Mobile proximity payment systems will find a place in Small to Medium Enterprises in Eastern Europe. Despite e-Commerce, 95% of payments still take place at the point of sale. “Always on” 2.5G and 3G mobile phones, with sophisticated systems, will soon become significant components of the world’s proximity (point-of-sale) payment systems – including vending machines, ticket machines, turnstiles, toll gates and such. Proximity systems facilitate the integration of value-added information, create new efficiencies and minimize costs in the commerce chain.
The use of wireless proximity mobile payment services can bring a series of advantages to Small to Medium Enterprises (SMEs) in Eastern Europe. These include the convenience they offer consumers, automation of record keeping for legal and accounting purposes, cost reduction, substitution of check and cash handling by automated debit or credit transactions. In addition these systems offer high-level security and protection against fraud. Mobile payment sytems build customer loyalty and, through elctronic discount coupons or other automated promotions, can drive transaction growth. The Payment Business is enormous. Bank cards are used to purchase almost US$1.9 trillion worthof goods worldwide. The US alone accounts for nearly half of that figure, where cards count for 31% of all purchases, with 19% of purchases made in cash and 43% by check. For all the attention and investment that e-Commerce and particularly m-Commerce receive, 95% of payments still take place in the physical or ‘brick and mortar’ world. Getting a share of that business is an attractive proposition. At the same time, recent technology advances have led to the operators of wireless mobile networks to stake a claim to their place in the payments cycle. In developed markets, wireless devices are pervasive, and becoming smarter. “Always on“ 2.5G and 3G networks, sophisticated operating systems, and enhanced security mechanisms have led to the mobile phone being viewed as trusted personal transaction device. Mobile operators are familiar with also familiar with payment processing at least on their own scale. Today, they are proficient in pricing, charging, billing and collecting payment from both subscribers and prepay users. However, faced with significant investment in physical infrastructure, 3G spectrum license costs, and saturated markets, operators are seeking new sources of revenue, particularly in non-voice services. Perhaps the most interesting mobile payment application of all in terms of revenue potential is the use of mobile devices to facilitate proximity payments. Proximity payment is broadly defined as payments made at physical world point of sale, vending machines, ticket machines and turnstiles, toll gates and the like. This area is of growing interest due to several factors: - The success of contact-less card and RF tag schemes in the transportation sector - The development of location based technology - The development of short-range communications technology including IrDA’s Infrared Financial Messaging (IrFM), Bluetooth and WiFi - The demand for services complementary to payment such as coupons, tokens, vouchers and other value-based content - The demand for two-way services between merchants and consumers - The desire of the traditional payment industry to provide “anytime, anywhere, anyhow” ability to pay for goods and services & convert traditional cash/check transactions into credit/debit transactions Opportunities exist at both ends of the value spectrum including micro-payments for traditional cash applications such as parking, mass transit passes, ticketing, quick service restaurants (fast food) or vending and macro payments for the retail environment. In all cases, cooperative approaches between financial and mobile network providers are essential. In eCommerce and mCommerce, the barriers to entry are much less than in the physical world where the payment infrastructure is expensive and difficult to change. So how does one leverage the benefits of both networks to provide a proximity payment environment valuable to consumers, merchants, financial institutions, and mobile operators? Many believe the next step is to integrate all forms of commerce into a universal commerce platform. While eCommerce and mCommerce both utilize the Internet to connect consumers to merchants, this still represents slightly more than 5% of all transaction volume. The remainder of consumer-based commerce is Proximity Commerce. Today that means a consumer going to a merchant and swiping or inserting a magnetic-stripe or smart card into a merchant terminal’s card reader. The convergence of mobile, electronic and proximity commerce is inevitable. “U-Commerce is a dynamic convergence of the physical and the digital, the interface of brick-and-mortar commerce with Web-based wireless and other next-generation technologies in ways that will create new levels of convenience and value for buyers and sellers. It’s about the integration of more value-added information into each transaction, in ways that benefit both consumers and businesses. Ultimately, it is about minimizing friction in the commerce chain, creating new efficiencies and higher levels of productivity.” Physical and digital commerce convergence requires the merger of existing front-end transaction capabilities to tie into the current backend processing network. It requires use of existing terminal infrastructure and minimal change to the mobile phone or handheld clients. “A swift payment system that flows through the eco-system will be a vital catalyst for growth. Financial institutions have to understand how to leverage mobile devices as a viable channel for payment and financial services. They will also have to move beyond traditional comfort zones and partner to develop a payment platform that is open and interoperable.” - The rationale for the implementation of a wireless proximity mobile payment service especially for consumers and Small to Medium Enterprises (SMEs) is built upon the following ideals: - Value: The combination of adding a two-way wireless communication mechanism between the terminal and mobile device couples the consumer to the merchant and the financial network to the mobile network for each specific, real-time, face-to-face transaction. This coupling of consumers to merchants and financial to mobile networks provides a unique and very valuable mechanism for provisioning of traditional and enhanced consumer and merchant services. Traditionally, SMEs have been burdened with the legal requirement by card companies to track purchases through receipt maintenance. Since receipts are paper, the record keeping is expensive, logistically complicated and often non-existent. The provision of electronic transaction records for SMEs simplifies record keeping and repudiation claim support. - Convenience: Provisioning of wireless proximity payments (and other similar transactions) provide many new conveniences for merchants and the consumer. The four (4) most common conveniences are: * providing an immediate payment alternative to cash and checks * expediting the purchase and payment process or “line busting” * bringing financial management features to a specific payment event (electronic receipt storage & maintenance) such as the ability to sync receipts immediately to an over-the-air Quicken™ or other financial service aggregator, and ultimately … * reducing the cost of purchases through the simplified use of electronic coupons or vouchers. - Cost Reduction: In physical world payments, the cost of handling cash and checks is significant. A solution that assists the conversion of check and cash transactions to credit or a debit transaction reduces handling costs without replacing or modifying the current infrastructure is of value to merchants and their service providers. - Security: Proximity transactions using a mobile device can be more secure than traditional card based transactions. Physical cards can be lost, stolen or skimmed. These physical cards are rarely retrievable. With electronic cards, payment information is not seen in the clear, the transactions require password or other forms of authentication and most importantly, the electronics cards can be retrieved or disabled remotely (over-the-air) when phones are lost or stolen or where consumers have been blacklisted. Improving payment security can significantly reduce the actual cost of fraud protection to the card issuers, which exceeded $2 billion worldwide 2002 and expected to increase to more than $15 billion in 2005 if there is no investment put in to it’s reduction. - Loyalty: Mobile operators, financial institutions and merchants who offer proximity payments will benefit from customer loyalty – after all, this is the strongest motivating force behind oil industry payment schemes and the use of the Mobil SpeedPass. The growing electronic coupon business will also be a significant driver for proximity payment as currently less than 2% of the 250 billion coupons issued yearly are actually redeemed simply because it is inconvenient to store and retrieve them when a consumer makes a purchase. The effect of electronically automated loyalty programs is expected to benefit SME merchants the greatest since the standard loyalty program infrastructure will be in place for all merchants to leverage. - Transaction Growth: The use of targeted marketing, especially when combined with location services, will be a powerful driver for proximity payments. Electronic coupons and vouchers delivered to mobile devices at the right time and place will generate business for the merchant and revenue for the operator. Furthermore, transaction growth will extend beyond payment and into other value-added services such as mass transit ticketing where the greatest benefit will come to Eastern Europe where communication systems for mass transit authorities are rapidly being updated to accommodate such advanced, cost-effective services for both the transit providers and passengers. - Differentiation: Merchants, operators, financial service providers and device manufacturers can differentiate their product or service and improve customer acquisition and retention by providing company specific services a two-way mobile payment service platform. A mobile payment system couples the capability of a mobile network to the vast number of face-to-face or ‘proximity’ transactions that occur at retail points-of-presence. In this way, a service provider (merchant or other) can provide off-line, on-line, local and remote payment services over a single transaction platform. Ultimately this service delivery capability will extend beyond financial transactions and become a universal transaction platform between any type of terminal and any mobile device for any transaction application. The end result is the development of a new wireless proximity payment and service culture. Implementing the vision of this culture is simple technically, but requires a combination of standardization and industry cooperation. Currently, the world’s payment and mobile cultures are fragmented. Payment culture differs widely throughout the world from the relative use of checks which are dominant in the US to their non-existence in Japan. Mobile network architectures differ widely worldwide. And consumer usage of mobile handsets for applications beyond voice varies as much as the networks vary. Yet one constant remains worldwide. People can travel from country to country and make a payment for goods and services the same way in every location. The infrastructure exists, technology exists and the market demand exists. What remains to develop is a defined set of roles for each domain in the mobile proximity payment system. Conclusion The advantage of this wireless proximity payment model will be its ability to support a wide variety of different applications. Even before mobile phones became prevalent, IC Chip smart cards came out to increase the security aspect and possibilities of plastic credit cards. More recently, mobile phones, “always-on PDAs”, smart-phones, and pagers are bringing about a revolution in the payment industry. The world’s first mobile payment service for proximity payments is currently being launched in Korea where Harex InfoTech has established channel partnerships with the Korean mobile operators; with the largest handset manufacturers in Korea; with the largest banks in Korea; and with the Korean government for provision of roadway toll payment services. On the heals of this release came the release of SKT’s Moneta™ service based on the same IrFM protocols between mobile handsets and payment terminals. And now there are announcements of trial and commercial implementations worldwide including proximity payment services in Japan with NTT Data, DoCoMo and Visa, and recent trial announcements in the US and Europe. A new wireless proximity payment culture is dawning. The sun is rising in the east as usual but will soon shine upon the rest of the world.