Mobile Payments World (Intro)

There was plenty of tasty Kool-Aid^tm on tap for Mobile Commerce geeks at the day long Mobile Payments World Special Interest Seminar on Monday.   The session was well attended, particularly in view of the incremental fee, with representation from all corners of the anticipated ecosystem including banking, payment infrastructure providers, credit card associations, wireless carriers and a smattering of merchants.  In hindsight, the extra fee was well spent given all of the information I gathered over the 8 hours.

First up was Willy Dommen, a Principal with Booz Allen Hamilton, to provide an overview of the emerging business opportunity and ecosystem.  This was a basic, tone-setting excercise that was old news for many in the audience.  He did provide an unconventional perspective on the distinction between contactless and Over-the-Air (OTA) payment systems by suggesting that it’s the latter that will represent the more mature and complex incarnation of mobile payments.  This gave me pause, as I have been looking at OTA largely as an interim step until NFC readers become ubiquitous point-of-sale devices.  Mr. Dommen suggests, rightly, that OTA will enjoy longevity as the technology to faciliate payments for car parking, vending machines, P2P payments and some forms of ticketing. 

He also indicated that the clear opportunity for incremental revenues derives from the use of mobile to replace cash transactions as opposed to a substitute for card transactions.  This potential is a function of interchange fees, time to penetration and degree of substitution as indicated in the chart mobcash.ppt.

The New AT&T at Mobile Payments World

 I’ve heard it said that the shorter one’s title, the more important one is.  If true, it doesn’t bode well for Spencer White, Director of Mobile Financial Services and Business Development,  Cingular Wireless.  Nevertheless, the fact that “The New AT&T” supports a Director-level position focused on this space is another indication of their leadership in the mobile commerce arena.

In fact, listening to Spencer’s comments, one might get the impression that Cingular/AT&T is the only carrier taking substantive steps toward making mobile payments a reality.   Like many during the day, his comments were largely centered around NFC.   Among the tidbits dropped during his presentation:

Cingular is currently running retail in-store trials involving smart tags and NFC phones for marketing purposes.

The company is working out a solution for international peer-to-peer funds transfer initiated from mobile devices.

Cingular/AT&T will introduce their first NFC-equipped phones late in 2007, but expects the complete churn out of subscriber devices to take 5+ years.  The secure element for mobile commerce will reside on the SIM.

Cingular expects to begin selling mobile banner advertising soon.

Finally, Spencer was the first of a few on the day to refer to the following statistics…

Average time to complete a cash transation at retail POS = 30+ seconds.  Average time for mag. stripe credit/debit card transaction = 22 seconds.  Average time to complete contactless transaction = 12.5 seconds.  Even if true, it remains to be seen if merchants will find this time savings compelling.  For more, read “Three Presenters…” below.

MPW – Three Presenters for the Price of One

Jointly leading a presentation entitled The Components of a Successful Mobile Payment System: Architecture, Partnerships and More were Liisa Kanniainen of the Mobey Forum, Brad Singer from PaymentOne and Moneet Singh of Sapphire Mobile Systems.  While there was less cohesion than I would have expected in a session with the above title, each presenter made noteworthy points:

Liisa Kanniainen

·        Mobile Financial Services are comprised of four distinct offerings – financial information, prepaid top up, authorization credentials and transaction processing.

·        A key question yet to be answered is where security will reside on the mobile device: in an embedded chip, on secure memory or within the device’s SIM.  Comment:  The latter option indicates a strong GSM focus, not surprising given Mobey Forum’s member companies hail largely from Europe.

·        In her view, wireless carriers are not likely to get a cut of transaction revenues generated through mobile payments.  Again, this may be a Euro-centric view, as most U.S. based individuals with an interest in mobile payments that I’ve spoken to believe such monetization will be necessary to drive carrier participation.

Brad Singer

MobileOne, like Korean companies Danal and Mobilians, seeks to provide a Bill-On-Behalf-Of (BOBO) solution leveraging the wireless carriers invoice to facilitate the purchase of small ticket digital services.  To be clear, this means digital goods delivered both via The Internet and to wireless devices.  Key facts from his presentation:

·        18% of consumers surveyed would like to be able to charge such purchases to their wireless carriers’ invoice.  In contrast, 43% surveyed would prefer to place such charges on their local phone bill.

·        In the US, there is a $25 billion market for small ticket digital services (?!).

·        Habbo is one example of a target merchant for this payment method.  Comment:  It’s interesting that iTunes, the 800 lb. gorilla amongst potential merchants in this space, received no mention. 

Moneet Singh

Mr. Singh, the President and COO of Sapphire Mobile Systems, provided some much needed perspective for those who believe that contactless (NFC) payment terminals will soon become ubiquitous:

·        Given in order of transaction cost (interchange + authorization fees) from highest to lowest – Card not present (as in the case of Internet purchases), Signature Credit, Signature Debit, PIN Debit.  PIN Debit, which functions much like ATM withdrawals, is both the least costly and most timely.

·        One might think that merchants, who have grumbled for years about the high cost of credit card transactions, would be quick to adopt PIN debit.  Yet several years after the introduction of such instruments, only about 30% of merchants are equipped to accept them.   Most cite the high capex associated with new POS equipment as the primary restraint. 

·        Improved throughput at the register alone will not compel merchants to adopt contactless payment technology.  Lower transaction fees might, but only if the price for updating POS systems is attractive.

Other interesting points by Moneet Singh:

·        Even absent transaction fees, Mobile payment is currently not cost neutral for consumers, who must pay for new mobile devices and/or data plans and/or SMS messages and/or incremental voice calls.

·        With respect to mobile P2P funds transfers, a survey conducted by Sapphire indicates that payees are willing to pay an average of $.50 per transaction for immediacy while payers aren’t willing to pay anything.  Banks enabling such a service would also prefer to charge the payee, as the payee is often a non-customer.  Comment:  The current parallel to this is ATM fees, which are relatively steep for non-customers and usually free to bank customers.

·        Banks are often not fond of online bill pay, for which they typically bear the cost with no recovery mechanism.  This will also drive banks’ hesitation to enable mobile bill pay.  Comment:  I don’t fully agree with the generalization, as I have spoken to bank executives who profess interest in any technology that 1) reduces the amount of paper they need to process and 2)allows them to differentiate their services. 

VISA – Everywhere We Want Mobile Payments To Be

 If the faithful found Moneet Singh’s comments regarding the anticipated adoption of contactless systems sobering, a return to unbridled enthusiasm was delivered in the form of the next presenter, Pam Zuercher, VP of Product Innovation for VISA.  Executives in the trendy realm of Innovation are paid to help the more mundane among us see a new world of possibility, and Ms. Zuercher did not disappoint.  Her theme might well have been Mobile Payments Will Happen, and VISA Will Help it Happen.  Among the tidbits she provided in support of the hypothesis that Americans are just itchin’ to spend money via their mobiles:

• A consumer survey conducted by VISA indicates that 54% of respondents would switch carriers in order to gain the ability to pay mobily (mobe-ly?).
• The same survey shows that 37% would pay more for a proximity-payment capable mobile device.

In stark contrast to comments made earlier by others, Pam shared the opinion that carriers will ultimately benefit from some portion of the transaction fees generated by mobile payments.  I don’t disagree with that view but it would certainly carry more weight if it were made by an issuing bank or banks, as opposed to a representative of an organization that is very unlikely to be writing the checks.

Without going into specific implementations, Pam suggested that VISA views both NFC and SMS as enabling technologies.  Further, she listed Account Management, Coupons, Alerts and Notifications and 2-Factor Authentication (apparently VISA’s view of the primary capability required for proximity payments)as the priority services to be enabled by VISA’s incarnation of the mobile wallet. 

Once upon a time, I managed the coupon programs of a small food company.  The experience gave me an appreciation for both the power and shortcomings of traditional couponing.  I see clearly that wireless has the potential to address many of the shortcomings and make life better for retailers, manufacturers and consumers alike.  I was very pleased to learn that VISA also views coupons as a priority service in the realm of Mobile Commerce and doubly so to hear that they are piloting a mobile coupon trial with 500 employees in their corporate cafeteria.

Pam Zuercher concluded her comments with an overview of VISA’s current and planned capabilities for their mobile commerce/mobile wallet platform, launched earlier this year:

Phase 1 (current capabilities) Contactless payments, OTA personalization, Account Management, Offers

Phase 2 (anticipated, no timing given) Remote and mobile Internet purchases, Authentication/security

Phase 3 P2P funds transfer, Prepaid top up, Expanded offers & ticketing.

France Finds Successor to Jerry Lewis…

… and his name is Remy de Tonnac, CEO of Inside Contactless, a leading manufacturer of NFC chipsets.  The charming M. de Tonnac gave what was arguably the most humorous presentation at this year’s Mobile Payments World.   He opened his session with some deprecating comments about his Frenchiness (perhaps he recalls the ugly “American Fries” incident in the capitol’s cafeteria) and secondly for underestimating the sophistication of his audience.  The apology was probably appropriate, as he appeared late in the day and even those who knew nothing about NFC in the morning were pretty well indoctrinated by this point.  Nevertheless, he shed light on some things that I doubt even industry veterans were aware of.  For example, did you know that the acronym NFC orginally stood for, “No F***ing Clue?”  He also took a jab, by way of a backhanded compliment, at VISA’s earlier video clip which masqueraded as an informational video but was, in point of fact, a slick commercial.

Among his meatier comments:

• NFC, which is based upon earlier Smart Card technology, is widely used on mobile devices in Japan to pay for gas at the pump.  Comment:  This is an ideal use case for NFC phones, as it is much easier to dig one’s phone out of a pocket while holding a gas nozzle in the other hand than it is to retrieve a credit card from a wallet.  Although, the FCC has already issued a statement that there is no evidence to support the urban legend that cellular phones can have catastrophic results around gas pumps,  it remains to be seen whether the lawyers will allow us to pay for fuel in this fashion.
• Phones equipped with FeliCa chips can store up to six payment cards.  I wonder if this limitation will also apply to the U.S. implementations?  If so, would that be a significant restraint?
• NFC phones are expected to number 450 million worldwide by 2011, up from 50 million now.  Such phones are largely exclusive to Japan today.

Another Boost for Mobile Banking

Unfortunately, I was out of the room attending another meeting during Mobile Payments World just long enough to miss this announcement.

MSFT: All Ur M-Payments R Belong To Us

Ironically, the day’s most technically challenged presentation came from Microsoft’s Moin Moinuddin.  After an unscheduled intermission to sort out some glitches, Mr. Moinuddin launched into a discussion of the many mobile applications, both commerce related and otherwise, that are enabled in a world of RFID-equipped phones.  The presenation was interesting, if a bit light, and would have been more appropriate early in the day as a means of setting the tone for later presentations. 

He concluded his illustrations by saying, “… and Windows Mobile will be the operating system that makes this all possible.”  I’ll excuse this skewed perspective as Microsoft has a bit of experience with a monolithic operating system but, as any mobile application developer will tell you, the real world is far more complicated.  In fact, the multitude of mobile OS’s and even unique implementations of the same OS from device to device, is the single greatest challenge to rapid development and deployment.

The high point was a video illustrating the grocery shopping experience when a store, the shoppers’ mobile and the devices carried by store personnel can all interact machine-to-machine.  In this utopian vision, shelf prices change on the fly, out-of-stock items are replenished faster, discount offers are delivered to shoppers the moment they enter the appropriate aisle, payment is processed without having to pass through a register and stockboys emulate Brett Favre as they toss the item they know you’re looking for into your cart, without comment from either of you.

Here again, there were some computer issues starting the video, at which point Moin issued the second funniest line of the day, “Oh… I’m pressing the wrong button.  It’s me, it’s not Vista.”

MPW – Knights of the Roundtable

MPW’s first roundtable discussion of the day focused on what it will take to build a sustainable mobile payments business ecosystems.  Participants included Tatiana Mulry – MasterCard’s VP of Mobile/Wireless Center of Excellence, Doug Brit – Sr. VP for Helio, Tom Zalewski – President of OTA service provider Venyon, John Duncan – Sr. VP of First Data Corp. and Kevin Dulsky, Senior Director and General Manager for PayPal Mobile.

John Dulsky led off the conversation by making the point that there are few unmet needs in the payment space and that consumer demand will be driven by truly innovative offerings.  This is counterintuitive to those working in Innovation with a capital “I”, who typically begin by seeking to identify unmet needs.  His comment was met by general nodding of heads by the others.

It was then John Duncan’s (of First Data) turn.  He did not say the most valuable thing he could have (which would have been, “Buy First Data stock today.  Next week we will announce the sale of our company in an LBO to KKR, at a 26% premium to market”) but did point out the inherent value of wireless operators’ customer bases to issuing banks.  As he pointed out, the credit card industry mailed 6 billion card solicitations last year which generated only 18 million new accounts, a mere .3 per cent success rate.  He went on to share his view that wireless carriers will need to share in the transaction revenue stream for mobile payments to succeed.  Again, I share this view but it would be more meaningful if it were coming from an organization, such as an issuing bank, that will write the checks.

Tatiana Mulry from MasterCard carried this line of discussion forward by stating that the issuing banks are confused by mobile payments and unsure of next steps.  She suggested that a coalition of carriers might successfully take a proposal to the banking community through an independent third party.  I suspect that she was thinking of a card association such as hers but the first thought I had was, “what about FDC”?

I am a frequent reader of Scott Shaffer’s The Pondering Primate, a blog that does a nice job covering specific wireless technologies.  One of Scott’s core concepts is the notion of the Physical World Connection, in which various capabilities of mobile devices are leveraged to allow interaction with immediate surroundings.   In his time with the mic, John Dulsky of PayPal Mobile referred to such episodes as “local interactions.” 

Incidentally, I met Scott Shaffer very briefly during CTIA.  He does not look the least bit simian.