October 2003

Will mobiles replace credit cards?

It won't happen overnight. But recent developments add credibility to the view that a few years' hence, your mobile will not only be the phone in your pocket, but the bank in your pocket too.

According to a report just issued by BWCS, 'mobile proximity payments' - that is payments made by mobile at retail stores or vending machines - will be worth more than US$380 billion by 2010. This figure is based on the experience of Japan and Korea, which already have such services in place.

Meanwhile in the most direct tie-up yet between plastic and portable, credit card companies Nippon Shinpan and Visa have jointly announced they will begin trials that will let NTT DoCoMo's i-mode phones work like credit cards at ordinary retail outlets. The phones will store credit card information, and will communicate via infra red with readers installed at retailers. No need to carry your plastic; your phone can do the job instead.

A natural trend

In many ways this is simply a natural development of a trend that is happening anyway. Credit cards once simply carried a signature that was processed manually. But as concern over fraud has grown, cards have acquired security features that are more and more sophisticated - and more automatic. The latest 'chip and PIN' cards carry the same kind of secure personalised chips that are in the Subscriber Identity Module (SIM) of mobile phones. Why carry an extra chip on your card (or on several cards), when you already have one in your mobile phone?

Today's mobile phones are sophisticated devices, that include as much computer power as the first PCs. This sophistication makes possible a wide range of security features, to stay ahead of the fraudsters. Mobile phones can also be tracked - with increasing accuracy, using new location technology - so that stolen phones can be traced. Stolen phones can also be disabled, following pressure on the industry to crack down on crime.

The advantage of mobile

As mobiles develop, they will make it possible not just to authorise payments, but to check every detail of your account (or accounts) and your finances. Need to check your credit limit, or get the best deal on a loan? Just use your mobile.

Banking on the Internet is growing fast, because it is convenient, and less costly to run than conventional banking. But compared with PCs and the Internet, mobiles have an inbuilt advantage. They already have a range of security features and identity checks built in, because mobiles are already used to authorise payments totalling billions of dollars worldwide: that is, mobile phone bills.

Mobiles were also responsible for the most important innovation in payment systems since the plastic card: pay-as-you-go, which has given millions of people the advantages of an instant mobile 'account', without needing to sign a monthly contract. Subject to regulatory approval, the pay-as-you-go approach has many other potential uses besides mobile telephony.

An international solution

Until quite recently, payment and banking systems were resolutely national. Making international payments was difficult, time consuming and expensive.

Credit cards have made international payments a great deal easier, but they still have limitations. The most sophisticated international billing system in use today is the mobile phone system, which makes millions of international personal transactions every day, and can deal cost effectively even with small amounts of money (the price of a mobile call, or the cost of a text message). The GSM mobile phone system, which before long is expected to account for 80% of mobile phones worldwide, was designed from the start for international roaming.

Based on this experience it is not too great a step to an international payment system, used not just for mobile calls and texts but for a wide range of goods and services, and viable even for the small scale payments for which cash is used today. Such a system would enable new kinds of business, both small and large, as well as reducing costs for many existing companies.

Towards the cashless society

What stands in the way of this vision of a cashless - and cardless - society? It sounds too good to be true... and for the time being at least, it is. As is often the case, the biggest problem is reaching agreement among all the parties involved - some of whom, of course, make a living out of existing ways of doing things.

For some time now, banks and mobile phone companies have been eyeing each other with suspicion, each wary that the other will seize the upper hand when it comes to mobile payment. Should mobile operators acquire banking licences? Should financial service providers become Mobile Virtual Network Operators (MVNOs)?

The collaboration between Nippon Shinpan, Visa and NTT DoCoMo suggests that - in Japan at least - there is scope for co-operation, and that each has a role to play. This kind of co-operation marks a maturing of the market, and a sign of movement from experiment to serious deployment. Over the next year a number of regulatory issues are also expected to be resolved, which have been holding back the development of the market.

Mobile payment now

But even before this happens, there are mobile payment solutions that can be implemented now. We have studied the practical options for mobile payment and mobile transactions, and we have implemented solutions that include fund raising for charities, and cross-network premium text applications. We have designed solutions for travel ticketing and the trading of late inventory, that work with all existing mobile handsets. These can be used now, with the mobile phones already in the hands of some 80% of the population.

Gaining experience with mobile payments is likely to be worthwhile. Looking ahead, the mobile phone is on course to become a universal payment device - perhaps one day, the only form of money you will ever need.



©2003 Mediation Technology