M-payments: Big opportunity, big problems along the way

Using a mobile phone as an e-wallet, for all types of purchases anywhere, is gaining credibility across Europe. But as Heather McLean explains, there are still some major obstacles to overcome.

You'd think that after the let-down of WAP and the any-day-soon promises of 3G mobile phone operators would have realised that hyping a service before it is viable commercially is foolhardy. But you'd be wrong.

Right now there's a buzz all about mobile phone users leaving their wallets at home and zapping credit card - or other payment - information from their mobiles, straight to retailers. Yet after getting giddy shouting about mobile payments operators are now facing up to the sobering reality of creating a complex infrastructure of multiple relationships, technologies and investments throughout Europe.

The key question to have arisen is whether it is the operators' place, as network providers, to become so deeply involved in areas that have been considered up until now to be none of their business.

Forrester Research telecoms analyst Michelle de Lussanet isn't sure. She said: "Just because telecoms operators have identified a money stream, doesn't mean they are in the best position to tap it. If operators want the responsibility they will also have to handle it when things go wrong. They should stick to being mobile operators, running the best network they can."

Ben Wood, mobile analyst at Gartner, reckons developing m-payment solutions from the ground up is tough work for operators. "Network operators are entering into territory traditionally dominated by the banking community and financial merchants," he said.

Retailers would prefer to have banks at the centre of m-payments, according to research by Forrester's Lussanet. She found that out of 50 retailers interviewed only eight per cent were happy for mobile operators to have sole control of the m-payment process - 28 per cent favoured banks in that role. The retailers cited banks' trusted names, experience in financial transactions and security.

Head of mobile commerce at Visa, Bruno Degiocanni, commented: "It's much better to use what's already there than reinvent the wheel. We have well developed relationships with consumers and retailers through our merchant banks."

Despite the statistics, Orange payment solutions manager for Denmark, Olivier Lamer, says operators still have a chance but must act properly. He said: "Both making partnerships and educating the end user are incumbent on the operator."

And you can see why he and other operators care. The concept of m-payment sounds good on paper. There are two types: micro and macro. A micro payment is a transaction under £5 that is added to a user's phone bill.

A macro payment - where operators believe the money is - is a transaction paid by credit or debit card over a mobile phone by either manually entering card details when prompted or via an independent company that manages individuals' card details in an e-wallet.

Macro payments are a more tempting investment proposition for retailers and financial services houses. They want to make a return on technology they install in the initial stages of any payments revolution.

However, even with the best co-operation, rolling out an m-payment solution for macro payments within Europe will not be easy for operators. Partnerships have to be cultivated between them and key retailers, credit card companies, banks and clearing houses. And then there's the small matter of these parties co-operating to ensure interoperability between systems.

Several factors have frustrated the early stages of m-payments. There has been confusion in handing out newly configured SIM cards, creating call centres to deal with problems, designing and securing databases and convincing retailers their technological investments will pay off financially down the line.

Forrester's research revealed retailers do generally expect 10 per cent of their sales to be generate from mobile phone channels in 2004 - yet they want that figure to be 30 per cent to feel the investment is worthwhile.

Orange evangelist Lamer said the national macro payment project it is launching in Denmark will suffer slow take up at first but things will improve with time. He likens the roll out to the beginnings of the 1980s credit card boom.

Gartner's Wood casts doubt on such a hockey stick curve - the traditional optimism of an early stage technology. "They've all been a long time talking about deals but not spent a lot of time developing single standards for interoperability," he added, criticising operators, merchants and the others involved.

Visa's Degiocanni says the problem is more with the operators: "There are no standards effective amongst the operators yet to establish whether there is even a business opportunity."

The Mobile Payments Forum was created last November by four key credit card firms - including Visa - for the development of standards for purchasing over a mobile phone. The idea is a good one: smoothing the payment process and securing the flow of data between mobile networks and banks. But no concrete standards have as yet emerged.

Summing up the stage operators, retailers and credit card companies are at, Degiocanni added: "We don't even know if the consumer wants this."

The general consensus is that the next-generation of mobile devices - 3G - will be necessary to take m-payments beyond the concept stage. Current functionality is too limited.

As yet, the factors necessary for the creation of 'm-payment Europe' are not quite aligned. It may be some time before they are. Much is dependent on standards being developed quickly and accepted graciously, while hype is kept under control. The last thing this project requires as negotiations and deals evolve is any more hype. No one wants another WAP.