Monday, February 27, 2006

Mobile Payment - Six years after WAP: from MobileRadicals Blog

Posted on Wednesday 25 January 2006

Ahh, the millennium. Only six years ago but the rate of change in consumer electronics seems to have accelerated significantly in that time. I remember getting my first WAP phone, a Nokia 7110, complete with a Neo-from-the-Matrix button that made a cover shoot down to reveal the keypad. I thought it was so cool, with its scroll wheel for easy browsing on its large and friendly monochrome display. The infamous BT Cellnet (now O2) advert was on at the time, encouraging all to ’surf the BTCellnet’. This of course overwhelmed me with geek excitement and when I was browsing in PC World I even paid out £4 of my hard-earned for ‘WAP User’ magazine. The magazine promised me the world, on my mobile phone. WAP site reviews, hardware shootouts and all the amazing things you could do with WAP. Finally, with trepidation I fired up the browser on my new 7110 and waited. There was a spinning globe on the top-left of the screen. I watched it spin. It kept spinning for around 30 seconds and finally there appeared to be some new stuff coming on my screen. It was a portal, with links to news and sport and other things I could find out in other places much quicker. When I realised this WAP fun was costing me money I soon gave up on it. I am sure this experience was repeated by thousands of others, who gave up and never tried again.

Overselling of WAP and its capabilities was probably one of the worst public relations gaffes from the mobile industry in quite a while. The ‘Surf the BTCellnet’ branding is widely remembered because it promised so much and yet the reality of the WAP experience was slow, cumbersome and expensive. Finally, in 2006, complete solutions for mobile data and browsing are emerging that are actually worth using. With higher speeds available from moving to packet-based data with GPRS, combined with phones that have high resolution colour screens, people are buying games, ringtones and wallpaper in droves, and all of this is enabled with WAP. The UKs mobile networks have now got a lot smarter about branding, and rarely mention the word ‘WAP’, so tainted is it in the public perception. Now they have branded portals like Vodafone Live!, O2 Active and T-mobile t-zones - no confusion there then.

One of the appealing things to me in the early days of WAP was how it was going to change the way we paid for goods and services. No more queuing for cinema tickets, I’d just fire up my WAP browser and buy them online, and they’d be ready for me to collect when I got there. Similar kinds of things were touted with a range of different services but few materialised.

When WAP was The Next Big Thing, consumers were just beginning to get comfortable with using their credit card online to buy goods and services. High profile dot.coms were appearing in every market sector with millions in venture capital funding. Although many users were worried about card fraud, improvements in encryption standards and the recognisable padlock symbol had gone some way to allaying consumer fears. Whilst paying for goods on the internet with credit cards was essentially shoehorning a system designed for the offline world into a browser, it was relatively quick and simple to use. The same, however, cannot be said of using a credit card to make purchases via a mobile phone. Users didn’t trust the device, and with its obviously limited processing power it is easy to see why. Although using a credit card to make purchases works in the home, waving a credit card around in a public place such as a train isn’t a great idea, for obvious reasons.

Using a mobile phone as a replacement for credit/debit cards in the high street is clearly an appealing goal. The mobile phone is so entrenched in our lives in Europe, we take it with us wherever we go, and would nearly always have it when making purchases in a shop. The potential payoff for any company that manages to make such a system work on a large scale is enormous, and with over 80% of people in Europe owning a mobile phone, the sheer numbers of people that could use mobile payment would make it very lucrative.

One of the most appealing tenets of the mobile payment concept is how it could remove the need to carry around a plethora of cards that serve our needs for payment. Many people have 3 or 4 credit cards, perhaps a company fuel card and a raft of store cards. Combing the necessary data from those cards onto one mobile device would be trivial, and could be easily secured with a PIN. Unfortunately, this is unlikely to happen any time soon, and for one major reason: branding. Smartcards that have been available for decades have had the capability to store more than one payment method on them, yet this functionality in the main is unused; why would competing banks want to share their card and hence their space for branding with a competitor? So whilst having more than one payment method per card may happen, it is sure to be only if they are both from the same bank.

It is certainly not the technical abilities of our mobile phones that are preventing the establishment of a pervasive mobile payment solution. With infrared and Bluetooth present on most phones, making a card processing terminal to interface with the device would be no problem. However, there we find another barrier to adoption. APACS (the association of payment clearing services) have recently been struggling to get merchants to upgrade their card processing terminals to invest in Chip’n'Pin enabled units, and its not hard to imagine how well it would go down if all small shops had to buy/rent a new unit that was Bluetooth enabled!

So, it looks like credit cards have the market wrapped up. There is little room in the payments marketplace when there are two extremely large companies who dominate with little reason to innovate or rock the boat. However, payments on the web offer us a ray of hope and perhaps suggest how the next generation of mobile payment will develop.

In the early days of the web, there were a number of startups offering ‘web money’. One of the most well-known, Beenz, gained some acceptance and was ideal for small payments, such as to view a magazine article, where the cost of taking credit cards made them unsuitable. Beenz were effectively money tokens worth 1c each and could be spent at participating web-stores. Known as micropayment, this kind of functionality is still sorely needed on the web. Would we need the barrage of ads and popups if you could easily pay 0.5p to read an article? When thousands of people are paying it adds up to a significant revenue source, and could provide an interesting alternative business model to advertising supported content. Unfortunately, Beenz went the way of many other e-money startups and closed its doors in 2001, leaving behind a trail of unhappy customers when Beenz became worthless.

From the ashes of failed payment systems like Beenz a behemoth has risen in the form of PayPal. Now owned by auction giant eBay, PayPal has changed the way of payments online and has become the only really successful alternative payment method. Of course, looking at this more closely, we can see that it has achieved this by making credit cards easier to use online; vendors don’t need an expensive merchant account with a bank to take occasional payments and consumers can pay easily without having to fumble in their wallet for a credit card. PayPal has brought something more to the table than just making credit cards easier to use on the web; it has enabled person-to-person (p2p) transactions for billions of auctioneers around the globe. This is something that just didn’t exist before eBay and PayPal, now 90% of regular internet users in the UK have an eBay account and everyone has a way to sell their goods to other regular folks just like them.

P2P payments seem to me to be the way mobile commerce startups can establish themselves as a popular payment mechanism alongside the dominant credit card networks. It isn’t difficult to imagine a range of situations where using your phone to pay a friend would be more convenient than cash. Splitting the bill in a cafe 4 ways? Beaming £10 to a friend for taking you to the airport? Combining a p2p payment system with some of the other m-commerce killer apps like parking meters and vending would surely be a winner for consumers and small business. Anyone know a good venture capitalist? :D

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