You get into a cab after a night on the town. Half way home, you realise you’ve left your wallet on the table at Crow bar, and there’s no cash at home. How will you pay the taxi? Ah, good, you’ve still got your mobile phone. The taxi pulls up and you whip out your mobile and dial the mobile payment (m-payment) system.

There you’re prompted for the taxi’s ID number, the amount of the fare and you’re asked to enter your mobile PIN number. The system then gives you access to your bank or credit card provider, where you authorise the transaction. The verification message is sent to your mobile’s screen. The taxi driver views this and gives you a receipt. The charge subsequently appears on your credit card bill, or is debited from your bank account. (Exactly where the payment is taken from depends on the agreement your mobile payment provider has brokered with telecommunications companies, banks, credit card companies and eftpos network providers.)

Sure, why not?

At first glance, being able to use a mobile phone to pay for things seems like a good idea. From the consumers point of view, why not? Even if it’s not the way you’d choose to pay on a regular basis, the more ways to pay the merrier, right? Well, yes. Take those outrageously expensive council parking machines for example. If you’re trying to park without a purse or wallet, a mobile could be just what you need.

Earlier this year, European m-payment provider Itsmobile reached an agreement with the Edinburgh city council to provide a mobile parking payment system called Mpark. At the ‘pay and display’ parking machines, people call a national number displayed on the machine, then type in the machine’s identification number and a mobile PIN number. Its mobile then sends an instruction to the machine, which issues the parking ticket. The charge subsequently appears on the driver’s credit card bill. Further, people with Royal Bank of Scotland accounts can have the fee immediately debited from their bank account through a link to the bank’s own FastPay service.

Whether or not similar services will be available in New Zealand taxis, at vending machines and on streets in the near future is debatable however. “We’ve got the technology to do this today,” says Miki Szikszai, strategic opportunities manager for Telecom. “But it’s not an issue of technology and it’s not an issue of whether a customer wants to use their phone to pay for purchases.” Instead, he says, the telecommunications supplier has to answer a fundamental question: who takes on the risk of authorising payment over a mobile phone network – the telecommunications supplier or the bank?

Ah, good question. Szikszai says in the past m-payment initiatives have been viewed as competitive by banks, which has hindered discussions between telcos and banks about implementing the service. “Yet the reality is companies like Telecom and Vodafone are never going to be banks,” he says. Kieran Cooney, Vodafone Newmarket general manager, agrees.

“Being a bank is the last thing we want to be. While we’ll connect people to their bank services over an m-payment system, we’re never going to provide huge lines of credit for people ourselves.”

But they are working on it. Cooney says while he can’t give away details, Vodafone has been negotiating with banks, eftpos providers and vendors for well over a year, and is confident they’ll offer a full m-payment solution to New Zealand consumers within the next six to 12 months. Specifically, Vodafone says businesses will be able to accept credit card or eftpos payments from customers who use their mobile phone to authorise the payment. And he says consumers are ready for it. “We’ve had a lot of experience with the consumer market and m-payments thanks to our mobile ticketing service.” (mTicketing is a Vodafone service for buying event tickets – dance parties, Warriors games, using a mobile.) The ticket is shown on the screen of the mobile phone to gain entry to the event and the cost is charged back to the phone.

Cooney says New Zealanders are heavy debit card users and would prefer m-payment to credit cards for making smaller purchases. (A trend also observed by Vodafone UK.) He says mTicketing has accounted for 50% of sales at some events, despite other channels being available. He says Vodafone will ensure its pricing for an m-payments service is attractive to both vendors and consumers. “We believe that given the right promotion and environment, consumers will want to make m-payments.”

Words of warning

While able to see the advantages of services like Vodafone’s mTicketing, Telecom’s Szikszai says it’s premature to think consumers will suddenly want to start paying for things using their mobiles. He points to the largely unsuccessful attempt to put eftpos card readers in petrol pumps, a system which was trialed in the early 1990s and has been around, off and on, ever since. “That turned out to be too much for people,” he says. “There’s still a fundamental barrier there in terms of what customers want.”

However, Szikszai does see a market opportunity for m-payment options for vendors, and says the vendor market is more ready for mpayment options than the consumer. “Telecom services like M-credit [which provides credit authorisation over a mobile phone] allow smaller companies without the means to invest in eftpos equipment or mobile eftpos equipment, to capture transactions. For example, taxi drivers can enter a credit card number into their mobile phones and have that number authorised on the spot. They’re then comfortable that they’ll be getting paid for that transaction.”

Szikszai points out that with 50% of taxis still using a zip zap machine; there’s been immediate interest from taxi associations in the m-credit service. He sums up Telecom’s current m-payment strategy as “starting at the other end of the chain and working back” to the consumer. “While Telecom is working towards partnerships with banks and eftpos network providers, any suggestion that consumers will adopt m-payments en masse in the near future is hype.” In response to that, Vodafone’s Cooney responds “We don’t have a history of promoting things we can’t deliver. It wouldn’t do us much good.”

So who’s right?

Despite Vodafone’s enthusiasm, and modest success in the m-payment market for Vodafone in Europe, international research tends to lean towards Telecom’s view of m-payment adoption; that initially, it may be better directed towards the vendor than the consumer. At the US-based Gigaworld Conference in June, Martha Bennett, an analyst at Forrester Research, said there were serious business and technical barriers to consumer use of m-payment systems. “End-users are unlikely to demand this form of service and merchants will be hit by a double whammy as they have to pay both the standard credit card transaction fee and a fee to the mobile phone network operator.”

Bennett also pointed out that mobile phones were also not reliable enough to replace cash or cards because they tended to work only where there was a signal and had limited battery life.

Backing this, research into m-payments by companies like Datamonitor has found most consumers would prefer to use an mpayment solution based on a mechanism they are already familiar with – for example, an eftpos terminal, not a mobile phone. One of the most telling events for m-payment observers has been the withdrawal of previously strong m-payment competitor Paybox.net from the UK market in February this year. Paybox began in Germany in May 2000 and operated m-payment services in the UK, Austria, Spain and Sweden. Shortly before its UK withdrawal, it claimed 500,000 registered users and 6500 merchants across Europe. It conducted its transactions over a secure GSM network with users only able to use a mobile-phone number to enter into the online shopping site.

When members paid for a service, they were contacted with an SMS. They then entered a PIN, which authorised the transaction, and the amount was subsequently debited from their bank accounts. Yet tellingly, Paybox said its UK market withdrawal was due to a lack of cooperation between banks and mobile operators.

Is it true we’re not ready?

We now know what the telcos think, and what the analysts say. But how interested are local companies and consumers in m-payments? Unfortunately, user opinions are light on the ground, there has been no formal m-payment research conducted in the New Zealand market, and vendor’s trialling m-payment initiatives with Telecom and Vodafone are reluctant to comment yet.

International experience and research suggests it’s likely New Zealand consumers will be keen to pay for goods and services which are too small to put on a credit card, but too large to be covered by loose change. Parking machines are an excellent example. However, the cost of using a mobile phone to pay for very small purchases may put people off. For example, if you use your mobile phone to buy a drink worth $1 from a vending machine, and the transaction charge is 40 cents; your drink has cost you $1.40.

However, from a merchant’s point of view, being able to accept payments using a mobile phone as opposed to an eftpos terminal is likely to save the merchant time and money. As such, vendor mpayment systems are initially likely to prove more commercially viable for its providers than consumer services. But by 2005 you can expect consumer interest in m-payment services to be catching up – fast.

September 2003

By Vikki Bland