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It's not all about security

By davebirch posted Jan 17 2007 at 5:07 PM

[Dave Birch] Obviously, security is essential to digital money. But it's a mistake, I think, to imagine that everything is to do with security. A while back, for example, Stuart Carlaw of ABI said that "Carriers want NFC capability to be built into the so-called SIM card, the network chip that identifies subscribers and runs other key functions on the phone. But banks aren’t convinced SIM cards are secure". On the other side of this digital divide, a group of fourteen mobile operators have begin working together to develop NFC applications. Is this because Bouygues Telecom, China Mobile, Cingular Wireless, KPN, Mobilkom Austria, Orange, SFR, SK Telecom, Telefonica Móviles España, Telenor, TeliaSonera, TIM, Vodafone and 3 aren't convinced that EMV is secure. Of course not.

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The tension between banks and operators isn't about security, it's about control, and both "sides" are stepping up their land grabs. In the Netherlands, Rabobank has launched a mobile proposition that includes a combination of mobile banking and low-cost calling. The service, Rabo Mobile, is of note because it is the bank that will be distributing the handsets to its customers not the mobile operators (in this case, Orange). This is rather historic because it's a bank entering the mobile operators' domain.

In the U.S., some observers -- recognising the obvious attractiveness of the NFC-based consumer payments proposition -- are pointing at the mobile phone operators are the ones holding up a new era of mobile payments in the States because they haven't found the right business model they like. But in our discussions with banks and operators, we can already see the initial positions shifting. I an confident that operators will abandon trying to get transaction slices and will simply charge the banks for the download of the payment applications into the phone. It's control over these payment applications that is at the heart of the matter. If banks are to use mobile phones to carry payment applications, then they will come to some agreement with operators because "over the air" is a much better and more flexible solution. This has long been understood. Look at MasterCard's first mobile contactless payments pilot, in Dallas three years ago, the banks had to manually load account information onto each cell phone before distributing them to participants. In another MasterCard trial launched more recently, participants will activate MasterCard's PayPass application on their Nokia phones remotely, through a third-party service using the mobile network (about 500 people are taking part in a trial using 7-Eleven's Speak Out MVNO to make purchases at one of 32,000 stores that accept MasterCard PayPass).

Whether it's banks offering MVNOs or MVNOs offering payments, the overlap between mobile, contactless and NFC is becoming a pretty hotly contested space. And a fascinating one, which is why these are the kind of issues I will be encouraging banks, operators and suppliers to discuss together at my pre-conference workshop for the Mobile Payment conference in Amsterdam next March.


The interesting thing for me is that the business model actually work. It has been demonstrated spectacularly in especially developing economies. (Visit www.fundamo.com for examples) But it was only possible to achieve these successes when the participants (banks, mobile operators, retailers) were prepared to change their existing pre-conceived ideas about payments. The biggest barrier to developed economies in deploying mobile payments are legacy - primarily legacy thinking.

I would say its more about ownership rather than "control" of the consumer. Telco and Banks both have relationships with the consumer and both would like to extend that relationship to generate more revenues, but the question you raised about the business model is of the essence and goes well beyond just control and into customer service, technical support,billing, re-provisioning etc.

Those who know the details of the technology platforms on SIM or EMV side know that there is enough security to mitigate the risk. Both platforms have the ability to prevent "unauthorized" downloads and access. That is the ownership issue. It remains to be seen who will pay to download applications and data on whose platform.

There is still no holistic business model in all the project and pilots that provides revenue to all the stakeholders and distributes the risk and liablities equally as well.

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