Article

Mobile payments in the U.S. remain an attractive but elusive idea: Study

A variety of approaches to the concept are in the works around the globe as firms seek entry to this promising field.

September 26, 2010

Mobile payments have generated a great deal of speculation in the media, but the actual implementation in the United States is still a long ways off, according to a new report from IDC Financial Insights. The study is valuable as some kiosk industry observers have predicted that self-service devices could be severely impacted by mobile devices.

The study 'Best Practices: Mobile payments in action – Five case studies from around the world' looks at efforts in Asia, Canada and the United States, though some of these applications cross borders.

The report concludes that the most successful current mobile payment applications occur where a "scheme operator" controls both the banking and telecommunications assets of the plan. In the United States, ownership in both the telecom and banking industries is too fragmented for one firm or even group of firms to operate a broad mobile payments solution.

IDC makes clear that the phrase mobile payments has a variety of meanings. The Framingham, Mass.-based research house notes that proprietary mobile stores, text messaging schemes and contactless payments where 'tags' are pasted on a phone and waved near a payment terminal, are all referred to as mobile payments.

Plans to implement a mobile payments program in the United States are complicated by competing types of technology and hardware offered by firms jockeying to participate in the potentially lucrative space.

In comparison, a credit card payment scheme is relatively simple, says IDC. There is a buyer's agent (the credit card issuer); a seller's agent (the merchant's bank); and a processing network like Visa or MasterCard.

But with mobile payments, the processing network role is "complicated by the fact that there are at least two organizations that must cooperate to fulfill these roles: the mobile device manufacturer and the mobile network operator (MNO)," according to IDC.

In other words, in the United States you need to get sign-on by the banks, merchants and processing networks — plus carriers like AT&T, Verizon, et al.; and smart phone providers like Apple, Google Android and others.

"The media and analysts want to write about (mobile payments), but we're still at the embryonic stage," said Aaron McPherson, practice director at IDC and principal author of the report. "The carriers want control, and different countries have different systems. There's got to be consolidation before there is mass use."

But mobile payments have taken hold in those countries where there is consolidation.

Japan's Jibun Bank offers mobile payments, account transfers and bill and epayments. It is a joint venture between Bank of Tokyo-Mitsubishi and mobile operator KDDI. Both partners are dominant players in their sectors, with Bank of Tokyo claiming 40 million accounts and KDDI with 30 million customers.

Since its start in 2008, Jibun has signed additional deals with other large banks and telecom firms, and it already claims 700,000 accounts and $112 million in deposits, according to IDC.

In South Korea, SK Telecom has a 51 percent market share of the country's mobile business, owns 49 percent of Hana Card, and offers a number of finance and money-transfer portals, from insurance to securities trading, to transit, to games and streaming video.

This cross ownership has helped SK Telecom dominate South Korea's mobile payments market.

Elsewhere, mobile remains fragmented. Still, one firm that is involved in a number of promising efforts is MasterCard.

Its MoneySend service began in 2007 in India by allowing cardholders to transfer money from one MasterCard account to another. MoneySend found adoption in the Philippines due to the great number of workers the country sends abroad. The offering has since been expanded to the United States and China, and will soon be available in about two dozen other countries, according to IDC.

"Once you have money transfer capability it can be applied to mobile payments. The phone needs an attached (payments) card, whether debit or prepaid card," McPherson said.

Credit cards are not typically applied to these money transfer accounts because the users either don't have bank accounts or they prefer to segregate the funds they want to transfer, says McPherson.

In the United States, the MoneySend Managed Service Platform is supported by Obopay Inc., a Redwood City, Calif.-based mobile payments firm. Obopay converts a transaction from a mobile phone into a payment authorization request over MasterCard's network.

There is a MoneySends app for the iPhone, and MasterCard plans to support a BlackBerry version by the third quarter of this year, IDC reports.

"MoneySend has come pretty far. MasterCard does an excellent job of networking with these alternative payment efforts," McPherson said.

In Canada, MasterCard has hooked up with Enstream's Zoompass, a peer-to-peer money transfer system. Zoompass will offer an RFID tag that can be attached to a smart phone and linked to a prepaid MasterCard account, making the phone similar to a contactless card. Zoompass was created as a joint venture by three of Canada's largest telecom firms.

In the United States and around the globe, PayPal allows its account holders to send money to each other through its network. PayPal's mobile division is developing applications designed to allow banks to provide person-to-person payments for their customers.

It recently signed deals with two large processors of transactions for financial institutions, Fidelity National Information Services (FIS) and S1 Corp. FIS claims 14,000 clients worldwide, while S1 has about 3,000 customers.

Under the deals, PayPal will power account-to-account transfers through online banking sites, IDC reports, and that presumably could lead to mobile payment transfers. The problem for PayPal is that many banks continue to view it as a competitor, not a partner.

The United States may be lagging in this payments space, but its consumers are rapidly switching from cell phones to smart phones, and that increases the likelihood of some form of mobile payments, concludes IDC. For instance, by 2014 smart phones will make up about two-thirds of all mobile phones sold in the United States, double the one-third this year, IDC projects.

That makes it likely that third-party firms will offer mobile-payment applications that don't require the sign-on of the mobile network operators, or carriers. And once an application gains market share, the flood gates just might open.

(Photo by William Hook.)