The future may be here sooner than we expected...

A Wall Street Journal Article has reported that plans for a proprietary payment network that involved mobile carriers; AT&T, Verizon Wireless and T -mobile USA have been scaled back. The initial plan called for the three carriers to team up with Discover and Barclaycard to build out a mobile payment network that would allow cell phone customers to use Near Field Communication technology to purchase items directly with their cell phones. In November, these three companies announced their plans to build out the network over the next 18 months. They system, known as Isis, may have been just a little too out of range for the mobile carriers. The Isis business model would have put the mobile carriers in direct competition with financial giants, Visa and MasterCard.

Now however, these companies say they are going to instead market a "mobile wallet" that can store and exchange information from credit cards that their customers already use. The carriers are now in talks with Visa and MasterCard to have them participate.

What this all means is that we may be closer to buying that Snapple at the drugstore with our cellphones than we think. Instead of having to wait for the cell phone carriers to set up their payment network, they simply use the credit card vendors network that is already in place.

Like the saying goes: If you can't beat em, join em...

Visa Invests in Square

It has been reported that the financial services company, Visa, has invested an undisclosed amount of money in the new company of Twitter co-founder, Jack Dorsey, most recent project, Square. Square is a service that allows anyone with an iphone or and android device to accept credit card payments through their phone. With a processing fee of 2.75% per transaction, a user can accept credit card payments through the use of a free credit card reader provided by square. The system also allows the user to accept payment through entering the purchasers credit card information through the use of a cell phone application, although this type of transaction will cost you more than the 2.75% rate. Square accepts most major credit cards, and now with the backing of a financial giant such as Visa, seems well positioned to be a major player in the mobile payment ecosystem.

This is investment gives Visa a seat on the board of Square. This is great for Visa as it allows them to carve out their own piece of the burgeoning mobile payment industry. This could be huge for Visa as Juniper research reports that purchases via mobile devices of digital and physical goods, contactless NFC (Near Field Communications) transactions and money transfers will together generate transactions worth over $600 billion globally by 2013.

Also, the device looks pretty cool and compact which should help potential users with their purchasing decision.

 

The Mobile Financial Services Ecosystem

The mobile financial services ecosystem is an interesting combination of traditional financial players; such as banking institutions and merchants, and more recent players; such as handset providers and mobile security providers. As of now the major players included in this ecosystem can be seen in a cyclical relationship. The major players in the ecosystem are merchants, banks, security element vendors, platform managers, security element issuers, handset vendors, operators, and lastly the end users. Please see figure 1. for an illustrated view of this ecosystem. In this ecosystem, it is up to each player to help create an environment in which stakeholders the supply chain achieves a good balance between competitive freedom and strategic dependencies to assure a wide scale uptake of mobile financial services. [1]

                        Figure 1.

Although each player in this supply chain is not equally important, mobile financial services will not be able to move forward unless each link is equally committed to the advancement of mobile financial services. As the saying goes, a chain is only as strong as its weakest link. In the MFS supply chain there are two links that may not be the weakest, but they are certainly important if the industry is able to move forward on a commercial level. These two players are the Security Element Vendor and Security Element Issuer. The one common theme when discussing mobile payments with the end consumer is the issue of security. Many end users are afraid that if they lose their phone then someone will have access to all of their banking information. This in turn limits the number of banks and merchants that are willing to invest in the mobile payment industry. This is a cycle that the current investors in the MFS ecosystem are attempting to avoid. This security element is an element I will discuss in more detail in a later post.

[1] Mobile Financial Services, Business Ecosystem Scenarios & Consequences. Choudhary, Bishwajit and Risikko, Juho. 2006

Near Field Communication

The topic of mobile payments cannot be discussed without first discussing Near Field Communication technology, or NFC for short. NFC is a combination of short range wireless technologies that allow the user to transmit and receive information simply by touching the device to another NFC enabled device or touching the device to various NFC enabled smart tags. NFC shares the same basic technology as RFID tags and the information can only be transferred over short distances, usually 4cms but up to 20cms.

Now that the technicals are out of the way, I would like to discuss some of the advantages and possibilities for using NFC technology. NFC's main commercial advantage is that it provides simplicity. By simply holding a NFC enabled mobile device to another NFC enabled device or a smart tag, users will be able to transmit and receive data instantly. This will help businesses such as airlines and other multi-ticketing operators reduce their costs by eliminating the need to issue paper tickets. The marketing implications for this technology are also amazing. A consumer will now be able to instantly learn more about a product by simply holding their device to a product embedded with a smart tag. Imagine seeing a movie poster on the street and being able to watch the trailer within seconds on your mobile phone. Last but not least, the technology has the ability to revolutionize the way we pay for goods and services. This technology will be used to purchase goods such as train tickets and street parking simply by waving your phone over the reader. The payment will then be deducted from a prepaid account or taken directly from a connected bank account. To avoid the possibility of fraud, a pin system could be set up similar to the system used with debit cards.

While this technology could be very useful for the mobile payment industry, it still has a long way to go before it is widely accepted. As I stated earlier, there is the issue of fraud and protection. There is also the issue of using a standardized technology that would be accepted throughout the world. Also, there is a confusing ecosystem of stakeholders and IP issues that make widespread adoption difficult.

As you can see, NFC technology has the possibility to be a game changing technology in how we pay for goods and services. However, it still has a long way to go before being the standardized method of payment. For more information on this technology, please check out nfc-forum.org, which I found very helpful in constructing this article.

Welcome To Future Payments!

Hello Everyone and welcome to future payments!

Over the life of this blog I will attempt to dive deeper into the development of the mobile electronic payment industry. I will be posting my thoughts and new develpments in the world of mobile payments. This will include such topics as; an overview of the current state of mobile payment processing, new technology in the industry, current and new players within the industry, the impact of this new technology on traditional players, and any other new interesting developments within the industry.

Please be patient as this is my first blog and I am looking to develop my blogging skills. I will try to do my best to make sure the content of the blog is timely, relevant and most importantly, interesting to read.

So buckle up and enjoy the ride as I attempt to explore the exciting and everchanging world of mobile payment processing!