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More Flash than Cash?

By number19 posted Jan 9 2008 at 9:55 PM

[Dave Griffiths] Have the Mobile Operators missed the mobile payments boat? Time was when the mobile gurus would have us believe that mobile payments were going to be big, so much so that they replaced the “e” in “e-commerce” with “m” for mobile. About 10 years ago they were convinced that people would browse the internet on their WAP phones, and buy fridges (not just fridges though) on the train on their way home from work. The only thing the mobile operators were missing was a payment mechanism they could tickle. The same gurus who had thought that buying fridges on trains was a neat idea, also thought that the mobile operators already had all of the necessary payment mechanisms in place - because they already billed their customers monthly, and because they already settled call charges between themselves both nationally and internationally. However, there was a gap between guru perception and mobile operator reality: analysis soon showed that the billing systems were held together with string, the international settlements were based to a large extent on fingers in the air, and the overall m-commerce proposition was more pie in the sky than fridge on the train.

The brave new m-commerce dream soon became little more than a mechanism for ring-tone purchase based on then concept of the reverse charge SMS (which for consumers, fell into the same perception category as premium rate telephone calls, along with all the associated mis-charging grief). The reverse SMS payment mechanisms did nothing to enhance mainstream mobile telco payment propositions – and they were also associated with sub-prime businesses, advertised in the back of tabloids. Other SMS mechanisms were tried (linked to standard bank accounts as the mobile operators tried to tickle the transactions by enhancing existing transaction security), but these have never managed to catch the international imagination.

The mobile operators cannot deny that they had a flying start. They had relationships with each other, and they also had a technical infrastructure built around the GSM chip that had the potential to bridge the card not present transaction security gap – and since the number of mobile phones in use was rapidly approaching credit card density, there would be no shortage of adopters. Pay-as-you-go (PAYG) also meant that payments need not be restricted to the over 18s and the banked. The development of the PAYG infrastructure, since it dealt primarily with value rather than minutes, could easily have been enhanced to provide a card scheme type payment infrastructure.

Collectively and, to some degree, individually, the telcos were in possession of everything necessary to build a non-bank payment infrastructure - in an area that for the banks was still pre-roadmap. And the banks were pre-occupied; at the time they were working hard to put chips on cards, and chip readers in terminals: they had no immediate interest in mobile payments.

PAYG, and the development of e-top-up vastly enhanced telco ability to manage the movement of real money. Without a doubt, this gave them the edge; it especially gave them the edge because the e-top-up cards were ATM compatible and the transaction switching technology had also been adapted from existing banking systems. However, PAYG also made the phones accessible to the youth market, and sexy because of the accessibility. The more mature phone users still wanted a phone they could use for talking, and maybe the odd new-fangled text thing. The younger user, who by and large had little memory of the old world “dog ‘n’ bone” phones wanted cameras and videos and mp3 players and radios and television and the internet and MSN, and Oh! Yes, a phone too, so that their more pedestrian parents could still communicate with them.

Phones that did stuff that wasn’t particularly “phoney” inevitably caught the imagination of the designers, and the marketers. With phone technology riding the Moore’s Law wave, the designers were ever more able to squeeze ever more features into ever smaller boxes, and the race was on to provide an endless supply of phones to satisfy an ever expanding mobile phone market.

Phone manufacturers formed alliances with multi-media corporations, as each recognised the other as a means of expanding their individual markets. History has shown each to have been correct – phone companies sell more phones and media companies sell more media – and the telcos are still selling bandwidth: a commodity product with limited ability to add value to the stand-alone telco proposition. Multi-media corporations and phone manufacturers are selling their products on the back of the high availability, high bandwidth, transport medium provided by the telcos, and now the banks are too. Contactless gizmos can be attached, or built in, to phones that can talk to merchant terminals, and congratulations go to RBS for recently achieving this significant milestone, and thanks for showing it to me. The phone gizmo communicates with the existing bank payment infrastructure, and the transaction just works! The gizmo, however, is also in communication with the customer’s bank, and can be topped up and managed remotely over the phone network – but the telco is still just selling the data bandwidth and is still not in a position to tickle the transaction.

The mobile operators are still selling mobile toys: their market expands (or at least generates new consumers) as new youth come of phone age every year. There will always, it seems, be a market for phones that flash. It’s an exciting world for the designers, for the technologists, for the marketers, for the accountants, and for the customers; and it’s exciting in a way that mobile payments aren’t! The mobile operators had a period of grace from the time that mobile phones became digital to the time when the banks and the payment schemes would catch up and apply their ever increasing payment sophistication to the mobile phone. That grace period was probably in the region of ten years, and it’s over!


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The mobile phone operators had a few advantages, being the handset and the technology base. What they didn't have however far outweighed what they did have, so rapid development will have to come from outside the telcos.

Doing new payment systems from scratch is a thing that is very infrequent, which means there is a real shortage of real experience, and a tendency for people to think that if they can switch packets, they can switch payments ... Some tiny percentage of them succeed, but we are talking around 1%, and telcos have no advantage that allows them to beat that record.

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