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« Extending debit | Main | More from the war on cash »

Phones are better than cards

By davebirch posted May 1 2007 at 9:40 PM

[Dave Birch] The Visa U.S.A. President  John Philip Coghlan has said that wallet phones are "inevitable".  And he's right, as I have consistently insisted.  As a mechanism for retail payment, mobile phones have it over plastic cards: a card is merely a receptacle for the consumer's data, whereas a phone can initiate a payment or accept on, can act as a channel for the customer and can manage payment-related data.  Bob Egan, Research Director for Emerging Technologies at TowerGroup (which is owned by MasterCard Worldwide) says that m-payments "will do for debit and credit card transactions what the iPod did for music": I think he means that they will make credit and debit card transactions available to all and easy to use rather than they will make credit and debit cards proprietary, under the distribution control of a third-party and unusable by older persons.

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There's still a lot to be done.  For a start, a mass market payment product must be managed across its entire lifecycle: installation and personalisation; updates such as account expiry; deletion of the application from the phone; and moving the payment application to a new mobile phone.  The operator vision -- whereby the application management is SIM-centric -- appears to have won for the time being.

The card brands are moving ahead now.  In the U.S. Visa, MasterCard and Discover have launched trials.  Visa is encouraging banks and telecoms to start trials by debuting a mobile payment platform created just for launching pilots.  Pam Zuercher, Visa's Vice President of Product Innovation, says that consumers want a single device "that can get them through their day".  That's not a plastic card: it's a mobile phone, which customers prefer for accessing e-mail, text messaging, listening to music, surfing the Internet and just about everything else.  A mobile phone enabled with NFC will have the capability to enhance all of these complementary uses, like card account management, coupon delivery, authentication and ticketing.

Ticketing is one of the most important applications from a payments perspective, because of the critical role of ticketing in driving "top of wallet".  Now, Deutsche Bahn and Vodafone plan to launch one of the new services, called“Touch & Travel” in Germany.  Passengers touch tags, called “touchpoints,” when they board or leave the train or bus stops.  The locations are registered and the phone sends the data over the network.  The system then calculates the fare and bills the passenger at the end of the month. The application is, naturally, stored on the SIM card.

Wallet phones are, indeed, inevitable.  But is the SIM the inevitable pivot?  Bouygues says it is not essential for the payment or other applications be stored on the SIM, at least not for the foreseeable future. Separate secure chips embedded in the handsets or in flash memory cards inserted into the phones could store the applications.  So a new open approach to NFC?  No.  What Bouygues are saying is basically that SIM could store code that grants rights for those applications to be downloaded to the phones or authorization to run the applications while the applications need not be stored on the SIM.  As we've been saying in a number of workshops with our clients recently, this is the rather obvious architecture for the next phase of mobile payment evolution until the "Release 7" SIMs with high-speed USB interfaces arrive.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


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