Ever since operators have been able to provide text messaging and data services to phones, it has been their aspiration to make the mobile phone a platform for mobile commerce. However, despite a brief period in which SMS was used as the payment mechanism for ring tones (consumers sent payment requests via text messages and were charged on their phone bill), SMS-based mobile payments never gained momentum, as it suffered from delays, lost messages, low payment rates, and high fees.
Recent proposals involve using NFC, a short-range, high-frequency wireless communication technology that enables the exchange of data between devices over about a 10-centimeter distance. Mobile phones can be enabled for NFC either by attaching an NFC transponder, often a sticker, or building one directly into the phone. NFC can be integrated in point-of-sale (POS) terminals.
A survey we conducted found that the most appealing of the mobile payment options would be using the phone at a physical retail store in a similar fashion to a credit card. This suggests a strong potential for NFC as well as barcode technologies, in which the mobile phone would essentially replace one’s credit card. Consumers were also interested in using their phones for remote mobile purchases, with nearly half of respondents expressing interest in making mobile web-based purchases as well as application-based purchases from the mobile phone.
The problem with an NFC based system is that it requires mobile operators, financial services providers, handset manufacturers, and merchants/retailers to cooperate with each other. Each element in this ecosystem delivers a different level of scale, but all are tied together through partnerships. The mobile operators have the relationships with both the handset manufacturers and the consumers, and can therefore deliver the mobile payment technology into the hands of those who will use it. The financial services providers offer merchant scale through a broad base of existing retailer relationships. The merchants then provide incentives for use like offering discounts or promotions to mobile payment users.
However, each of these groups are focused on the huge financial gains associated with collecting a small process fee on the total transaction. It seems that instead of joining existing payment initiatives which include the operator-supported ISIS, Google Wallet, Mastercard PayPass, Visa payWave, or PayPal, retailers are working together to develop yet another alternative in the mobile-payments space. Target was quoted as saying, “We are exploring potential solutions that would help us to deliver the fastest, most secure mobile-payment experience possible for our customers.”
Creating multiple standards is likely to hamper into the evolution of the digital wallet, resulting in it taking much longer to find a common standard and then to subsequently to get consumer acceptance.