Mobile Payments: A Tool Kit For A Better Understanding Of The Market
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Mobile Payments 1 Abstract. This paper primarily proposes an overview of the mobile payments market. In order to have a better understanding of this alternative payment method, we review different techniques supported by tools that can be used to analyze the mobile payment and its market. 1 INTRODUCTION With the growing prevalence of the electronic commerce and the widespread use of mobile phones, a new type of channel is emerging, called mobile commerce, or m-commerce. The use of e-commerce has already digitalized the payment process, so physical contact be- tween the buyer and seller is no longer necessary. The conversion from physical to virtual payments has brought enormous benefits to consumers and merchants alike [38]. Moreover, mobile commerce will likely require real-time cashless wireless payments for buying phys- ical and digital goods anywhere at anytime. The immediate consequence is a race between payment service providers such as banks, card companies and mobile network operators to be the first to offer a new successful mode of virtual payments. However, some recent anal- ysis show that mobile payments have not proven to be a source of competitive advantage for neither financial institutions nor for mobile operators [53]. Hence, the current tendency for each actor is to try to pick the right business model to maximize their market share rather than trying to lead the market. Mobile payments, defined as payments carried out wirelessly via a mobile device, are likely to become an important section of the retail payment sector [34]. Gartner Research predict- ed that the transaction value of mobile payments will expand to $15 billion in Western Eu- rope by year-end 2005 [4]. In an attempt to overbid this forecast, Forrester Research, predicted that mobile payments will amount to only €26 billion in 2005 -- €87 per mobile phone user per year -- and just 0.5% of consumer spending, excluding housing and vehicle purchases [24]. However, mobile payment is confronted with technological and business is- sues that delay its development. The biggest challenge that mobile payment providers face at this time is convincing European consumers and merchants that they need new payment systems [30]. The current slow start of m-commerce can be attributed to the fact that it suffers from the same problems troubling e-commerce, plus a few of its own [48], such as device and net- work limitations, maturity of payment solutions, and customers’ lack of interest [8]. Nev- ertheless, according to Durlarcher Research, the potential of m-commerce remains enormous, predicting that the market could be worth €23 billion in Europe by year 2003 [39]. This has prompted many mobile and financial industries to claim that it is time to pro- mote mobile payments in order to accelerate the development, acceptance and use of the m- commerce. Mobile Payments: A Tool Kit For A Better Understanding Of The Market Jan Ondrus INFORGE - Ecole des HEC University of Lausanne [email protected]
Transcript of Mobile Payments: A Tool Kit For A Better Understanding Of The Market
Mobile Payments 1
Mobile Payments:A Tool Kit For A Better Understanding Of The Market
Jan OndrusINFORGE - Ecole des HEC
University of [email protected]
Abstract. This paper primarily proposes an overview of the mobile payments market.In order to have a better understanding of this alternative payment method, we reviewdifferent techniques supported by tools that can be used to analyze the mobile paymentand its market.
1 INTRODUCTION
With the growing prevalence of the electronic commerce and the widespread use of mobilephones, a new type of channel is emerging, called mobile commerce, or m-commerce. Theuse of e-commerce has already digitalized the payment process, so physical contact be-tween the buyer and seller is no longer necessary. The conversion from physical to virtualpayments has brought enormous benefits to consumers and merchants alike [38]. Moreover,mobile commerce will likely require real-time cashless wireless payments for buying phys-ical and digital goods anywhere at anytime. The immediate consequence is a race betweenpayment service providers such as banks, card companies and mobile network operators tobe the first to offer a new successful mode of virtual payments. However, some recent anal-ysis show that mobile payments have not proven to be a source of competitive advantagefor neither financial institutions nor for mobile operators [53]. Hence, the current tendencyfor each actor is to try to pick the right business model to maximize their market share ratherthan trying to lead the market. Mobile payments, defined as payments carried out wirelessly via a mobile device, are likelyto become an important section of the retail payment sector [34]. Gartner Research predict-ed that the transaction value of mobile payments will expand to $15 billion in Western Eu-rope by year-end 2005 [4]. In an attempt to overbid this forecast, Forrester Research,predicted that mobile payments will amount to only €26 billion in 2005 -- €87 per mobilephone user per year -- and just 0.5% of consumer spending, excluding housing and vehiclepurchases [24]. However, mobile payment is confronted with technological and business is-sues that delay its development. The biggest challenge that mobile payment providers faceat this time is convincing European consumers and merchants that they need new paymentsystems [30].The current slow start of m-commerce can be attributed to the fact that it suffers from thesame problems troubling e-commerce, plus a few of its own [48], such as device and net-work limitations, maturity of payment solutions, and customers’ lack of interest [8]. Nev-ertheless, according to Durlarcher Research, the potential of m-commerce remainsenormous, predicting that the market could be worth €23 billion in Europe by year 2003[39]. This has prompted many mobile and financial industries to claim that it is time to pro-mote mobile payments in order to accelerate the development, acceptance and use of the m-commerce.
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Another way to explain the real enthusiasm around m-commerce would be the penetrationof mobile phones estimated in Western Europe to reach almost 70% by the end of 2003[62]. Moreover, the arrival of the new 3G services that will be coming with UMTS may ad-dress some disabling problems and deliver more possibilities for new mobile applications,which will need a good payment system. Consequently, we expect that more people mightwant to make payment transactions over their mobile handset. Some recent Gartner surveydata indicates that approximately 46% of Western Europeans already use a mobile devicefor making some kind of mobile purchase [4] (e.g., news alerts, logo, ringtones).The types of mobile device that can be used for m-commerce range from the classic mobilephone, PDA and laptop, to more surprising devices such as refrigerators and cars. Thegrowing need for ubiquity and mobility promises a bright future for m-commerce, whichcreates an environment where consumers and merchants are able to conduct business any-where, anytime and any way they like. Herzberg insists that security and convenience aretwo essential properties that mobile devices should have [28].The mobile telecommunication area is subject to an important debate which concerns thecurrent and future successful technology in m-commerce. It has been observed that mobilevoice telephony (e.g., GSM, GPRS, UMTS, ...) and data communication (e.g., WLAN,Bluetooth, infrared, RFID, ...) are converging to offer the same type of services. Sooner orlater, the telecommunication market will change in the sense that one type of network willbe able to handle voice conversations and data transfers with good quality of service. Theobjective is to respond to the desire of increased mobility, whether for carrying voice or da-ta. Some mobile network operators are preparing to compete on both markets. For example,Swisscom bought a UMTS license to offer 3G services, but they are also promoting WLANhotspots. Today, these technologies are different enough to be complementary, especiallyconcerning the speed of transmission and coverage. However, in the future, we cannot beassured that the distinction will be so evident.In this paper, we review different payment mechanisms to obtain a better understanding ofthe impact of mobile payments. Therefore, we propose to use some description, classifica-tion and decomposition tools for existing payment systems. Furthermore, we identify theactors in the mobile payment arena and the various strategies that these actors can choose.In addition, we identify some mobile payment issues that we use for an actor/issue analysis.Then, we try to evaluate the mobile payment’s potential as disruptive technology. Lastly toview how mobile payments could be practically applied, we propose two mobile paymentcase studies; one on Paybox, and another on JoinKey, a fictive infrastructure designed forretail business, which combines a CRM infrastructure and mobile payment possibilities toincrease customers’ loyalty.
2 UNDERSTANDING THE BACKGROUND OF MOBILE PAYMENTS
We define a payment as a transaction of a monetary value from one party to another party.This can be done through one or many intermediaries, such as a bank or a card company.By enabling new technologies, especially wireless, we expect to see more possibilities toinitiate a payment transaction. The objective is to improve payment systems to approach amore frictionless process.Traditionally, in the real world, the most popular modes of payments are cash, cheques,debit cards and credit cards. With the possibilities created by the Internet, a new generationof payments appeared, such as electronic payments, digital payments and virtual payments.Now, with the growing penetration of the mobile phone and the development of m-com-merce, the mobile payment will become an uncontested mode for paying goods.
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A logical evolution occurred in the monetary value transaction environment due to theprogress of technology. In fact, at the beginning, payments were mostly conduct on a face-to-face basis (cash-, paper-, card-based). As technology progressed, remote transactionsgained in popularity with the development of data wired networks (credit cards, e-pay-ments). The current trend is now to implement wireless systems that can handle remote aswell as face-to-face mechanisms with a single device.
A Simple Payment Transaction A simple two-party commerce transaction consists of three basic phases (Figure 1). First,the consumer chooses the desired product by shopping. Then, when the consumer is donewith the shopping phase, the merchant gives a bill to the consumer. Lastly, the consumerhas to pay the merchant for the good.
Figure 1 : The Three Basic Phases of a Commerce Transaction
There are many possibilities to extend the number of phases during a payment transaction.However, a payment system has to be very simple. Moreover, the transaction has to remainas transparent as possible for the consumer, even if the backoffice system is complex. Witha complicated payment solution, the consumer will be discouraged from using it.
A Tool for E-Payment ModelingTo fully understand the form a digital payment transaction can take, Weber [61] imagineda simple figure that can represent a payment scenario (see Figure 2).
Figure 2 : A Basic Digital Payment Scenario
The payer (consumer) makes the payment. The payee (merchant) then receives the pay-ment. The issuer is the third party (bank or service provider) interacting with the payer. Theacquirer represents the third party of the payee (the bank or service provider). As defined by [1], payment models classify the digital payment systems according to thenecessary flow of information between the participants of an electronic transaction. We firstintroduce some of these models suggested by [21]. To illustrate an example, we present a
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direct cash transaction in Figure 3.
Figure 3 : A Direct Cash Payment Model
In direct cash systems, the consumer (payer) withdraws the money from the bank (issuer),hands it to the merchant (payee) who deposits the money from the payment to its bank (ac-quirer). This system can also work with a token money model that we can use with smartcards, for example. This explains the last «optional» phase which is the settlement betweenthe acquirer and the issuer who transforms the token into real money.To demonstrate the flexibility of such representation, we suggest to taking a look at a com-plex system described in Figure 4. The SET system has been developed by the credit cardindustry to facilitate secure payment card transactions over the Internet.
Figure 4 : A SET Payment Transaction
Nowadays, there are few successful electronic payment solutions. They follow either athree- (e.g., American Express and Discover handle card payments within a single organi-zation) or four- (e.g., Visa and Mastercard have a number of member banks, which issuecards, authorize and acquire the payments for merchant) party models [63] which gather theconsumer, the merchant and the payment solution provider.
Buhan, Cheong and Tan have described the main phases of mobile payment [8] with thesame type of representation tool introduced above (see Figure 5).
Figure 5 : M-Payment Main Phases [8]
As we can see, we have a four-party network where content provider represents the mer-
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chant, the payment service provider is the acquirer and the trusted third party is the issuer.
The Payment DimensionsPayment transactions have identified multiple dimensions. A distinction between the dif-ferent types of payments should be also be described. Therefore, we propose a classificationof the payment market’s dimensions in this following table adapted from [53]:
Micropayments and MacropaymentsAn important strategic issue for mobile payment system suppliers is to choose the type ofpayment dimension they want to focus on. For example, micropayments generally representa payment which is below 10 Euros and is usually supported by cash or debit cards. Mer-chants are reluctant to accept credit card transactions for small amounts because of transac-tion fees. Consequently, mobile payments could be an attractive substitute for this type oftransaction, especially since most current mobile purchases are news alerts, logos and ring-tones. However, most companies promoting micropayments failed because the margins onsmall value payments are notoriously low, and sufficient economies of scale are extremelydifficult to attain [15]. On the other hand, macropayments, which are thus logically everypayment above 10 Euros, represent a real challenge for mobile payments. They need stron-ger security mechanisms because of the large amount of money involved and the greaterpossibility of fraud. A survey from SpeedFacts shows a very surprising fact: the mobile phone is the preferredpayment method between 12.5 and 50 Euros [49]]
Figure 6 : Preferred Payment Method of Internet Users if Away [49]
Table 1 : The Different Payment DimensionsBy means Cash, Paper (Cheques, Bankers draft), Card (Credit, Debit, Smart), Electronic (e/
m-commerce, virtual money, e-wallet, stored value account), Tokens/money surro-gates
By size Micro-payments (generally below 10 Euros), Macro-paymentsBy place of Purchase Real-world or F2F, Remote (Internet, Mail and telephone orders)By Seller/Buyer Origin B2B (rare for m-payment), B2C, P2PBy Type of Purchase Physical goods, Digital/electronic goods, Rights (rich media)By Clearing and Settlement Method
Bilateral, Multilateral (joint clearing house), Using intermediaries
By Type of Transaction Pay Per View (PPV), Pay Per Unit (PPU)By Time of Payment Pay now (debit), Pay later (credit), Pre-pay (against stored value)By Geography Domestic, Cross-border, Single currency, Multiple currencyBy Location of Payer’s Account Details
Network-/server-based, Device (client-based), Chip (client-based)
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Face-to-Face and Remote PaymentsThe location of purchase is another dimension that electronic payment has already changed.Mobile payments will deliver even more new features to improve the current systems.F2F (face-to-face or proximity payment) transactions are the most common way to pur-chase goods. However, considering the explosion of e-commerce, remote payments are go-ing to become more and more popular. Mobile payments should revolutionize these twotypes of transaction. In fact, a mobile phone can replace a wallet for small expenses. So ifpeople were to go to their local retail store they would be able to pay with their mobile hand-set directly at the POS (Point-of-Sale). Therefore, proximity payment transactions usuallyinvolve two parties using an ad-hoc network based on a wireless technologies such as Blue-tooth, infrared and radio frequency identification (RFID) which enable short range wirelessdevice-to-device payments [38].For remote payments, the major benefit for the consumer is that there is no need to bepresent at the time of the purchase. Another possibility is the payment of goods on the In-ternet via a mobile device. The problem for the merchant is that there is no payment guar-antee.To have better understanding of the different characteristics of the remote payment means,Thomann presents the following table (Table 2). He includes the different risks, the pay-ment time and the transaction costs [59].
Mobile Payment Multidimensional Statistics: Size and LocationForrester’s research predicts some values of mobile payment transaction types consideringtwo distinctive dimensions [22]. This forecast was done in 2001 for Europe from years 2000to 2005 (Table 3).
As we can see, proximity (F2F) payments appear to offer the best medium term revenue op-portunities. In the short term, micro proximity payments seem to be the more valuable trans-actions.
Table 2 : Characteristics in Remote Payments (Internet, MO/TOa)
a. Mail Order (MO), Telephone Order (TO).
credit risk (merchant)
fulfillment risk
payment time(cardholder)
transaction cost
Check high high later medium
Pre-paid low high before medium
Post-paid high low later medium
Debit card issuer’s lowb
b. Fulfillment risk for debit/credit is low due to chargeback rights.
now medium
Credit card issuer’s lowb later highc
c. Credit card transaction cost is high due to commissions.
E-Purse very low high before low
Table 3 Past, Actual and Projected Value of M-Commerce Transaction, Europe
2000 2001 2002 2003 2004 2005
Micro Remote <1 mio <1 mio 1 mio 4 mio 12 mio 27 mio
Macro Remote 5 mio 24 mio 162 mio 619 mio 1’890 mio 3’014 mio
Micro F2F 26 mio 87 mio 423 mio 3’370 mio 4’440 mio 5’005 mio
Macro F2F 19 mio 67 mio 314 mio 1’387 mio 5241 mio 12’674 mio
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The Exploration of Mobile PaymentsIn spite of the differences between the various mobile payment systems, most of them aresimilarly structured [36]. As we can see on Figure 6, in most cases a customer needs a pay-ment intermediary.
Figure 7 : The Structure of Mobile Payments [36]
To be successful, we suggest that a mobile payment solution should be able to handle mostof the dimensions presented in Table 1. In general, consumers will be more predisposed tosubscribe to a very flexible and universal system compared to another that would not offerthe same number of possibilities. Furthermore, the payment solution must always be avail-able since consumers want to pay anytime and anywhere.There are different reasons why a mobile phone has the potential to become a payment de-vice in the future. The number of users of mobile phones is already considerable, and mo-bile payments can be made in all types of payment transactions, such as manned (anymerchant), unmanned (vending machines, parking meters, ...) POS and e-commerce via amobile phone [35].The benefits of using a wireless device to pay are narrowly linked to the convenience ofusing an easy, real-time, cashless and frictionless payment system. Consumers expect mo-bile payments to be easy-to-use, fast, personalized, secure and universal. The challenge fora wireless device is that it should be able to conduct any transaction, anytime and anywhere.However, mobile payments also bring many problems to solve. One of the most crucial is-sues is the price that a mobile payment will be charged. More than ever, consumers are re-luctant to pay more without having an added value service; arguments like convenience andsecurity will probably not be attractive enough. Moreover, Dahlberg argues that, from thebusinesses’ perspective, SMS and value added services are considered expensive, and op-erator’s and banks’ transaction fees irritate some consumers [18]. Hence, service providershave to find the right revenue model if they want the mobile users and merchants to adopttheir new mobile application. Otherwise, there is no chance that the mobile payment solu-tion will succeed. Technology suppliers also have the mission to design mobile devices thatare easy-to-use, fast and reliable in a payment context. Without a convenient device, theconsumer will not make any effort. A very popular m-commerce example is the book or-dered in 40 minutes using a mobile phone!To summarize the various factors that can lead a mobile payment system to success, Watsonproposes a list of four features that can be applied to mobile payments [60]:
- Ubiquitous (anywhere, anytime)- Universal (universally usable)- Unique (customized)- Unison (synchronized)
This vision is shared by important actors like Visa and Acceture who co-published a whitepaper on the U-commerce. They introduce universal commerce as an environment wherebuyers and sellers will literally be able to conduct commerce anytime, anywhere and any
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way they like [46]. Moreover, they predict that this new environment will provide morechoice, more convenience, and more control over how business will be done with one an-other. However, this still implies the continued existence of traditional payment means suchas cash, checks, debit and credit cards. For them, several global phenomena, such as the per-vasiveness of technology, the growth of wireless and increasing bandwidth and connectiv-ity are market drivers that accelerate as technology goes forward.In order to determine the success of a payment system, de Clercq proposes some commer-cial, juridical and technological requirements [10].
Technologies Enabling Mobile PaymentsThe intention of this paper is not to detail all the technologies involved in mobile payments.Nevertheless, we categorize the different technologies. Therefore, we introduce a mobilepayment framework (Figure 8) inspired from a m-business application framework designedby [10].
Figure 8 : Mobile Payment Framework
We propose three dimensions to classify the different technologies in mobile payments.First, «Network» gathers the technologies used in a wireless network infrastructure. Then,«Device» represents the user wireless infrastructure. Finally, «mobile application» de-scribes the technologies used mostly by mobile application developers, mobile applicationservice providers and content providers.Further details and descriptions on technologies that enable mobile payments can be foundin [47].
Table 4 : Some Requirements for the Success of a M-Payment SystemCommercial requirements Juridical requirements Technical requirements
Universality Digital signature Network technologiesInstant connectivity Current legislation on
payment systemsService technologies
Personalization M-commerce terminalsConvenience M-commerce security
mechanismsExpensesProtection of the privacySecurity
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Security in Mobile PaymentsSecurity in mobile payments is certainly one of the most important problems that providersencounter. In fact, there is no guarantee of total security while sending sensitive informationover an open network like the Internet. So far, the two main card association initiatives areVisa 3-D Secure Specification and MasterCard SPA [15]. However, there are some majorconsortia or forums (e.g. MeT Initiative, Mobey Forum, Mobile Payments Forum and Pay-circle) trying to gain the clout that mobile payment players believe they need to create aworkable m-payment system [3]. They all want to develop standards to provide secure mo-bile transactions. Security is also a very critical factor in enabling consumers to trust mobilepayments.A mobile payment solution should respond to the five classic security criteria such as:
• Authentication• Availability• Confidentiality• Data Integrity• Non-repudiation
Since financial services like payments can be subject to fraudulent activities, they requirewell-secured infrastructure. The potential flaws are that someone can eavesdrop on thecommunication and that a third-party impersonifies the provider. Therefore, authenticationand confidentiality should be implemented in the solution to prevent these flaws.Security can be hardware- or software-based. On the client side, there are at least four [20]or five [13] potential designs for mobile phones to accommodate secure mobile payment(see Table 5).
To prevent the fact that consumers have to replace their mobile phones, most current systemuse a SMS or USSD-based solution for authentication and payment confirmation mecha-nisms. This is the case for most newcomers and intermediaries mobile payment schemes.The only way for mobile payment mass adoption would be if the client device would notcost too much.As discussed above, security can also be implemented in the network infrastructure. In or-der to fulfill the security requirements at the network layer, some researchers designed a
Table 5 : Four Possible Handset Designs to Enable Secure Mobile Payments
Multi-application chip card SIM and WIM (Wireless Identification Module) combined in a sin-gle chip card
Dual-SIM phone Both the SIM and WIM have their own slot inside the mobilephone.
External WIM card reader An external card reader can be connected to the handset.
Dual-slot phone
The mobile phone has a built-in smart card reader. Consumersinsert their existing debit or credit card into the smart-card reader-slot and type in a four-digit PIN, issued by their bank, in order toauthenticate purchases [13].
Payment software built into the phone The functionalities of the WIM would be inside the phone memory.
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functional model of a mobile commerce terminal [63].
Figure 9 : Functional Model of a Mobile Terminal Designed for Mobile Commerce Applications
This functional model describes the sophisticated mechanisms and protocols. The designersstress that in addition to transport layer security protocols (e.g., TLS and WTLS), it is im-portant to provide an access to basic cryptographic system from the application layer. Now-adays, the cryptographic algorithms used are SHA-1 and 3DES. Moreover, in the future,AES might be implemented in the terminal. Public Key Infrastructure (PKI) can also beused in the mobile context. However, the PKI will have to support efficient mechanisms forcertificate management (e.g., issuing, distributing, validating and revocating the certificate)[63].Security is probably one factor of success in mobile payment transactions. For now, the big-gest challenge is agreeing on few technology standards that would be able to rally most ac-tors on the payment market. Salvi and Sahai propose that subscribers should be able tospecify different levels of security for different amounts [45]. Therefore, they suggest fourincreasing levels of security which can be applied to the payment service (Table 6).
3 CLASSIFICATION TOOLS FOR M-PAYMENT SOLUTIONS
The generic dimensions help to classify and describe the different possibilities to build apayment system. However, to overview the real market of mobile payment, we need anoth-er classification framework. Currently, mobile payments can be classified into two general types of payment methods,namely devices with payment applications and devices without payment applications [47].Each type of payment solution is described in the Appendix A.
Table 6 : Security Levels [45]Level 0 No PIN is required. For making micro payments.Level 1 PIN to authorize paymentsLevel 2 PIN + digital certificate signed by a third party on behalf.Level 3 Digital certificate stored in the mobile and protected by a PIN.
Table 7 An Application Device-based ClassificationDevices Without Payment Applications Devices With Payment Applications
- Site wallet- Remote wallet- Distributed wallet- Network operator specific mobile payment
- Personal wallet - Electronic purse- EMV- Network operator specific mobile payment
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From his point of view, Hennessy thinks that the main types of mobile payment schemescan be classified into two categories: client wallet and hosted wallet [27].
A Framework to Classify and Decompose Mobile Payment SolutionsAs the previous classifications were too restrictive, we introduce another framework toclassify and decompose a current mobile payment system. We propose to use a multidimen-sional table that allows us to get a better overview of the solution’s properties. Therefore,we present a table to classify the system in types (client-based, server-based and hybrid so-lutions), then select who the provider(s) is or are (mobile network operators, financial insti-tutions, newcomers/intermediaries), define the type(s) of relationship that the paymentsystem can handle (B2C, P2P), determine the location(s) where the transaction can happen(face-to-face and remote) and at last the time when the payment is completed (pre-paid, di-rect pay, post-paid). Table 9 provides an equitable way to compare one system to another.
Filling in the table is convenient and fast because it is sufficient enough to put a cross in thecolumns that apply. The dimensions are not exhaustive. However, there is the possibility tofind out what the system’s limitations are, especially concerning the relationship and the lo-cation. This table is not created to provide an assessment of the quality, but it allows us tojudge the flexibility of the system. A similar table was designed by Carat at the end of hisreport [12]. The only difference is that he selects more dimension. He described over 100electronic payment initiatives with this table. Some results were especially interesting byhelping to deduce the probable evolution of the number of electronic payment offered bydifferent actors (Table 10).
A similar framework is proposed by a group of German researchers [14]. They call theirsystem a morphological box, which describes the characteristics of a mobile payment solu-tion. Even if this method seems to be complete, it does not allow to decompose the differentinitiatives into clusters or types. Apparently, one way to classify mobile payment systems
Table 8 A Wallet Location-based Classification Client wallet Hosted wallet
A client wallet is stored on theuser device. It is a hardware-based system (SIM ApplicationToolkit card).
A hosted wallet is stored on a server.
Self-hosted wallet. A service pro-vider hosts the wallet on his serv-ers.
Third party hosted. The walletserver is managed by a third party.
Table 9 : A Simple Table to Describe a Mobile Payment SchemeName
Of TheExistingSystem
M-Payment Solution Type
Dimensions
Mobile Payment Solution Providers Relationship Location Payment Time
Client-based
Server-based
Hybrid MNO FinancialInstitution
Newcomer/Intermediary
B2C P2P F2F Remote Pre Direct Post
Table 10 : Profile of the system providers
Initiated by banks /near Non-banks Mixed profile
All schemes = 100 39 41 20
Introduced before 2000 20 9 5
Introduced in or after 2000 19 32 15
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in groups is to choose just one dimension that solutions have in common [e.g., Table 7].
Figure 10 : Morphological box of mobile payments characteristics and instances [33]
To examine the Paybox system, the use this morphological box. The result is in Figure 8.
Figure 11 : Paybox within the morphological box [33]
As discussed above, the need to analyze more deeply the mobile payment system is crucialto discover the limitation of the proposed solution. To measure the potential of a system,we think that all the requirements of a payment system should be taken in account.Some already existing research have been made with the goal to see which payment systemanswer the best to most requirements. Weber also proposes to describe payment systemswith the most probable requirements a solution can have. In his paper, he illustrated manypayment system with the use of this table.
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Table 11 presents as an example the requirements profile of traditional payment systems,such as cash, cheque and credit card [61].
To compare payment solutions, Buhan, Cheong and Tan use a simple table containing thedifferent characteristics that a payment network can have.
Table 11 Requirements Profile of Traditional Payment SystemsRequirement/System Cash Cheque Credit CardToken System Yes No NoTransaction Atomicity Consistency Isolation DurabilitySecurity No Double Spending No Counterfeiting No Overspending Non-Refutability No Unauthorized Use Anonymity UntraceabilityInteroperability Divisibility Bidirectionality Respendability Acceptability Multicurrency Support Exchangeability Transferability PortabilityScalability Scalability Off-line OperationEconomical Issues Operational Large User Base Buyer Risk Seller Risk Reliability ConservationEase of Use Unobstrusiveness Low Latency Micropayments Macropayments Low Fixed Costs Buyer HW Independence Seller HW Independence
YesYesYesYes
YesSomeYesNoNoYesYes
YesYesYesYesYesYesYesYes
YesYes
YesYesYesNoYesYes
YesYesYesNoYesYesYes
NoYesNoYes
n.a.NoNoYesSomeNoNo
n.a.YesNoYesYesPartlyNoYes
YesYes
YesYesNoYesYesYes
YesYesNoYesYesYesYes
NoYesNoYes
n.a.NoNoYesSomeNoNo
n.a.NoNoYesYesNoNoYes
YesNo
YesYesLimitedNoYesYes
YesYesNoYesYesYesNo
Table 12 : Comparison of Characteristics of Payment NetworksCharacteristicsTransaction criteria Pay per view
Pay per unitRecurrent subscriptionPre-paidPost-paidDirect debitP2P
Content criteria Digital goodsHard goodsTicketsVotes0-0.1 euro0.1-10 euros>10 euros
Level of upgrade/customization needed
For consumersFor content providerFor Payment Service ProviderFor Trusted Third Party
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An Existing Tool for Inventorying E-Payment SystemsAn impressive work has been done for compiling most of the electronic payment systemsin Europe. The ePSO (ePayment Systems Observatory) database is available on the officialwebsite [55]. There are two ways of searching the inventory database:
• Free text search where the user can search for specific concepts (such asPKI, voice recognition, etc.) or by the e-payment system name.
• Advanced query is an explicit three-level structure of keywords presented inthree list boxes. The first list box indicates the type of payment solution orinitiative. The second and third offer additional criteria to refine the search. Inaddition, the user may input the geographical location and the members of thesystem.
Moreover, another survey on electronic money development has been realized by the Bankfor International Settlements [6]. In this digest, electronic money solutions are classified bycountries.
Evaluate the Potential of New M-Payment SystemsAs briefly suggested before, mobile payments are a key enabler for m-commerce. However,in recent years, a number of new payment solutions have been introduced with little suc-cess. These solutions have been mostly technology driven at the cost of convenience andvalue to the consumer. Gordijn stresses that when launching an innovative idea, it is crucialto offer a sound value proposition to the customer in order to be a profitable enterprise [25].One idea would be to find a formula to evaluate the chance of acceptance of a new paymentsystem. Therefore, Dalhberg and Mallat suggest measuring the customer perceived value,which helps to describe how characteristics of products and/or services are related to theadoption of new (payment) technology solutions [19]. For that, they propose to use the fol-lowing equation first introduced by Grönroos [26]:
Applied to the mobile payment problem, the core solution represents the ability to pay witha specific method. Additional Services are the features offered by the specific paymentmethod (e.g., security, mobility, compatibility). Price refers to the price/cost generated bythe payment transaction. The relationship costs are threefold: (i) the investment of the con-sumer to be able to use a specific technology, (ii) the indirect costs if the system does notfunction as promised and (iii) psychological costs that are related to the level of trust. Theuse of this equation will show if the customer perceived value for mobile payments is great-er than for payment methods that already exist.
The Mobile Payment Case StudyThe responses from interviews directed by Dalhberg and Mallat [19] show interesting facts.For additional services, the use of m-wallet and smart cards is seen as valuable for smallpurchases of physical and digital goods. Concerning the price, responses show that inter-viewees do not want to use mobile payment systems if the price is higher than buying goodwith the traditional payment solutions. Regarding relationship costs, they estimate that theconfiguration for setting up a wireless device should not be too difficult. But, they havedoubts concerning the security of online wireless payment transactions at the POS. Finally,the most trusted providers of mobile payment solutions were banks and credit card compa-nies, followed by mobile operators, if there were the only one to offer such solutions.
Customer Perceived Value Core Solution Additional Services+Price Relationship Costs+
-------------------------------------------------------------------------------------------------=
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4 THE MOBILE PAYMENT ARENA
The first step in this presentation of the actual mobile payment market is to identify the mainactors which participate actively or passively. There is a difference made between an actorwhich can be involved directly in a mobile payment transaction (Players) and another actorwhich has also an importance but not in the real-time processing (Rulers). Each actor bringsits own contribution to enable the mobile payment mechanisms.
Figure 12 : The Mobile Payment Arena
This figure shows that there are two groups of actors: the rulers and the players. Then, eachgroup is classified according to the types to which they belong: legal framework, techno-logical constraints, supply and demand. The triangle can illustrate the number of actor ineach group. In fact, they are many more consumers and merchants than regulators. The cir-cle represents the potential «active» links between the players during a mobile paymenttransaction. As we can see, the five main players in the mobile payment arena are consumers, mer-chants, mobile operators, newcomers/intermediaries and financial institutions. On onehand, the presence of a demand, represented by consumers and merchants, is essential.However, on the other hand, depending on the system in use, the supply can take on manydifferent forms as network operators, newcomers/intermediaries and financial institutionscompete, interoperate, co-operate. Therefore, their presence depends upon if the mobilepayment solution asks for an intervention of one, two or all supply actors.
A Description of ActorsThe objective of this overview is to introduce the different actors involved in the mobilepayment arena.The demand of mobile payments is generated by merchants and consumers.
• Merchants want the payment process to be transparent to the user, as thisencourages greater usage and/or propensity to complete a purchase. They alsowant any payment scheme to facilitate swift and easy completion to ensurethey get paid on time [38]. They hope that a mobile payment system can also
Technology suppliersTechnology suppliers
Demand
Supply
RegulatorsRegulators
ConsumersMerchants
TelephonyData communication
Specific platforms
NewcomersIntermediaries
BanksCard companies
Device makersTechnology enablers
Device retailersEquipment vendors
GovernmentsInternational institutions
National Independent BodiesRULERS
PLAYERS
Legal framework
Technological constraints
MobilePayment
Financialinstitutions
Network operators
Technology suppliersTechnology suppliers
Demand
Supply
RegulatorsRegulators
ConsumersMerchants
TelephonyData communication
Specific platforms
NewcomersIntermediaries
BanksCard companies
Device makersTechnology enablers
Device retailersEquipment vendors
GovernmentsInternational institutions
National Independent BodiesRULERS
PLAYERS
Legal framework
Technological constraints
MobilePayment
Financialinstitutions
Network operators
Mobile Payments 16
improve consumers’ loyalty.• Consumers represent the major target of all mobile payment initiatives. They
decide if they want to use a mobile device for monetary value transactions.Their main expectation is that their payments have to be fast, easy, personal-ized, and secure. Most of them already possess a mobile handset. The phe-nomenal success of the Short Messaging Service (SMS) highlights theappetite for non-voice services on mobile device. Therefore, mobile pay-ments will play a very important role if the consumer asks for new valueadded mobile applications.
The supply of mobile payments is composed mostly of service providers coming from dif-ferent industries. Network operators, financial institutions and newcomers/intermediarieswill try to provide their solution to the mobile payment issue.
• Network operators manage the mobile communication infrastructure,enable mobile telephony and data communications. Moreover, some of themalready provide a wired network for electronic payment transactions betweenbusiness premises and banks’ financial systems. A technology distinction hasto be made to provide an overview of the different family of actors involved.The convergence of voice and data brought two types of competing or com-plementary technologies: - Telephony technologies (GSM, GPRS, UMTS, ...) - Data communication technologies (WLAN, Bluetooth, infrared, RFID, ...).Network operators are natural candidates for providing payment servicessince they are already involved in billing for voice and data transport services[34]. Moreover, they have the desire to recoup the cost of the UMTS licensewhich makes them very interested in taking over the mobile payment marketwith the idea of generating revenue with payment transactions.
• Financial institutions are primarily concerned with ensuring the integrity ofthe payment system and reducing the risk of fraud. They can be a bank, a cardcompany, a clearing house or all at the same time.
• Newcomers/intermediaries principally exist because of the missing standardthat should have been chosen by network operators and financial institutions.Actually, the technology to enable mobile payment and the demand for suchservice are there, but the supply is late to emerge. Therefore, newcomers/intermediaries’ objective is to propose a well-integrated solution in the cur-rent mobile payment market with the current popular technologies in use suchas SMS (Short Message Service) and USSD (Unstructured SupplementaryService Data). They use the mobile communication network to transmit thedata and control the veracity of the payment process with a bank or card com-pany. Intermediaries usually act as a third-party between financial institutionsand network operators. To illustrate the importance of these new actors, wecan look at Paybox which already has 10,000 merchants and 750,000 sub-scribers for its m-payment service across Europe [17].
Other actors are in the background, but they still have their importance. They are the mostpowerful entities and they can easily influence the market of mobile payments. Despite be-ing totally passive for mobile payments, they can be considered facilitators of the variousmobile payment models [4]. They do not affect the real-time transaction, but they draw thefuture of mobile payments.
• Regulators have the role of making the rules and controlling their applica-tion. The existence of network effects calls for interoperability between the
Mobile Payments 17
systems of different network operators. This interoperability can only beachieved by cooperation. It contains, however, the possibility of collusivebehavior to the disadvantage of customers. Therefore, many network indus-tries are supervised by a special regulator. Traditionally, regulation of pay-ment systems has been a part of banking regulation and/or monetary policy[34]. For example, California has started to regulate the use of mobile phonesas payment devices. That regulation, in addition to the expected federal regu-lation, applies to any non-telecommunications charges placed on a telecom-munications bill, including wireless bill [9]. Other institutions, such asstandardization groups, are also very important because they will make themarket more accessible to their followers.
• Technology suppliers invent and provide new technologies to the mobilecommunication market. Their role is crucial because they continuouslyimprove devices that will enable an easier and more secure mobile paymentprocess.
To assess the role of the different actors in a selected market, Camponovo and Pigneur rec-ommend to briefly but clearly describe the business model of each actor [10]. They adoptedan ontology or framework for e-business models developed by [41] and represented in Fig-ure 13.
Figure 13 : Mobile Business Model Framework
Description of Actors Using Business ModelsTo succinctly illustrate the use of business models to describe actors, we propose to take thenetwork operators as an example in Table 13.
Table 13 : Network Operators’ Business ModelValue proposition They operate mobile voice and data communication network. They mainly provide mobile telephony
to end-users. Surrounding services like messaging (SMS), WAP and other network value-added ser-vices (content provider, location-based services, billing for third parties, ...) are also part of theiroffer.
Target customers Telcos’ targets are almost everyone from children to grandparents, including professionals such asbusiness men.
Infrastructure Telcos’ main activities are network promotion and contract management, service provisioning andinfrastructure operation [11]. Telco’s have a typical value network configuration [50]. They partnerwith technology suppliers, other network operators (roaming), content providers and applicationproviders.
Revenue model They earn revenues from different sources such as fees for registration, monthly subscription, air-time, volume of data transferred, the income from other activities like roaming and transaction forother parties.
Examples Swisscom, Vodafone, AT&T, Tele2, Globalstar, ..
Mobile Payments 18
Actors and RolesTo describe some strengths and weaknesses of different actors to act as payment serviceprovider, Buhan, Cheong and Tan use Figure 14.
Figure 14 : M-Commerce Actors and Roles
Four Appropriate Mobile Payment ModelsGartner Research proposes four model involving the different actors of the mobile paymentarena [4]. These models are based on the needs and roles of these stakeholders.
Figure 15 : Gartner’s General M-Payment Models [4]
Mobile Payments 19
Table 14 describes the different models introduced by Gartner.
The Bank-dominated ModelIn this model, banks control the whole value chain, since telcos will only perform the datatransport. Actually, mobile device would become another way for consumers to access theirbank accounts.
Figure 16 : The Bank-Dominated Model [36]
The device marked with an asterisk may require the use of a smart card in order to makepayments. This card would be issued by a bank to enhance security of data storage andtransmission and allow strong identification [36]. Concerning the mobile device, there aretwo obvious solutions designed, such as the dual-slot phone or a separate payment chip em-bedded in the mobile phone.In this case, banks have complete control over the customer relationship and the paymentprocess. They will thus keep their supremacy in providing payment services.
The Role of Network OperatorsThe potential of mobile payment has already been demonstrated, but the role that networkoperators have to play is not very clear. They are already offering payment services, but ifthey want to become a real payment service provider, they will have to manage the financialrisk and apply for a bank licence [35]. For this reason, it is legitimate to wonder what net-
Table 14 : A Description of the Gartner’s M-Payment Models
Given names Description Comments
A Walled garden Customers buy directly from the carrier andthe carrier servers as the sole provider of thecontent or operates as the «storefront» forother merchants.
Closed system. Invoices directly to the monthlywireless bill. Low value transactions to limit thefinancial risk for the carrier. Mostly adapted fordigital goods.
B High-value garden Carriers choose to accept payments throughthe traditional financial network to avoid thefinancial risk coming from values greater than$10.
Natural extension of the walled garden model.Payment with a debit or credit card. Need for car-riers to establish relationships with banks andexternal payment processors.
C Buy direct Resembles the way PC-based online shoppingand payments are transacted. Customers con-tract directly and separately with each mer-chant, who in turn must deal with the variouspayment processors.
Merchants can sell through multiple wireless car-riers. Carriers are excluded from any revenue-sharing of the payment. A payment option can bethe reverse-billed SMS. Then the carrier wouldcharge the payment on the customer wireless bill.
D Mediated The intermediary serves as the broker, formingthe needed alliances and connections. Theintermediary becomes the «glue» that facili-tates commerce between all interested parties.
However, this role is not necessary played by anindependent entity. A merchant, bank or even thecarrier can perform the intermediation.This model minimized the interoperability limita-tions and the number of required relationships.
Mobile Payments 20
work operators will do. Krueger describes three different roles that telcos could play in themobile payment market [35]. Table 15 summarizes his scenarios.
These roles show mobile network operators going alone in the market of mobile payment.Another possibility would be to team up with a bank, to take advantage of the synergy fromthe technological knowledge of network operators and the financial experience of banks.
The Newcomers/Intermediaries OpportunityBecause mobile network operators and banks are not able to launch a successful initiative,new opportunities appear for others. These parties will be primarily intermediaries workingwith mobile networks and banks. Some of them might acquire an EMI licence or even abanking licence. Therefore, network operators would have the advantage of not being both-ered with payment regulations if they would work with financial intermediaries. These in-termediaries would take the financial risk that network operators do not want to support. However, for example, Paybox is almost owned by Deutsche Bank. This means that banksare also interested to work with intermediaries that would use their banking system.
Figure 17 : The Newcomers/Intermediaries Model [36]
Table 15 : The Potential Roles for Telcos
Communication providers Telcos simply stick to their current business which is not very profitable. Selling valueadded services like payment is more tempting to generate some extra revenues. Telcoswill probably not stay out of the market.
Third-party billing systems Telcos implement third-party billing on behalf of merchants. Such systems allow custom-ers to rely on a trusted billing relationship with telcos. They generate more traffic but alsoget commissions on payments. The problem that comes with providing this service is therisk of the credit. In fact, Telcos have to manage the risk if the customer cannot pay for thegoods purchased before the end of the billing period. Telcos have to take care of suchissues as credit limits to prevent fraud. They have to create mobile payment roamingagreements with other national and international network operators. To reduce the risk,they have to increase the frequency of settlements like banks and established paymentproviders that clear and settle every day.
Pre-paid solutions Telco simply debits payments to a prepaid card/account. This slightly reduces the risk.However, difficulties appear with payment roaming. Telcos have to monitor each other totake into account the type of payment service offered (prepaid or billing), and how creditand fraud risks are handled. To provide prepaid solutions, telcos have to become either anElectronic Money Institution (EMI) or a bank. The use of prepaid cards for payments ofgoods and services provided by third parties makes it necessary to get an EMI licence.Managing prepaid accounts is equal to managing deposits. Therefore, such payment solu-tion would force telcos to become banks.
Mobile Payments 21
Mobile Payment Consortia, Alliance and ForumTo increase the adoption of mobile payments, financial institutions and telcos formed con-sortia. Their objectives are to address the security and the compatibility issues by develop-ping a standard for mobile payments. Since the various consortia have different focus andsome companies participate actively to several consortia, these groups are not opponents.Moreover, Adrian arrived to the conclusion that enterprises must join or track multiplegroups and drive them to convergence. Otherwise, there will be multiple and poorly con-nected standards across the many components that support mobile payments [3].
The Liberty Alliance ProjectThe Liberty Alliance Project was formed in 2001. The objective was to develop open stan-dards for federated network identity management and identity-based services. Its goals areto ensure interoperability, support privacy, and promote adoption of its specifications,guidelines and best practices [56].The Alliance is made up of more than 160 members, representing a worldwide cross-sec-tion of organizations ranging from educational institutions and government organizations,from service providers and financial institutions, to technology firms and wireless providers[56].The management board members are American Express, AOL, Ericsson, Fidelity Invest-ments, France Telecom, GM, HP, Nokia, Novell, NTT Do Co Mo, Sony, Sun Microsys-tems, Verisign and Vodafone. Many other companies are sponsors, associates or affiliates.
PayCirclePayCircle is a vendor-independent non-profit organization. Its main focus is to acceleratethe use of payment technology and develop or adopt open payment APIs (uniform Appli-cation Programming Interfaces) based on XML, SOAP, Java and other Internet languages[42]. PayCircle ensures that the applications can interface with a multitude of devices, car-riers and transaction processing systems [3].
The MeT InitiativeThe Mobile Electronic Transaction (MeT) Initiative is the oldest and largest alliance[3].This group was created in 2000 by Ericsson, Motorola, Nokia, NEC, Panasonic and Sie-mens. Their objective is to provide a framework to secure mobile transactions across anydevice or payment type. This is a non-bank consortia.
The Radicchio InitiativeThe members of this group are technology vendors and card companies. Radicchio’s goalis to establish a trusted global infrastructure for mobile commerce.
The Mobey ForumThe Mobey forum was created by world’s leading banks in 2000. Their objective is to pro-mote financial services using mobile technologies. Their commitment to accelerating thetake-off of user-friendly mobile financial services by promoting open, non-proprietarytechnology standards [57].
The Mobile Payments ForumThis forum was established by credit card issuers in 2001. Its objective is to make sure thatwhatever other m-payment systems and standards emerge, they are able to interoperate withthe current authentication, processing and billing systems [3].
Mobile Payments 22
5 THE MOBILE PAYMENT ISSUES
The objective of this section is to identify some mobile payment issues. Therefore, the ideawill be to use what Tarasewich identified as a set of issues concerning the mobile e-com-merce [52]. He classifies a number of possible issues within five categories1 that we adapt-ed for mobile payment:
1. Mobile client issues2. Wireless communications infrastructure issues3. Other wireless technology issues4. Mobile payment application issues5. Mobile payment global issues
Using this categorization guides the identification of some issues that could concern themarket of mobile payment.
Mobile Client IssuesThe issues in this category concern the hardware and software of mobile clients.
The device’s physical formThe question is to find out which device will be the most successful to support mobile pay-ments. The device can be a mobile phone or another such as a PDA, a laptop or any wirelessenabled device that could process securely a financial transaction over a wireless network.
The convenience of the deviceConvenience and ease of use are very important in boosting the adoption of a new technol-ogy. People want something that they can easily use. If the device is too complicated, themajority of the potential users will be reluctant to subscribe to the system.
Wireless Communications Infrastructure IssuesThe communication infrastructure enables mobile payment. They are many technologiestoday that can support wireless data transfers. In this section, some issues concerning theinfrastructure are described.
The type of networkWith all the new wireless communication technology available, the choice of using one net-work technology over another is difficult. Each technology brings its own advantages anddisadvantages. Therefore, the infrastructure should support the most suitable technology,depending upon the type of payment. Today, data communication networks (WLAN, Blue-tooth, ...) and telephony networks (GSM, GPRS, UMTS, ...) bring a new dimension to theissue. In fact, telcos are confronted with WLAN technology that could be a real threat fortheir existing business. Some of the mobile network operators are already anticipating thepotential success of this technology by offering hotspots.
The network coverageAs discussed above, the need for coverage is different depending upon the type of mobilepayment. For example, Bluetooth, RFID or infrared are adapted for proximity payments(e.g. vending machine) but not remote financial transactions. Then, mobile payment ser-vice providers have to choose the type of network which provides the most adapted cover-age to support the payment transaction.
1. The three first points are considered as technology issues
Mobile Payments 23
Other Wireless Technology IssuesThe wireless technology brings its own new problem. The fact that data is transmitted in theair make it more vulnerable to eavesdropping.
Security in wireless environmentsWireless communications present the obvious problem that even unauthorized parties canaccess the flow of sensitive data transmitted. There are already some methods that reducethe risk that unwanted people or devices intercept communication. Natural protectionscould simply come from the complexity of the protocol (i.e. frequency hopping). However,encryption is essential to secure the data. In order to use wireless PKI systems for mobilepayment, improvements in device processing power and network bandwidth will have to bemade.
Mobile Payment Application IssuesTechnology issues represent a first limit for the development of mobile payment. Then, ap-plication is another layer that can slow down the adoption of service. Applications shouldrespond to the expectation of the consumers.
Micropayments vs MacropaymentsA mobile payment solution should be able to support either micropayments, macropay-ments or both. As discussed earlier, micropayments are a good target for network operatorssince credit cards are not adapted for small expenses. However, macropayments generatemore revenues due to the bigger transaction fee that can apply to them. Therefore, macro-payments are very attractive to most mobile payment service providers. The system shouldbe adapted to the size of the payment; micropayments have to be fast and convenient, whilemacropayments have to be extremely secure.
Proximity vs RemoteFinancial transactions can be done either on a face-to-face basis or remotely. Network op-erators can benefit from a system that allows remote payments since they offer mobile ser-vice such as ringtones, games, horoscopes and other digital goods. Remote payments canalso be used for e-commerce. Proximity payments enable classic financial transaction be-tween two parties (B2C and P2P) present at the same place and same time. Mobile paymentproviders will have to choose the type of payment they want to support with their system.
Mobile Payment Global Issues
Universality and standardizationOne way to promote mobile payments is to offer a universal way to pay. The possibility topay anyone, anywhere, at any time should increase the chance of adoption of a new pay-ment solution. Therefore, financial institutions and network operators are trying to form al-liances to offer a standard.
CostThe adoption of mobile payment systems depends directly upon who will have to pay theextra fee. Most consumers would not be willing to pay more without a real value added ser-vice. It will be very difficult for mobile payment service providers to convince consumersof the benefits if the cost of using their system is higher than classical solution.
TrustFor financial services, there is nothing more important than trust. People will not use a sys-tem if they do not trust it. Therefore, security and chargeback policies are factors that can
Mobile Payments 24
improve the confidence of the users. After experiencing a bad situation during a financialtransaction, the consumer will certainly drop mobile payments forever. Moreover, it ap-pears that consumers prefer to see their financial data consolidated in banks [51]. Thisproves that customers care about who control their financial data.
RegulationNetwork operators and newcomers are likely to be the actors most concerned about newregulation. In fact, banks are already strictly regulated. Mobile network operators tend tooffer more financial services, so they have the choice of either extending their current bill-ing services, or applying for an EMI licence and becoming a bank [36].
6 AN ISSUE/ACTOR ANALYSIS
The goals of an issue/actor analysis are to rank the stakeholder’s positions on many strategicissues, assess the convergence and divergences, and anticipate coalitions and conflicts [43].This type of analysis can be used to discover perspectives or to support managers to conducta negotiation.Allas and Georgiades propose a five-tool model to help negotiators take decisions on com-plex issues [5]. They use the three dimensions of position, salience and clout. The positionrepresents the stakeholder’s preferred outcome on the issue. The salience describes how im-portant an issue is to the stakeholder as compared with all other issues. At last, the cloutcompares how much power the stakeholders have in influencing the decision on an issue.Another important dimension, influence, should be added to the analysis. This dimensionallows us to estimate the influence that an actor has upon the behavior of another actor.Some of the above-identified issues will be analyzed under the four dimensions. Tables de-scribing the actor/issue analysis are used for each selected issue. The goal of these tables isnot to quantify the dimensions but describe the relationship between actors and the issue.
Actor/Issue Analysis: The Device’s Physical FormThe physical form of the mobile device can be debated by the mobile payment service pro-viders. In fact, depending on the adopted device, some actors will have a disadvantage.
Table 16 : Actor/Issue Analysis: The Device’s Physical FormPosition Salience
Consumers The consumers want a device that is easy to carry,solid and eventually something they are already pos-sess or are familiar with.
Consumers will not use a device that they do not like.They have to be somehow attracted to the device.The form is crucial for innovators and early adopters.
Merchants Merchants want a solution that will not cost too muchto integrate to their current system.
As long as consumers accept the device, they shouldnot care about the physical form.
Mobile operators Mobile operators prefer that the device is a mobilephone or a device that would use their telecommuni-cation infrastructure.
This issue is important for them because if the devicedoes not use their network, they will not be part ofthe mobile payment market.
Newcomers/intermediaries They would be content as long as the physical form iscompatible with the system they offer.
Most of these companies are small and flexible, so ifthe device’s physical form changes, they would beable to adapt. Therefore, they give only a limitedimportance to this issue.
Financial institutions They will be most interested if mobile payments usea device that can interact with their current financialsystem.
It is crucial for them to stay on the payment market.Therefore, the device form has to be compatible withthe current payment scheme proposed by financialinstitutions.
Regulators As long as the device is not illegal, regulators haveno position on this issue.
No salience on this issue
Technology suppliers Suppliers want their technology to be chosen. If no one is interest in their technologies, then theywill have to find another business.
Mobile Payments 25
Actor/Issue Analysis: Micropayments vs MacropaymentsActors can have different opinions on what size of payment they want to support with theirsystem. Micropayments will generate revenues with transaction volume. On the other hand,Macropayments fees depend directly upon the size of the payment.
Clout Influence
Consumers As consumers are the end users, their opinion is veryimportant concerning the device. They thus have theability to set the standards for usability and features[2]. Their ability to influence the solution of thisissue is great.
Consumers can probably influence the other actorssince the service is offered to them. If the device sup-porting mobile payments is not adapted to theirneeds, then consumers can influence the other actorsto make them find a new physical form.
Merchants Since the support of merchants is required for anykind of adoption to occur [2], merchants have theirrole to play concerning this issue.
Merchants have only a limited influence on the otheractors. In fact, they are subject to user preferencesand demand [2].
Mobile operators By promoting the use of mobile phones for othermobile services such as mobile payment, networkoperators try to familiarize the users with newoptions.
Mobile operators depend upon the will of consumersto adopt mobile phones as a payment device.
Newcomers/intermediaries Because these companies are mostly intermediaries,they will adapt their mobile payment solution to thecurrent device. Thus, they do not really have influ-ence on this issue.
They do not have any influence on the other actorsconcerning this issue.
Financial institutions Having control of current payment devices such asdebit and credit cards, they could have an influenceon the demand for payment means.
Since some financial institutions dominate the pay-ment market, they could influence the physical formof the device if the consumer wants to continue usingtheir current system.
Regulators They could forbid the use of some devices. They do not have much influence on other actorsconcerning this issue.
Technology suppliers If they provide an adapted device, there would be agreater adoption of mobile payments with the physi-cal form they propose.
Without providing any technologies, no one wouldbe able to offer mobile payment with any device. Sothey have a great influence on the business of themobile payment service providers.
Table 17 : Actor/Issue Analysis: Micropayments vs MacropaymentsPosition Salience
Consumers They want a system which supports both micro andmacro payments.
Depending upon what consumers want to pay, theywould probably expect a unique mobile payment sys-tem for any amount of money.
Merchants Merchants want a system that can handle any size ofpayment, depending upon what they sell. For exam-ple, micropayments solutions are adapted for vendingmachines, but not for purchasing plane tickets.
Depending upon the price of the goods they sell,merchants might want a flexible solution that offersmicro and macro payments possibilities. They wouldaccord importance if the system does not respond totheir needs.
Mobile operators Mobile operators have a hard choice to make. Theycan offer a micropayments mobile payment system tocompete with cash or a macropayments system thatcompetes or uses payment cards (debit/credit). Theirposition is not clearly defined.
Mobile operators want to take part in the paymentmarket to generate some extra revenues. Therefore, ifthey can benefit from either micro or macro pay-ments they would be happy. However, macropay-ments stay the most attractive option for them.
Newcomers/intermediaries They would choose the payment size that gives thema greater chance to dominate. The market is tight forthem. They will have to find a way to offer an addedvalue of the mobile payment process. (e.g. securityfor macropayments)
Like the other mobile payment service providers,newcomers/intermediaries are interested to be a partof the macropayments market which seems to bemore profitable.
Financial institutions Financial institutions already dominate the market ofmicro and macro payments. To evolve with themobile technology and the threat of new paymentservice providers, they will try to adapt their currentsystem to support mobile micro and macro payments.For that, they could forge an alliance with mobileoperators to benefit from their existing infrastructureand customers.
It is very important for financial institutions to stay amajor actor on the payment market either for microand macropayments.
Regulators Different regulations have to be made dependingupon the size of the payment. Consumers and mer-chants have to be better protected from fraud con-cerning macropayments. Micropayments are easier tocontrol and regulate.
The importance that regulators could accord to thisissue is negligible as long as there is no abusive use.
Technology suppliers Technology suppliers have no direct benefits if a sys-tem is used for mobile micro or macro payments.They just have to provide technologies that supportboth sizes of payment.
Technology suppliers are not directly concernedabout the payment size.
Table 16 : Actor/Issue Analysis: The Device’s Physical Form
Mobile Payments 26
Actor/Issue Analysis: Universality and StandardizationUniversality and standardization represent one of the most crucial issues in regards to in-creasing the adoption of mobile payments. For the moment, no real standards haveemerged. Still, different actors are likely to have different ideas of how they want mobilepayments to be made.
Clout Influence
Consumers If the payment system is not adapted to the consum-ers’ needs, there is no chance that the solution will beadopted.
Consumers will probably dictate what they wantfrom the service providers. Then, the mobile pay-ment solution will be adapted.
Merchants Merchants might be reluctant to accept mobile microand macro payments if the cost or the risk is too bigfor them. Moreover, if merchants do not want toadopt any mobile payment system for any size,mobile payments will be only marginal and appliedto unmanned POS.
Merchants can ask the mobile payment service pro-viders to design a system that is attractive for them.They will not accept to pay and integrate mobile pay-ment terminal at their POS if they have nothing towin.
Mobile operators As long as mobile payments use mobile operators’communication infrastructure, they can control a partof the process and thus ask for a financial retribution.
Since mobile operators want to take part of the mar-ket, they probably need to cooperate with the finan-cial institutions. They could influence the way data istransferred over a mobile network.
Newcomers/intermediaries Their influence on this issue is almost non-existent.If they prove that it is possible to offer a successfulmobile micro or/and macro payments solution, thenthey could accelerate the adoption of mobile pay-ments.
The only influence they could have on the otheractors would be a well-designed solution that couldbe either taken as an example or be bought.
Financial institutions Having risk management expertise and well-estab-lished payment systems, they dominate the micro andmacro payment market. Therefore, they have thechoice to decide which system they want to support.
Financial institutions have a great influence on theother actors. As leaders on the payment market, theycan decide to launch their own solution with or with-out partners.
Regulators They likely have greater influence on macropay-ments than on micropayments.
They provide the legal framework concerning finan-cial transfers. Therefore, they would draw limits for apayment system that would be offered by mobileoperators that are not supposed to offer paymentsolutions to third-parties.
Technology suppliers If technology suppliers are not able to design a con-venient and secure system that supports well micro ormacro payments, the market will be frozen becauseof the low adoption rate of mobile payments.
Depending on the technology they supply, mobilepayment service providers would consider using theirtechnologies to build either a micro or a macro pay-ment system.
Table 18 : Actor/Issue Analysis: Universality and StandardizationPosition Salience
Consumers The consumers want to be able to pay anyone, any-where, and at any time. So without a universal sys-tem, the would probably not adopt a mobile paymentsolution.
Consumers expect a standard solution. They accordgreat importance to this issue.
Merchants Merchants want the solution that will be the mostadopted by their clients. They are thus for a standard.
They accord a non-negligible importance becausethey do not want to integrate many heterogeneouspayment solutions in the current systems whichwould probably cost more.
Mobile operators Mobile operators want a standard that is compatiblewith their current infrastructure to avoid spendingmoney building a new system.
It is crucial for them that the standards enable mobilepayments through their telecommunication network.
Newcomers/intermediaries They do not really want a standard because they aretaking advantage of the fact that mobile operatorsand financial institutions have not yet provided amobile payment standard.
This issue is important for them because their pres-ence among the mobile payment process can beoptional, even useless.
Financial institutions Because they already dominate the payment market,their standard is widely accepted for traditional anddigital payment systems. However, mobile paymentsare a challenge because they have to compete orcooperate with network operators to set a standard.
By insuring that the mobile payment standard isbased on banking or debit/credit cards, they staycompetitive on the market. Universality in paymentis pushed by Visa for example.
Regulators Standardization makes regulation easier to apply.Therefore, the market would be clearer and simplerto control. However, the market would lose its com-petitiveness which could give rise to monopolies.
The importance that regulators could accord to thisissue is negligible as long as there is no abusive use.
Technology suppliers Technology suppliers help to develop standards. Theone who will provide the most successful technologywill dominate the market because it will become thestandard.
Technology suppliers are working hard in hope thattheir technology will be chosen as the standard.Therefore, this issue is very important for them.
Table 17 : Actor/Issue Analysis: Micropayments vs Macropayments
Mobile Payments 27
7 MOBILE PAYMENT AS A DISRUPTIVE TECHNOLOGY
Emerging technologies almost always threaten well-established technologies used to offera product or a service. The real challenge for a company is to predict the successes or thefailures of a disruptive technology. Christensen defines a disruptive technology as a tech-nology or innovation that results in worse product performance, at least in the short-term.It brings to the market a very different value proposition than had been available previously.Products that are based on disruptive technologies are typically cheaper, simpler, smaller,and, frequently, more convenient to use. They generally underperform established productsin mainstream markets [16].Rafii and Kampas propose a tool that can help to anticipate competitive threats [44]. Theyidentify six stages in the process before disruptive innovations displace the current technol-ogy. The six stages are represented in Figure 18.
Figure 18 : The Six Stages of a Disruptive Process
At each stage, there are various factors that make the disruption more or less likely to suc-ceed. To illustrate some of this factors, we use Table 19 as a summary of the library of con-
Clout Influence
Consumers They have the ability to set the standards for usabilityand features [2]. Therefore, their influence on thisissue is great.
Since the service is offered to them, consumers canprobably incite the other actors to make an agreementon the standards.
Merchants Since the support of merchants is required for anykind of adoption to occur [2], merchants have theirrole to play on this issue.
Merchants have only a limited influence on the otheractors. In fact, they are subject to user preferencesand demand [2].
Mobile operators Their clout on this issue is diluted because the othersactors also take part in the establishment of stan-dards.
Since mobile operators joined some alliances whichare trying to provide a mobile payment standard, theycan take part on the decision that will be made. Inreturn, they offer the customer base.
Newcomers/intermediaries Their influence on this issue is almost non-existent.Their only chance to survive is to find an intermedi-ary position in the standard mobile payment process.
The only influence they could have on the otheractors would be their well-designed solution thatcould be either taken as an example or be bought.
Financial institutions Having control of current payment devices such asdebit and credit cards, they could have an influenceon payment standards.
Financial institutions created alliances to be morepowerful on the market that they already control.They allow network operators to take part because oftheir technology expertise.
Regulators They could regulate the way companies do their busi-ness. For example, the solution could be forbidden ifthe use of the system goes against the law or is unfairto consumers and merchants.
They can provide a legal framework in which mobilepayment service providers have to design their stan-dard solution. They could intervene if an actor or agroup of actors becomes too powerful on the market.
Technology suppliers They are the engine for standardization. Withouttheir research, no technology would emerge as a stan-dard. Therefore, the quality of their work in veryimportant.
Depending on the quality of the technology they sup-ply, mobile payment service providers would con-sider using their technologies to build a standard.
Table 18 : Actor/Issue Analysis: Universality and Standardization
Mobile Payments 28
tributing factors developed by Raffi and Kampas.
Each contributing factor identified has to be rated with a seven-point scale: - 3 = Highly disabling of disruption - 2 = Somewhat disabling of disruption - 1 = Mildly disabling of disruption 0 = Neither disabling nor enabling of disruption+ 1 = Mildly disabling of disruption+ 2 = Somewhat enabling of disruption+ 3 = Highly enabling of disruption
Then, because not all factors have the same level of influence, each factor must be weight-ed. The weight can range from one to three:
1 = Some influence2 = Substantial influence3 = Very high influence
Six tables representing each stage should be made (for an example, see Table 20). Each ta-ble will have a weighted stage score which can be use to measure the forces disabling orenabling the disruption.
This approach allow incumbents to detect a potential disruption early and to formulate a re-sponse to prevent it or, better yet, to turn it into a business opportunity [44].We propose to illustrate the use of this tool with an example: mobile payment versus creditcards. However, Table 21 is simplified since only the stage is approximatly evaluated in-stead of using the weighted stage score that is calculated in each of the six table containing
Table 19 : A Summary of the Library of Contributing FactorsStage Contributing factors
1. Foothold market entryCan the insurgent gain a foot-hold (usually in the marketbelow the main one)
- population who historically lacked the skill or money to buy- underserved segments/geographies- previously unprofitable low-end markets- opportunity to market stripped-down products- other...
... ...
6. Incumbent displacementDoes the innovation displace (asopposed to augment) incumbentproducts and revenues?
- amount of displacement in current markets- amount of displacement in future markets- diversification by the incumbent to limit financial vulnerability- other...
Table 20 : Table To Analyze The DisruptionStage
Forces disabling disruption Na
a. Neutral
Forces enabling disruptionRating Weight
Weightscore CommentsFactors -3 -2 -1 0 +1 +2 +3 Factors
Raw column totals Average
Weighted stage score
Mobile Payments 29
all of the contributing factors.
As Table 21 shows, there are many forces that disable disruption, such as the fact that creditcards are well-established, and that financial institutions are already thinking about mobilepayments. Therefore, credit cards will probably be used in mobile financial transactions.However, credit cards will only be used for mobile macropayments.
8 MOBILE PAYMENT CASE STUDIES
PayboxPaybox.net AG was founded in July 1999. After a pilot phase in December 1999, payboxwas launched in May 2000 in Germany [23]. Deutsche Bank owns 50% of the company andis responsible for payment clearing and settlement. Companies partnering with Paybox in-clude Deutsche Bank (payment processing), Lufthansa Systems (central computer and datasecurity), Oracle (software), Compaq and Hewlett-Parckard (hardware), and Intershop (e-commerce systems) [14]. Moreover, Paybox claims a world patent on its authentication andidentification system for payments to prevent start ups from imitating the Paybox system[7]. Paybox is also available in other countries, such as Austria, Spain, Sweden and UK. Paybox is an open and neutral -- i.e. not tied to a particular network or bank account -- pay-ment intermediary aiming at banks independent from telecom operators [13]. For the mo-ment Paybox only processes direct debits, which is cheaper than to process than credit cardpayments. Therefore, funds in Paybox transactions are drawn not from credit cards, butfrom the customer’s bank account [14]. Moreover, the system does not depend on PKI-structures and transmits the PIN now via DTMF-procedures (Dual Tone Modulation Fre-quency), but could migrate to a PKI-structure if widely available [23].To describe the Paybox scheme, we propose to use the simple table (Table 9) that we de-signed earlier in this paper.
Table 21 : Disruptiveness Profile: Mobile Payment vs Credit Cards
StageForces disabling disruption N Forces enabling disruption
CommentsFactors -3 -2 -1 0 +1 +2 +3 Factors1. Foothold market entry
unattractive foothold market(s) X
attractive foothold mar-ket(s)
M-payments are used in small pay-ment market like parking meters andvending machines.
2. Main market entry high barriers to entryX
low barriers to entry Financial transactions regulateddepending on the service. Creditincreases the risk.
3. Customer attrac-tion
low value added X high value added Lack of standards, not convenient,few POS equipped. Cost not clear.
4. Customer switch-ing
high costs of switchX
low cost of switching Mobile phone already enable m-payment (reverse billing SMS,USSD, WAP, ...).
5. Incumbent retalia-tion
low barriers to retalia-tion X
high barriers to retalia-tion
People are not ready to adopt m-payment in mass. It took more that15 years for credit card companiesto acquire a critical mass of users.
6. Incumbent dis-placement
low revenue displace-ment X high revenue displace-
mentCredit cards will probably be used inmobile payment transactions.
Table 22 : A Simple Description of PayboxName
Of TheExistingSystem
M-Payment Solution Type
Dimensions
Mobile Payment Solution Providers Relationship Location Payment Time
Client-based
Server-based
Hybrid MNO FinancialInstitution
Newcomer/Intermediary
B2C P2P F2F Remote Pre Direct Post
Paybox X (X) X X X X X X
Mobile Payments 30
Paybox is a server-based solution because the system links a mobile device or subscriptionto a separate bank account or credit card that has been pre-registered with the payment ser-vice [29]. Since Paybox uses direct debits and Deutsche Bank practically owns Paybox, wehave to include financial institution to the m-payment solution provider even if it is indirect.However, we must underline the fact that Paybox represents a perfect example of how abank is trying to control the entire value chain of mobile payment. In fact, mobile networkoperators provide their communication infrastructure but do not take any active task in thepayment transaction.To subscribe to the Paybox service, consumers have to fill out a form. Once the applicationis approved, the consumer can use Paybox for a range of transactions, including [14]:
• Payment for e-commerce• Person-to-Person (P2P) transaction (i.e. the user can send money to another
individual in any country where Paybox operates)• Payments to bank accounts (i.e. for bill payments and P2P transactions with
non-Paybox users)• Payments in the mobile world (e.g. in taxis and for delivery services).
The customer’s requirements for using Paybox is the possession of a mobile phone, a bankaccount and a Paybox registration.
Figure 19 : The Paybox Scheme
The typical payment transaction using Paybox would go like this:1. The customer gives his or her mobile phone number to the merchant2. The merchant transmits to Paybox the phone number and the price3. Paybox calls the customer and a voice message asks for authorization of payment4. The customer authorizes the payment by entering his or her PIN5. Paybox informs Deutsche Bank to settle the payment via the traditional payment
system (direct debit)6. The transaction is confirm by an automated voice or SMS.
The advantage of such a system is that only the mobile phone number, not the bank accountnumber or credit card details, are transmitted. Moreover, consumers can even request a Pay-box alias phone number if they do not feel comfortable giving their mobile phone numberto merchants. Therefore, Paybox tries to improve the customer’s trust and payment security.The current business model is to charge a small consumer subscription fee (5 euros per an-num) and charge merchants for each transaction with an average commission of around 3percent, which is comparable to credit cards [30].
Mobile Payments 31
At the end of the year 2002, Paybox attempted to find new partners to secure its future. Infact, Paybox looked for 10 million euros in external fundings to provide operating cash andpotentially to replace Deutsche Bank’s dominant holding [32]. On 23 January 2003, Paybox announced that it had failed to find new partners and funding.Consequently, it will wind down its mobile payment processing activities in all countriesexcept Austria, where Mobikom Austria will take on the business [31]. Paybox will actuallybecome a new company (Paybox Solutions) which will supply technology and services formobile payment systems.Gartner’s diagnosis for Paybox’s failure is the lack of demand due to the slow growth of m-commerce in Europe, the European economic climate and the fact the mobile payments donot yet offer a sufficient advantage over conventional systems such as credit cards [31].Moreover, Paybox cited the slow development of the market and the industry’s lack of co-operation -- particularly among banks and telecoms operators -- as the major factors behindthe decision to exit the UK market [58].
JoinKeyIn this section, we propose a mobile payment scenario. The solution described offers to re-tailers a product named JoinKey [40] that integrates the use of a membership device en-abling mobile payment and a customer management website following a one-to-one e-marketing strategy based on data mining. The objective of this scenario is to show that mo-bile payment can improve business processes and customers’ loyalty.
Description of the systemJoinKey consists of an integrated mobile payment system that uses Bluetooth wireless tech-nology to communicate to enable cashless proximity payment. Customers will get a small,light device that can be attached to a keyring. This device contains a Bluetooth chip andenough memory to keep an encrypted account number. As Bluetooth consumes very lowpower, the battery should last, especially because the device will be offline most of the time,and the power switch will only be activated when the consumer needs to use the device topay.As cash registers become more sophisticated, the possibility to plug a USB Bluetooth an-tenna or an additional wireless-enabled touchscreen seems to be feasible. Whether the mer-chant adapts the current system with the addition of antennas and update the software of thecurrent point-of-sale terminals or buy new touchscreens, the benefits will hopefully begreater than the cost of the infrastructure.Most existent point-of-sale solutions are already connected to backoffice infrastructure.Generally, retailers use the data coming from the cash registers to manage the inventory.Some membership programs enable the merchant to offer coupons but also analyze the cus-tomers’ behavior. In sum, the JoinKey system does not require a considerable investment.The solution will integrate the existing network and software infrastructure, but if the re-tailers do not use any datawarehouse, then the acquisition of such software will be required.The retailers then have to adapt their current website with a dynamic content engine. Theinformation published on the website would be different for each consumer. The role of thewebsite is to access the JoinKey account to update the amount of money charged on the ac-count, to add allowed users of the JoinKey and to see past purchases history. Moreover,there could be some coupons and advertisements available on the website to increase the
Mobile Payments 32
consumers’ loyalty. Figure 12 shows how the infrastructure works.
Figure 20 : The JoinKey System
JoinKey’s BenefitsThe JoinKey solution addresses a lot of the current problems of mobile payment. We pro-pose a table (Table 23) exposing the main benefits of the JoinKey system.
JoinKey’s LimitationsA few things can limit the adoption of such a system. For example, privacy could be oneproblem. Therefore, we think that the fact that consumers can have access to their purchas-es’ history and can also take advantage of such a system by finding better offers and cou-pons, will limit the impact. Another problem comes from the fact that not all consumers arefamilliar with new technologies such as the Internet. JoinKey is not a universal means ofpayment, which makes it less likely to succeed in the payment market. However, since retailstores already offer other non-classical payment schemes, there is a market for JoinKey.
Table 23 : Benefits of JoinKey
Simple The payment process is very simple with JoinKey. First, the user arrives at thecash registers, then clicks on the power switch. The account number of theconsumer will be transmitted to the wireless-enabled point-of-sale terminal.Once the retail employee authenticates the person (photo-based recognition),the cash register gives a receipt to the consumer.
Fast JoinKey simplifies the process by decreasing the number of operations theconsumer and employee has go through.
Secure During transmission, only the encrypted account number will be transmitted.This diminishes the risk of credit card fraud. In fact, the credit card number isonly transmitted during the update of the account on the retailers website.
Convenient Instead of having to have the wallet and credit card ready while packing thegoods into bags, the customer only has to press a button.
Personalized Subscribing to the JoinKey program enables the consumer to get personalizedoffers and rebates. The retailers will therefore increase the loyalty of theirconsumers.
Multifunctional JoinKey combines a means of payment and a membership card.
Mobile Payments 33
JoinKey SummaryJoinKey is an ideal infrastructure that retail stores can integrate into their current system.The benefits are great and the cost of implementation is reasonable. This case study had theobjective to demonstrate that mobile payment can be a part of the value proposition withoutbeing the only value added service from which a customer can benefit.
9 CONCLUSION
After reviewing the market with the proposed tool kit, we have a better understanding ofwhat the benefits and the issues of mobile payments are. As we could see, the market formobile payments is very immature, unpredictable and open for competition or collaborationbetween mobile payment service providers. The most likely scenario to pass will be that mobile network operators and financial insti-tutions will collaborate to offer a standardized solution. However, it seems as though Euro-pean customers are not yet ready to adopt en masse such a payment scheme. In the meantime, mobile payments could possibly be offered for some niche services, suchas vending machine or parking meters. For now, mobile payments solutions would be mostaccepted by consumers for e- and m-commerce.Even if most of the current issues of mobile payment are solved, there is nothing that guar-antees that consumers will adopt such a means of payment. Therefore, it is too early to pre-dict what is going to happen on this market since even the mobile payment service providersare still looking for a standard solution that would be accepted by everyone.
Mobile Payments 34
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Mobile Payments 35
[33]Kreyer N.; Pousttchi, K.; Turowski, K.: Characteristics of Mobile Payment Procedures. In: Maamar, Z.; Mansoor, W.; van den Heuvel, W.-J. (Hrsg.): Proceedings of the ISMIS 2002 Workshop on M-Services, Lyon2002. (preprint)[34]Krueger, M., «Mobile Payments: A Challenge for Banks and Regulators», IPTS Report, Vol. 63, April 2002.[35]Krueger, M., «M-Payments and the role of telcos», Electronic Payment Systems Observatory, ePSO-Newsletter Nr. 2, October 2000.[36]Krueger, M., «The Future of M-payments - Business Options and Policy Issues», Background Paper No.2, Electronic Payment Systems Observatory (ePSO), August 2001. [37]Lehner, F., Watson, R., «From e-Commerce to m-Commerce: Research Directions», University of Re-gensburg: Chair of Business Informatics, 2001.[38]Mobile Payment Forum, «Enabling Secure, Interoperable, and User-friendly Mobile Payments», Mobile Payment Forum White Paper, December 2002.[39]Muller-Veerse, F., «Mobile Commerce Report», Durlacher Research, Ltd. November 1999.[40]Ondrus, J., Sebastian, I., «JoinKey - Business Plan», College of Business Administration, University of Hawaii at Manoa, December 2002. [41]Osterwalder, A., Pigneur, Y., «An e-business model ontology for modelling e-business», to appear inProc. 15th Bled Electronic Commerce Conference (June 2002).[42]PayCircle’s website, http://www.paycircle.org, accessed in July 2003.[43]Pigneur, Y., «Enjeux et influences», Stratégies et technologies de l’information DPIO 2003, INFORGE, HEC Lausanne, https://inforge.unil.ch/yp/STI, May 2003.[44]Rafii, F., Kampas, P., «How to identify your enemies before they destroy you ?», Harvard Business Re-view, November 2002.[45]Salvi, A. B., Sahai, S., «Dial M for Money», WMC '02: 2nd ACM International Workshop on Mobile Commerce, September 2002.[46]Schapp, S., Cornelius, R., «U-Commerce - Leading the New World of Payments», A Visa International and Accenture White Paper, http://www.corporate.visa.com/av/ucomm/u_whitepaper.pdf.[47]Seah, W., Pilakkat, S., Shankar, P., Tan, S. K., Roy, A. G., Ng, E., «The Future Mobile Payments Infra-structure - A Common Platform for Secure M-Payments», Institute for Communications Research, Systems @Work Pte. Ltd, December 2001[48]Siau, K., and Shen, Z., «Building Customer Trust in Mobile Commerce», Communications of the ACM, Vol. 46, No. 4, April 2003.[49]Speedfacts Online Research GmbH, «mBanking – The Future of Personal Financial Transaction?», Frank-furt, 2001.[50]Stabell, B., Fjeldstad, O., «Configuring value for competitive advantage: on chains, shops, and networks», Strategic Management Journal, Vol. 19, 413-437, 1998.[51]Starita, L., «ISPs, Wireless Carriers and Banks: Friends or Foes?» Gartner Research, COM-11-7054, Oc-tober 2000.[52]Tarasewich, P., Nickerson, R., Warkentin, M., «Issues in Mobile E-Commerce», Communication of the Association for Information Systems, 8, January 2002.[53]Telecom Media Networks, «Mobile Payments: Money in Your Hands», Cap Gemini Ernst&Young.[54]The Economist, «Phone me the money», The Economist from print edition, March 2003.[55]The ePSO inventory, http://www.e-pso.info/epso/inventory/inventory.html[56]The Liberty Alliance Project website, http://www.projectliberty.org/about/history.html, accessed in July 2003.[57]The Mobey Forum website, http://www.mobeyforum.org, accessed in July 2003.[58]Thomas, D., «Paybox blow to m-payment market», Computer Weekly, February 2003.[59]Thomman, H.-R., «All you wanted to knowabout credit cards - but were afraid to ask!», PayServ AG[60]Watson, R., «U-Commerce: The Ultimate», Ubiquity, http://www.acm.org/ubiquity/views/r_watson_1.ht-ml., 2000.[61]Weber, R., «Chablis - Market Analysis of Digital Payment Systems», Technical Report TUM-I9819, Technical University of Munich, August 1999.[62]Wireless Figures and Forecasts, «Cellular Penetration By Region», EMC's e-searchwireless.com database, Updated June 2001.[63]Wrona, K., Schuba, M., and Zavagli, G., «Mobile Payments - State of the Art and Open Problems», pre-sented at WELCOM 2001, Heidlberg, Germany, 2001.
Mobile Payments 36
APPENDIX A: CLASSIFICATION WITH TWO DIMENSIONS
Devices without any Payment ApplicationsFor these devices a mobile payment can be made using the following mechanisms:
• Site wallet• Remote wallet• Distributed wallet• Network operator specific mobile payment
Table 1 Device without payment application: Site walletSite walletDescription: A site wallet is a personal profile, containing bill-to, ship-to and credit card data that can be used only atindividual Web or mall sites. The user is required to register with the merchant with his/her personal profile.Advantages: – A site wallet helps frequent visitors by storing the profile data they enter for reuse later. – No wallet software is needed at the client side.Disadvantages: – A site wallet can be accessed only when the user is logged onto the service affiliated with the site wallet. – As no site is alike, one needs to remember the user-id and password individually. – Sites wallet generally supports only one payment instrument; they cannot support smart cards and PINs. – Users must entrust their personal profile to individual site they registered, which increases the risk of profiles being exposed to hacker.Existing Applications: Amazon.com, Yahoo, eBay, Ticket.com, Aether, Verisign (E-Visa)
Table 2 Device without payment application: Remote walletRemote walletDescription: A remote wallet is a payment service that can generally be used only within a community of merchants hold-ing a relationship with a service provider or through specific browsers or service providers. Remote wallet payment is cur-rently the most widely deployed mechanism for mobile payment.Advantages: – A remote wallet allows the user to store multiple payment instruments. – No wallet software is needed at the client side.Disadvantages: – To use a remote wallet, both consumers and merchants must be enrolled with the service provider. – A remote wallet can only be used only when the user is logged onto the service. – Remote wallet does not support smart cards or PINs, as required for many international debit cards. – Remote wallets hold potentially thousands of card numbers and as a result are “fat target” for criminals. – Remote wallets are very expensive to establish and operate.Existing Applications: Qpass, PayBox (similar to System @ Work), Paypal (Via e-mail), Fundamo (using telephone num-ber), PayWare (WAP based), InstaBuy
Table 3 Device without payment application: Distributed walletDistributed walletDescription: A distributed wallet uses software on the end-user’s machines and on Internet wallet servers to make pay-ments. It is a hybrid of remote and personal wallet. The client functions are limited to negotiating the protocol for connect-ing to the server and authentication.Advantages: – Can support smart cards and PINs. – Merchant may not need to subscribe to the distributed wallet service if the wallet client support stand-alone payment transaction using SET protocol.Disadvantages: – Distributed wallets are much more complex than remote wallets and depend on longer messaging chains across potentially disparate environments to operate successfully. – No protocols exist to enable the client portion of the distributed wallet to interface with multiple servers. The current one-to-one approach limits the end-user’s payment options.Existing Applications: GlobalSET specification
Mobile Payments 37
Devices with Payment ApplicationsFor the second type of devices (devices with payment application), to make a mobile pay-ment, the following mechanisms can be used:
• Personal wallet• Electronic purse• EMV• Telco specific mobile payments
Table 4 Device without payment application: Telco specific mobile paymentNetwork Operator Specific Mobile PaymentDescription: Here, the network operator acts as the billing provider. The charges for the service are added to the sub-scriber’s telephone bill.Advantages: – Uses existing account for payment.Disadvantages: – Network operator specific payment. Roaming issues. – Usually small amount allowedExisting Applications: SmartTrust, SingTel (Softdrink vending machine)
Table 5 Device with payment application: Personal walletPersonal walletDescription: A personal wallet is software/hardware that runs on the consumer’s device. No wallet server is involved andno server operator is required. The personal credit information is stored locally. Advantages: – Low cost to implement. – Able to perform offline profile management. – Can support advance security methods. – Can support smart cards and PINs. – User controls all card and personal informationDisadvantages: – Storage size requirement.Existing Applications (e-commerce based): IBM Consumer Wallet (e-commerce, SET based), Gator (Only assist user infilling up forms), eWallet from Ilium Software
Table 6 Device with payment application: Electronic purseElectronic PurseDescription: Electronic purse is a system, which caters to reduce consumer reliance on cash and check especially for lowvalue purchases. It uses smart card technology to store pre-paid monetary value.Advantages: – Ease of use – Flexibility - Multi-currency capability, Pay person to person – Reducing the handling of cash and cheques for both bank and retailerDisadvantages: – Usually only for small amount transaction – No global standard – Bank centricExisting Applications: Proton electronic purse by Banksys, Visa Cash, Mondex, Manmont
Mobile Payments 38
Table 7 Device with payment application: EMVEMVDescription: Europay, MasterCard and Visa (EMV) is a set of specifications to ensure interoperabilitybetween chip card cards and terminals on a global basis. It is used to store payment application.Advantages: – Promoted by MasterCard and Visa – Smart card basedDisadvantages: – A payment server is needed to manage the interface with the merchant, client and acquirer.Existing Applications: Nokia EMPS using ENV/SET, EMV compliance bank card from SUMITOMO
Table 8 Device with payment application: Telco specific mobile paymentNetwork Operator Specific Mobile PaymentDescription: Here, the network operator acts as the billing provider as the bill is added to the subscriber’s telephone bill.The payment application is incorporated into the SIM card provided by the network operator.Advantages: – A single SIM card is needed onlyDisadvantages: – Telco specific payment. Not all the Telco provides such a serviceExisting Applications: Telecom Italia Mobile (using SAT)
