in a Nokia handset.
Today, contactless payment initiatives are plentiful, such as JPMorgan Chase's (New York) "blink" contactless credit card. But contactless likely is a transitional technology on the way to the anticipated wallet phone.
Initiatives in mobile retail banking, thus far, have enabled customers to check balances, pay bills and transfer funds between accounts. Typically, these services are provided by banks to customers using mobile Web browser capabilities. The leap to the mobile handset as a dominant payment device is still several years away in the U.S. Still, slow-moving banks may find their customer bases and payment revenues at risk.
Multiple Players and Risks
Wave-pay-go will be a creation of multiple participants who must ensure that the experience is valuable for both consumers and merchants. The technology will take time to mature, requiring banks, credit card issuers, cellular carriers and merchants to either cooperate or be forced to act by disruptive competitors entering the market.
Consumers - Consumers demand that paying by mobile phone be convenient, secure and no more costly than alternative payment forms. Mobile phone-based payments can support four transactions, unlike credit, debit or contactless cards: consumer-to-consumer, consumer-to-business, consumer-to-machine (i.e., paying for small-value transactions at a device, such as a parking meter) and consumer-to-online. In addition, consumers have greater flexibility for settling transactions at the point of sale with mobile phone payments. For example, they could choose to be directly billed by their mobile carriers or charge the purchases to their bank accounts. Enhanced security is another benefit - phone owners could be required to enter their PINs on the phone keypad for transactions over certain dollar amounts.
Merchants - Mobile phone payments offer faster processing at the point of sale and increased opportunity for impulse buying. These benefits must be balanced, however, against the cost of adding a reader pad and new software at the point of sale. Wave-pay-go also reduces the need for cash on hand, which is costly and cumbersome to manage. Further, merchants can more directly engage consumers by sending discount coupons to their mobile handsets.
Carriers - Mobile payments offer carriers the opportunity to establish a stronger relationship with customers by becoming their payment service providers. Alarmingly for banks, carriers may take a more aggressive position by assuming direct control over processing, billing and collection of payment transactions, thereby removing banks from the process and threatening payment transaction revenues. Carriers could also selectively target submarkets, such as the unbanked, with a combined mobile/pre-paid payment capability.
Financial Institutions - Banks will need to expand their mobile banking mind-set to become the enabler of mobile payments. They have the opportunity to lower costs by reducing fraud and issuing fewer physical cards. Mobile payments also may create another loyalty-building channel among customers that is a natural extension of mobile banking. In addition, the first banks with a mobile phone payments initiative may enhance their brand or capture a new market with a unique phone-based account offering. However, [U.S.] banks should be wary of a potential competitive threat - innovative and aggressive foreign-based financial institutions with mobile payment experience abroad that deploy their mobile offerings as a low-cost market entry strategy in North America.
Card Associations - Associations have a significant opportunity to provide much of the transaction verification and processing on behalf of banks in the global wave-pay-go network, retaining their dominant position in payment capture, validation and settlement.
Handset Makers and Chip Manufacturers - Both entities can expect increased revenues as consumers upgrade handsets with embedded hardware to enable payment transaction processing. In addition, cobranding opportunities exist with card issuers and banks.
Navigating the Maze Together
What will be required to navigate the maze? No single participant can create a sustainable model by going alone. Consumers and merchants will have to be convinced that it is in their best interest to stop using cards or cash and start using wave and pay.
To retain customer relationships, banks must forge partnerships with the card associations and mobile phone carriers to enable branded offerings. The carriers will have to initiate this new world by offering phones with Near Field Communication (NFC) chips and payment software manufactured by the handset makers. Finally, interoperability standards need to be adopted so that consumers can transact payments as easily in Houston as in Hong Kong.
http://www.banktech.com
Copyright 2007 CMP Media LLC. All rights reserved.
Copyright 2007 CMP Media LLC
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