ID 6643
Hort, Christian: Critical Success Factors of Mobile Payment
Hamburg: Diplomica GmbH, 2003
Zugl.: St. Gallen, Universität, Thesis, 2002
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Contents
I
Contents
CONTENTS ...I
TABLE OF EXHIBITS...III
TABLE OF CHARTS ... IV
ABBREVIATIONS...V
1
INTRODUCTION ... 1
1.1 Motivation... 1
1.2 Goals of the study ... 2
1.3 Structure... 2
2
TRADITIONAL AND FIXED-LINE ONLINE PAYMENT METHODS ... 4
2.1 History of payments... 4
2.2 Traditional payment methods ... 5
2.3 Fixed-line online payment methods... 7
2.4 Summary... 8
3
MOBILE PAYMENT... 9
3.1 Market and players... 9
3.2 Mobile hardware ... 13
3.3 Connection technologies... 14
3.3.1 Cellular network technologies ... 15
3.3.1.1 GSM ... 15
3.3.1.2 HSCSD ... 16
3.3.1.3 GPRS... 16
3.3.1.4 EDGE ... 17
3.3.1.5 UMTS... 17
3.3.1.6 SMS... 18
3.3.2. Proximity technologies ... 19
3.3.2.1 Bluetooth ... 19
3.3.2.2 IR... 20
3.3.2.3 RFID... 21
3.3.3 Wireless Internet technologies... 22
3.3.3.1 WAP ... 22
3.3.3.2 I-Mode ... 23
3.4 Types of mPayment ... 24
3.4.1 mPayments applying cellular network technology... 25
3.4.1.1 mPayment linked to phone bill... 25
3.4.1.2 mPayment linked to bank or credit card account ... 26
3.4.2 mPayments applying mobile Internet technology ... 26
3.4.2.1 Personal online payments ... 26
3.4.2.2 Micropayments... 27
3.4.3 mPayments applying proximity technology ... 28
3.4.3.1 Single chip... 29
3.4.3.2 Dual chip ... 29
3.4.3.3 Dual slot ... 31
3.5 Describing criteria... 32
3.6 Summary... 35
4
CRITICAL SUCCESS FACTORS ... 37
4.1 Contingency factors ... 37
4.2 User specific factors... 38
4.3 Value creating factors ... 40
Contents
II
4.3.1 Diffusion of innovations theory... 41
4.3.2 Technology acceptance model... 42
4.3.3 Network externalities theory... 43
4.3.4 Customer perceived value... 45
4.3.5 Critical value creating success factors ... 46
4.3.5.1 Cost... 47
4.3.5.2 Complexity ... 48
4.3.5.3 Trialability ... 48
4.3.5.4 Acceptance ... 49
4.3.5.5 Observability ... 49
4.3.5.6 Convenience ... 49
4.3.5.7 Security... 50
4.3.5.8 Anonymity... 50
4.3.5.9 Standard... 51
4.4 Summary... 52
5
APPLICATION CASES ... 53
5.1 Paybox ... 53
5.2 Speedpass... 55
5.3 PayPal ... 57
5.4 Firstgate ... 59
5.5 Summary... 60
6
SUMMARY AND OUTLOOK... 62
REFERENCES ... IX
APPENDIX ... XXI
A 1 Traditional payment methods ... XXI
A 1.1 Basic payment procedures ... XXI
A 1.1.1 Payment by cash ... XXI
A 1.1.2 Payment by cheque... XXIII
A 1.1.3 Payment by giro or credit transfer ...XXV
A 1.1.4 Debit charge procedure... XXVI
A 1.2 Card based products...XXVII
A 1.2.1 Payment by cash card ...XXVII
A 1.2.2 Payment by debit card ...XXVIII
A 1.2.3 Payment by credit card ... XXXI
A 1.3 Payment related terms... XXXIV
A 1.3.1 Cash on Delivery ... XXXIV
A 1.3.2 Payment by bill...XXXV
A 1.3.3 Electronic Bill Presentment and Payment ...XXXV
A 2 Fixed-line online payment methods...XXXV
A 2.1 Electronic counterparts of basic payment procedures...XXXV
A 2.2 Encryption channels... XXXVI
A 3 Mobile device related technologies...XXXVIII
A 3.1 SIM ...XXXVIII
A 3.2 SAT...XXXVIII
A 3.3 WIM... XXXIX
A 4 Relations between critical success factors ...XL
Table of Exhibits
III
Table of Exhibits
Exhibit 1: Development of Payment methods German local POS 1995-2001... 6
Exhibit 2: Traditional and fixed-line online payment methods... 8
Exhibit 3: mPayment device connection overview ... 15
Exhibit 4: Radio frequency identification architecture... 21
Exhibit 5: Wireless application protocol network model ... 23
Exhibit 6: Personal online payment process... 27
Exhibit 7: Implementation alternatives of security element... 28
Exhibit 8: Describing criteria ... 33
Exhibit 9: Technology acceptance contingency model ... 37
Exhibit 10: Elements of diffusion... 41
Exhibit 11: Technology acceptance model... 42
Exhibit 12: Impact of positive feedback over time on market share ... 44
Exhibit 13: Customer perceived value... 45
Exhibit 14: Paybox - describing criteria... 54
Exhibit 15: Speedpass - describing criteria ... 56
Exhibit 16: PayPal - describing criteria... 58
Exhibit 17: Firstgate - describing criteria ... 59
Exhibit 18: Cheque clearing ... XXIV
Exhibit 19: Giro transfer clearing... XXVI
Exhibit 20: Credit card clearing...XXXIII
Table of Charts
IV
Table of Charts
Table 1: Cost by participant... 47
Table 2: Comparison of application cases by critical success factors... 61
Table 3: ATM, EFTPOS value and volume of transaction ... XXII
Table 4: Credit transfer - relative importance in cashless transactions ...XXV
Table 5: Direct debit - relative importance in cashless transactions ... XXVII
Table 6: Cash card - volume and value of transaction 1996 2001, Germany...XXVIII
Table 7: EC transactions 1996 - 2001 (retail and gas purchases) Germany...XXX
Table 8: Debit card - volume and value of transaction...XXX
Table 9: Credit card market - volume and relative importance, Germany ... XXXII
Table 10: Credit card - volume and value of transaction, penetration ...XXXIII
Table 11: Relations between critical success factors... XL
Abbreviations
V
Abbreviations
2G
Second
Generation
3D
Three Domain
3G
Third
Generation
AG
,,Aktiengesellschaft"
1
ATM
Automated Teller Machine
B2B
Business
to
Business
B2C Business
to
Consumer
BCG
The
Boston
Consulting
Group
BdB Bundesverband
deutscher
Banken
BIS
Bank for International Settlement
C2C
Consumer to Consumer
CAGR
Compounded Annual Growth Rate
CB
Card
Bancaire
CD
Clearing
Department
CDMA
Code
Division
Multiple
Access
CH
Clearing
House
COD
Cash on Delivery
cp.
Compare
CPV Customer
Perceived
Value
DoCoMo
Do
Communication
Over the Mobile Network
DTMF
Dual Tone Multi-frequency
DVP Delivery
versus
Payment
EBPP
Electronic Bill Presentment and Payment
EC
Electronic cash
1
Engl.: public company.
Abbreviations
VI
ECIN
Electronic Commerce Info Net
eCommerce Electronic
Commerce
ed.
Edition
EDGE
Enhanced Data Rate for GSM Evolution
EESSI
European Electronic Signature Standard Initiative
EFTPOS
Electronic Funds Transfer at the Point of Sale
EHI EuroHandelsinstitut
ELV ,,Elektronisches
Lastschriftverfahren"
2
e-mail
Electronic
mail
EMI European
Monetary
Institute
EMPS
Electronic
Mobile
Payment
System
EMV
Europay
Mastercard
Visa
ePSO
Electronic
Payment
Systems
Observatory
ERP Enterprise
Resource
Planning
EU
European
Union
Fin. Financial
FRSFS
Federal Reserve System Financial Services
FTP File
Transfer
Protocol
GE
General
Electric
Germ.
German
GHz
Giga
Hertz
GPRS
General Packet Radio Service
GSM
Global System for Mobile Communication
HRFWG
Home Radio Frequency Working Group
HSCSD
High Speed Circuit Switched Data
HTTP
Hypertext Transfer Protocol
IBM International
Business
Machines
2
Engl.: electronic debit charge procedure.
Abbreviations
VII
IDSP
Interoperability Domain Security Protocol
IDTechEx
Identification
Technical
Exchange
IEEE
Institute of Electrical and Electronics Engineers
IMT-2000
International
Mobile Telecommunication 2000
incl. Including
IR
Infrared
IrDA
Infrared Data Association
IrFM
Infrared
Financial
Messaging
ISM Industrial
Scientific Medical Spectrum
IT
Information
Technology
ITAS
Institute for Technology and Systems Analysis
ITU International
Telecommunications
Union
IWW
Institut für Wirtschaftspolitik und
Wirtschaftsforschung
Kbps
Kilo
bits
per
second
mCommerce Mobile
Commerce
MeT Mobile
electronic
Transactions
MHz
Mega
Hertz
MoTo
Mail order / Telephone order
mPayment
Mobile Payment
n.a.
Not applicable / not available
NTT
Nippon Telephone and Telegraph
OLV
Online
,,Lastschriftverfahren"
3
PC
Personal
Computer
PDA
Personal Digital Assistant
PIN
Personal
Identification
Number
POS
Point of Sale
POZ
POS without ,,Zahlungsgarantie"
4
Abbreviations
VIII
PPA Preferred
Payment
Architecture
PSP Payment
Service
Provider
PTD Personal
Trusted
Device
RF
Radio
Frequency
RFID
Radio
Frequency
Identification
R.
Imp.
Relative
Importance
RS
Recommended
Standard
SAT SIM
Application
Toolkit
SE
Security
Element
SET Secure
Electronic
Transaction
SFR Swiss
Franc
SIG Special
Interest
Group
SIM Subscriber
Identity
Module
SMS
Short Message Service
SSL Secure
Socket
Layer
TAM
Technology
Acceptance
Model
TDD
Time Division Duplexing
TDMA
Time Division Multiple Access
Telco
Telecommunication Company
TRA
Theory of Reasoned Action
UK
United
Kingdom
UMTS
Universal
Mobile
Telecommunications
System
US
United
States
USD US
Dollar
WAP
Wireless Application Protocol
W-CDMA
Wideband
CDMA
WIM
Wireless Identification Module / WAP Identity
3
Engl.: debit charge procedure.
4
Engl.: guaranty of payment.
Abbreviations
IX
Module
WLAN
Wireless Local Area Network
WML
Wireless
Markup
Language
WPKI
WAP
Public
Key
Infrastructure
WTLSP
Wireless Transport Layer Security Protocol
Introduction
1
1 Introduction
1.1 Motivation
In the context of this research, payment is understood as the exchange of monetary
value between participants either directly or using an intermediary.
5
Mobile payment
(mPayment) can be understood as every payment where at least one participant applies
mobile phone technology, thus, uses a mobile phone.
6
But due to technological progress
it seems reasonable to classify other devices like a Personal Digital Assistant (PDA) or
devices with embedded Radio Frequency (RF) technology as mobile payment devices.
7
However, mobile phones today clearly outnumber every other mobile payment device.
Penetration rates
8
are forecasted to reach almost 80% in Europe by 2005.
9
The number
of worldwide cellular subscribers is expected to pass one billion by 2003.
10
By 2005
there will be more mobile phones worldwide than TVs, fixed line phones, and Personal
Computers (PC).
11
Driven by the increasing penetration and resulting business opportunities, numerous
mPayment solutions have been offered by payment service providers, telcos, and
5
See Dahlberg/Mallat (2002) p. 651.
6
See Krueger (2001) p. 1; see IWW (2002a) p. 5; see Kreyer/Pousttchi/Turowski (2002) p. 1 f.
7
See Thing/Rouse (2001); cp. chapter 3.2.
8
Users as a percentage of the population.
9
See Barnett/Hodges/Wilshire (2000) p. 164.
10
See Barnett/Hodges/Wilshire (2000) p. 164; see Krueger (2001) p. 3; see GSM Association (2002b).
11
See Datta/Pasa/Schnitker (2001) p. 72.
"Convenient access [...] to relevant information with the ability to easily take
action on it when and where you need to."
IBM's definition of Pervasive Computing
"M-Payment systems will continue to gain momentum in 2002 [...]. In the
United States and Europe, the greatest challenge will be for vendors to create
sufficiently compelling reasons for users to adopt a new payment system."
Gartner Research
Introduction
2
financial institutions. The variety of applicable technologies, the possible linkage
between the financial instruments, and the mPayment device combined with different
payment scenarios offer a wide landscape of mPayment solutions. Besides technology,
questions dealing with consumer expectations, factors thriving or inhibiting a
widespread adoption, and with it related penetration strategies for payment service
providers have to be carefully researched to develop a successful mPayment.
12
1.2 Goals of the study
Based on diverse motivations and influenced by recent technology development banks,
telcos and start-up companies endeavour to build a successful mPayment that meets the
expectations of consumers and merchants. The research question of this paper focuses
on factors that can be identified as crucial to drive the success of mobile payment
systems. Therefore, the first goal is to give an introduction to the mPayment landscape
as a foundation for further research. The second goal is to derive key factors influencing
the success of an mPayment from theoretical models and by reviewing related literature.
The research concentrates on business to consumer (B2C) and consumer to consumer
(C2C) payment on the European and United States (US) market. Neither cross border
payments nor business to business (B2B) payments are described in this paper.
1.3 Structure
The second chapter "Traditional and fixed-line online payment methods" includes a
short historical part, and presents established payment methods in the real world and the
fixed-line Internet world. Additionally, it explains the correlation to mPayments.
The third chapter "Mobile payment" addresses the first goal, the introduction to the
mPayment landscape. After the discussion of the mPayment market and its players, the
mobile device is specified. A detailed discussion of connection technologies provides
the foundation to examine different types of mPayment. Finally, criteria to describe
mPayments are developed.
12
See Dahlberg/Mallat (2002) p. 650.
Introduction
3
The fourth chapter "Critical success factors" is designed to achieve the second aim,
the development of critical success factors. Critical success factors are divided into
contingency factors, user specific factors, and value creating factors.
To underline findings of the third chapter in practice, the fifth chapter "Application
cases" examines mPayment solutions by applying describing criteria and critical
success factors.
Finally the sixth chapter "Conclusion and outlook" summarizes the approaches taken
in this paper, presents the major findings, provides a short outlook, and proposes issues
which could be subjects for further research.
Traditional and fixed-line online payment systems
4
2 Traditional and fixed-line online payment
methods
Chapter 2 is designed to briefly present traditional payment methods and fixed-line
online payment methods. Moreover, it explains their link to mPayments.
To achieve this goal, chapter 2 starts with a short history of payments (chapter 2.1).
Then traditional payment methods (chapter 2.2) and fixed-line online payment
methods (chapter 2.3) are presented. Chapter 2.4 summarizes the most important
aspects.
2.1 History of payments
An important piece of the foundation that supports every leading economy, is the
possibility to exchange goods, services and money. The major part of trading is finally
settled through payments.
13
Predecessors of today's payments are barter and commodity money. Bartering is limited
by different individual interests in the exchanged goods
14
, also known as double
coincidence of wants
15
. In a barter economy, the sum of exchange relations between n
goods and the number of resulting relative prices is n(n-1)/2. The introduction of
money, considered as a standard good, reduces the number of relative prices to n-1
absolute prices, and in overcoming the double coincidence of wants, simplifies the
trading of goods.
16
Commodity money, such as corn, salt, or gold, was the earliest
money. The value of these physical commodities were well known and used to effect
payment. The next phase in the development of money were paper and coins backed by
deposits of gold and silver held by the note issuer.
17
The next step in the progress of
money is called fiat money. Fiat money is not backed by commodities, it is only backed
13
See Arnold/Martin (2000) p. 575.
14
See Huschke (1998) p. 179.
15
See O'Mahony/Peirce/Tewari (1997) p. 5.
16
See Crameri (2000) p. 94.
17
See O'Mahony/Peirce/Tewari (1997) p. 5.
Traditional and fixed-line online payment systems
5
by the issuing government's decree that it is acceptable as legal tender currency. Its
value derives from the confidence in stable governments and the trust in central banks.
18
Digital money is not new: bank historians found out about transferring bank account
balances to conduct payments from Italian merchants 1200 AD.
19
Today paper and
coin, card based products, systems developed or tailored for the Internet use and more
recently mPayments are brought into play to conduct payments. Paper and coin
improved standardization, lowered the risk of trade and transaction cost. Card based
systems mainly improved creditworthiness and the ease of pay.
20
MPayments are
designed to enable further improvements, such as the possibility to pay any time and
anywhere.
2.2 Traditional payment methods
Traditional payments have been around for decades and are widely accepted. They can
be grouped into basic payment procedures and card based products.
Basic payment procedures encompass payment by cash, payment by cheque, direct
transfer, and debit charge procedure.
21
They are called basic payment procedures
because other payment systems are based on one of these payments and their settlement.
For example, card issuing companies finally use a debit charge procedure to debit their
customers' accounts with accumulated purchases; also some micropayment systems and
mPayment systems in Europe use the debit charge procedure to debit their customers'
accounts.
22
Additionally, they are considered to be a key asset of the financial industry:
depending on the offered form of payment, a European Monetary Institute (EMI)
licence or a banking licence is required.
23
Depending on the time of payment, card based products can be differentiated into pay
before, pay now and pay later cards. Cash cards belong to pay before cards and debit
18
See Fitch (2000) p. 183.
19
See White (1997) p. 15.
20
See Mantel (2000) p. 33.
21
Basic payment procedures are explained in chapter A 1.1.
22
See FRSFS (2001) p. 10; see IWW (2002b).
23
See Lelieveldt (2000) p. 8 f.
Traditional and fixed-line online payment systems
6
cards or EC-cards to pay now cards. Credit cards are typical pay later cards.
24
The development of applied traditional payment instruments at the local Point of
Sales (POS) in Germany provides an idea in terms of relevancy and future trends in the
field of B2C retail transactions (cp. Exhibit 1).
0
10
20
30
40
50
60
70
80
Cash
EC-card +
signature
(ELV&POZ)
EC-card +
PIN
Credit card
Bill
Retail card
Cheque
Stored
value card
Other
(incl.
mPayment)
1995
2001
0
10
20
30
40
50
60
70
80
Cash
EC-card +
signature
(ELV&POZ)
EC-card +
PIN
Credit card
Bill
Retail card
Cheque
Stored
value card
Other
(incl.
mPayment)
1995
1995
2001
2001
value
(
p
e
rce
nt
)
Exhibit 1: Development of Payment methods German local POS 1995-2001
25
The development indicates that there is fierce competition between already existing
payment methods. Cash is losing its importance. Cheques are becoming more and more
insignificant. In general, all existing payment methods lost their importance to card
based products. However, the German "Geldkarte", a card based stored value system
26
designed to substitute cash, completely failed. Exhibit 1 clearly indicates that
mPayments are so far insignificant at German local POSs. Contrary to the German local
POS situation, mPayments in form of Radio Frequency Identification (RFID)
payments
27
are gaining traction on the North American retail market.
28
There, RFID
payments are mainly challenging cash payments because RFID payments are in a strict
sense another way to initiate card based payments.
24
Card based products are explained in chapter A 1.2.
25
See Rüter (2002) pp. 4-6.
26
Cp. chapter A 1.2.1.
27
Cp. chapters 3.3.2.3 and 5.4.
28
See Kountz (2002) p. 1.
Traditional and fixed-line online payment systems
7
2.3 Fixed-line online payment methods
This chapter briefly explains payment instruments derived from the rise of the Internet,
and the resulting changes in the commercial environment
29
. Coherent with the logical
transfer of traditional payment methods to the online environment, the two groups
electronic counterparts of basic payment procedures and card based products
combined with Internet technology were built. The last group within online payments,
having obviously no predecessor, are payments evolved from the Internet revolution.
Electronic counterparts of basic payment procedures consist of electronic money,
electronic cheques, paperless direct debit, and paperless direct transfer. Apart from the
paperless direct debit and paperless direct transfer, all electronic counterparts failed.
30
Applicable card based products in the Internet environment are cash cards which are
either stored value cards or scratch cards, debit cards, and credit cards. The difference to
traditional card based products is the transmission of payment information residing on
the cards to the POS. The card information can be sent without any security precautions
via Secure Socket Layer (SSL), via Three Domain (3D) Secure Electronic Transaction
(SET) or via 3D Secure.
31
The first two options are classified as Mail order / Telephone
order (MoTo). MoTos are considered as "card not present" transactions which do not
result in liability shift in favour of the merchant towards the banks, as it is the case with
3D SET or 3D Secure transactions.
32
Typical payments evolved from the Internet revolution are micropayments, personal
online payments, and encashment via accounts maintained by third parties.
As in the field of traditional payments, there are several payment options at the virtual
POS. Due to existing differences in the underlying international traditional payment
infrastructures, applied payment instruments in the online environment vary from
country to country: in Germany for instance, direct debit procedures are very common
for Internet purchases. In the US, however, direct debit procedures play an inferior
role.
33
29
Cp. chapter 4.1.
30
Cp. chapter A 2.1.
31
Cp. chapter A 2.2; for more information on 3D SET or 3D Secure: see Visa (2002).
32
See Kanniainen (2001b) p. 30.
33
Cp. chapter A 1.1.4.
Traditional and fixed-line online payment systems
8
Generally, credit cards are the most preferred payment method in the US and Europe at
the virtual POS.
34
2.4 Summary
Chapter 2 gave a brief introduction to B2C and C2C payment with a focus on the
European and US market. Exhibit 2 depicts the main groups, traditional payments, and
fixed-line online payments that have been identified.
tr
ad
it
io
n
al
pay
m
en
ts
trad
it
io
nal
pay
m
en
ts
fi
xed-
line
on
li
ne pa
ym
en
ts
fi
xed-
li
n
e
on
li
ne pa
ym
en
ts
basic payments + internet
· stored value card
· debit card / ec-card
· credit card
· electr. money softw. based
· electronic cheques
· paperless direct transfer
· paperless direct debit
·
prepaid card
stored value / scratch card
(unsec./SSL/C-SET)
·
debit card
(unsec./SSL/virt. numbers)
·
credit card
(unsec./SSL/SET/virt. numbers)
card based + internet
basic payment procedures
card based
· cash
· cheque
· direct transfer
· debit charge procedure
ELV, OLV
evolved from Internet revolution
· micro payments
· personal online payments
· encashment via 3rd party
tr
ad
it
io
n
al
pay
m
en
ts
trad
it
io
nal
pay
m
en
ts
fi
xed-
line
on
li
ne pa
ym
en
ts
fi
xed-
li
n
e
on
li
ne pa
ym
en
ts
basic payments + internet
· stored value card
· debit card / ec-card
· credit card
· electr. money softw. based
· electronic cheques
· paperless direct transfer
· paperless direct debit
·
prepaid card
stored value / scratch card
(unsec./SSL/C-SET)
·
debit card
(unsec./SSL/virt. numbers)
·
credit card
(unsec./SSL/SET/virt. numbers)
card based + internet
basic payment procedures
card based
· cash
· cheque
· direct transfer
· debit charge procedure
ELV, OLV
evolved from Internet revolution
· micro payments
· personal online payments
· encashment via 3rd party
Exhibit 2: Traditional and fixed-line online payment methods
A crucial outcome is that basic payment procedures which are built on the proprietary
network of the financial institutions, are the foundation of all other payment instrument
methods. Next to this, card based products are still gaining importance among
traditional payment methods and are the most successful payment methods in the online
environment. The strong position of card based products in the fixed-line online
environment might be propelled by the increasing use of Interoperability Domain
Security Protocols (IDSP), such as 3D SET and 3D Secure. However, MoTo will
remain in use, which is applied considerably in today's online purchases.
35
Another outcome is that until today mPayments at local POSs are insignificant.
36
At
virtual POSs, recent research is revealing an increasing use of mobile phones to pay for
online purchases.
37
Reliable information about the situation in the C2C scenario are not
available.
34
See Kerr (2001).
35
See Kanniainen (2001b) p. 30.
36
Cp. Exhibit 1.
37
See IWW (2002c) p. 8.
Mobile payment
9
3 Mobile
payment
Chapter 3 is designed to introduce mPayment. Therefore, it outlines the potential
mPayment market, the motivation as well as the unique value proposition of the main
players (chapter 3.1). Then the introduction is lead by a technological approach. It
describes the mobile hardware (chapter 3.2) and the technical foundation for a wireless
connection (chapter 3.3). Based on the technological approach, three main mPayment
groups are built and examined: mPayments based on cellular network technology
(chapter 3.4.1); mPayments based on mobile Internet technology (chapter 3.4.2) and
mPayments based on proximity technology (chapter 3.4.3). To classify emerging
mPayments chapter 3.5 develops describing criteria. Finally, chapter 3.6 draws a
summary.
3.1 Market and players
The growth of the mPayment market relies on the ongoing spread of mobile telephony
and the related expansion of mobile commerce (mCommerce). At this early stage,
mCommerce market forecasts and related mPayment market forecasts are rather
imprecise and therefore have to be interpreted carefully
38
: the mCommerce market is
expected to reach 13 billion US Dollar (USD) in 2003, 50 billion USD in 2006 and
approximately 270 billion USD in 2010.
39
Forrester is predicting the mPayment market
in Europe to be 23,4 billion USD in 2005.
40
According to Frost & Sullivan, the
mPayment market in Europe is predicted to reach 25 billion USD in 2006.
41
Players of the mPayment market have to regard consumers and merchants with
partially opposite demands: consumers' payment behaviour has changed dramatically.
In a nutshell, the consumer wants to pay any time and anywhere with a convenient
payment method. Merchants on the other side are always looking for a payment option
38
See Schneidereit/Padurch/Rueda (2001) p. 876.
39
See Barnett/Hodges/Wilshire (2000) p. 163; see Reuters (2001); see Krueger (2001) p. 4.
40
See Forrester (2001); (cross rate USD/EUR 0,9).
41
See Mobile CommerceNet (2002).
Mobile payment
10
cutting down their costs and at the same time guaranteeing payment. The following
parties can be identified as likely candidates to provide mPayment services:
42
· Telecommunication companies (telcos),
· Start-ups,
· Financial service industry,
· Alliances of the parties above.
Telcos are pressured to charge off their investments for licenses to operate the so-called
Third Generation (3G) of mobile networks.
43
The cost for the 3G infrastructure is
estimated to total 250 billion USD in Europe alone, of which 110 billion USD is in
licences.
44
However, 3G technology is considered an unproven technology: it stays
unclear whether the consumer will adopt the offered products and services, generates
the planned volume and value, or whether the technology might be substituted by, until
today, unknown products.
45
In order to pay the high amount of interest and considering
the fact that simple data transport over mobile networks is becoming a commodity
46
telcos endeavour to expand their business to so far untouched segments.
47
Additionally,
the failure of mPayment might lead to decreasing traffic in the operator's network and
could hinder new value-creating opportunities.
48
A solid mPayment is also expected to
foster customer loyalty.
49
Thus, the development of mPayment is substantial for telcos.
Main advantages of telcos are their technical experience in wireless technology, their
control over mobile networks, their existing billing systems and their large customer
base.
50
The challenges depend on the technical realization of mPayment: a solution based on
42
See Krueger (2001) p. 4; see Schneidereit/Padurch/Rueda (2001) p. 877; a detailed description of the
mCommerce value chain can be found at: Barnett/Hodges/Wilshire (2000) p. 166 f.;
Durlacher (1999) pp. 15 18.
43
See Henkel (2001) p. 15.
44
See Trintech (2002) p. 10.
45
See Clifford (2002) p. 46; see Schneidereit/Padurch/Rueda (2001) p. 878.
46
See Barnett/Hodges/Wilshire (2000) p. 163; see Barnett/Hodges/Wilshire (2000) p. 166;
see Henkel (2001) p. 15.
47
See Schneidereit/Padurch/Rueda (2001) p. 877.
48
See Krueger (2001) p. 5.
49
See Henkel (2001) p. 15.
50
See Barnett/Hodges/Wilshire (2000) p. 167.
Mobile payment
11
standard phone call technology would give the telcos a rather low influence, in that they
could only charge for the resulting traffic.
51
However, a severe challenge is a solution
requiring a regulatory permission. The management of multi purpose prepaid accounts
make a banking licence or an EMI licence mandatory if the accounts are not only
accepted by the company hosting the accounts, but also applicable to purchase services
and goods at other companies.
52
Moreover, the ability to grant a payment guaranty to
merchants requires a banking licence. Telcos can obtain a licence via direct application
or in cooperation with a bank.
53
The next challenge is identified as the increasing
exposure to financial risk. Fraud and unpaid bills involving just air time result in little
additional cost. However, unpaid bills consisting of accumulated purchases at
merchants, who are given a payment guaranty, would severely impact the operator's
cost.
54
For start-ups the unclear development of the mPayment market seems to bear two
opportunities: they can act as intermediaries between consumers, merchants, banks and
credit card issuing companies, e.g. as Payment Service Provider (PSP). Secondly, due to
the need of completely new payment systems, derived from the development of new
market places like private auction sites, start-ups can enter the market as first movers
with new sophisticated payment solutions.
The main advantages of start-ups are seen in their flexibility to explore emerging
technologies faster, compared to cumbersome competitors, such as banks or telcos.
Additionally, they are embracing the risk to fail easier than other parties, especially
banks, which are afraid to lose their reputation.
55
In terms of challenges, they might face similar problems to telcos depending on the
solution. A recent example is PayPal, a US start-up in the field of personal online
56
payment. In order to operate in Europe, PayPal is in need of an EMI licence, because its
prepaid accounts are designed to buy services and goods from other parties.
57
Another
51
Corresponding mPayment solutions are explained in chapter 3.4.1.
52
See Lelieveldt (2000) p. 8 f.
53
See Henkel (2001) p. 15.
54
See Krueger (2001) p. 9.
55
See Schneidereit/Padurch/Rueda (2001) p. 876.
56
Cp. chapter 5.2; cp. chapter 3.4.2.1.
57
See Krueger/de Geest (2001) p. 10.
Mobile payment
12
challenge is to gain trust and a good repudiation: merchants are not preferring start-ups
as mobile payment provider.
58
In the financial industry, payment is a core business. According to the Boston
Consulting Group, payment fuels about 40% of costs and constitutes up to 35% of
revenues. Therefore, payment is clearly a core business within a bank. To exploit its
enormous value a clear strategy is necessary.
59
There are statements about payment
services being a loss producing activity, but crucial to establish customer relations.
Payments are seen as an access to the consumer market to sell financial services. Private
and corporate customers are expecting banks to deliver financial services at acceptable
prices.
60
Their main advantages are the control of the existing payment infrastructure, the
profound knowledge about security issues, established risk management and consumer
trust.
61
Internationally operating financial institutions are very suitable to cope with
cross-border problems.
62
The challenge for banks is related to the fact that mPayments might well be offered by
other industries, e.g. telcos. Banks are endangered to become disintermediated. The
outcome would be profit loss to competitors offering new or better services based on
emerging technologies, and the loss of close customer contact. To avoid
disintermediation they have to focus on their customers expectations when providing
convenient payment services.
63
It is important to understand that the three parties discussed above do not necessarily
have to compete. Banks could establish fruitful alliances with telcos
64
to better fulfil
the expectations of the consumers in combining the advantages of both sides: banks are
experienced in financial products, have risk management in place, are trusted by
58
See De Lussanet (2001).
59
BCG (2002).
60
See Prast (1995) p. 431.
61
See Maude/Raghunath/Sahay/Sands (2000) p. 92; see Prast (1995) p. 431; see Krueger (2001) p. 17;
see Raina/Harsh (2002) p. 272.
62
See Henkel (2001) p. 16.
63
See Krueger (2001) p. 1.
64
See Datta/Pasa/Schnitker (2001) p. 78.
Mobile payment
13
customers and are in the possession of a banking licence. Telcos also have a large
customer base and are experienced in mobile technology. A cooperation could finally
lead to a win-win-situation.
65
Both parties can also build up alliances with start-ups
adopting the new technology and offering experience in their field of competence.
3.2 Mobile hardware
Some mPayment definitions have in common that they posit the mobile phone as the
device to conduct payment. But there are payment solutions which can also be
considered as mobile although not involving a mobile phone, but e.g. RFID key fobs.
66
Additionally, PDAs are increasingly equipped with mobile phone technology and vice
versa.
67
Therefore, it might be suggested to expand the circle of mPayment devices.
Next to mobile phones, smartphones, PDAs, and RFID fobs can be considered as
mPayment devices according to the following criteria:
· Physical criteria: a mobile device should be highly portable.
· Connection criteria: a mobile device has to establish a wireless connection. The
payment information can be exchanged by a local short range connection, as in the
case of RFID, or by a cellular network connection or both.
· Acceptance criteria: a mobile device should qualify for any time and anywhere
usage. Points of acceptance should be widespread and not bound to a single
location, e.g. an RFID technology based bridge toll payment system, which can
only be used at one single bridge cannot be considered as an mPayment system.
However, if this toll collecting system could also be applied for another purpose,
e.g. to purchase gas, it could be considered as an mPayment system.
However, mobile phones are equipped with a combination of features and functionality
which gives them an outstanding position among other mPayment devices. Among the
features is the ability to send and receive text and speech. Other key technologies, such
as the Subscriber Identity Module (SIM), the SIM Application Toolkit (SAT) or the
65
See Schneidereit/Padurch/Rueda (2001) p. 878.
66
See Thing/Rouse (2001); see Trintech (2002) p. 8.
67
See Noble (2002).