There’s money to be made in micropayments
Technologies are in place, but business models still need work
August 7 2008 - 11:52 am ET | Colin Gibbs | RCR Wireless News
Hardware, software, high-speed networks, uptake … it seems all the pieces are in place for mobile commerce to take off. Well, all the pieces except maybe a viable business model or two.
That was the takeaway from last week’s Mobile Financial Services Summit in Denver, where executives from the wireless and banking worlds converged to discuss opportunities in m-commerce. High-speed networks have come online, sophisticated handsets are the norm, and a host of cross-industry partnerships have laid the foundation upon which to build products and services consumers actually seem to want to use.
“I think right now we’re at a stage where the technology is stable, it can work, and there are models where the three industries (mobile, banking and retail) can work together,” said Mehul Desal, COO of C-SAM Inc., an Illinois-based firm that enables mobile transactions. “The ecosystem is the part I think that needs to come together. It’s more about business models than technologies.”
There seems to be plenty of potential in m-commerce, a broad term that encompasses — among other things — contactless mobile payments, wireless banking and peer-to-peer transactions. The number of global mobile banking transactions will explode from 2.7 billion last year to 37 billion in 2011, according to Juniper Research, and IMS Research predicts the number of mobile banking and payment services users will grow more than six-fold during the next four years.
Indeed, consumers seem eager to use their phones to check account balances and transfer funds. Bank of America claims more than 1 million customers use its wireless banking service, which launched in May 2007, with more than 100,000 users accessing the service on busy days. “Clearly, it’s meeting a general user need,” said Vance Hodnett, VP of research for financial services for Pelorus Group, which hosted the conference. “Otherwise it wouldn’t have taken off like it has.”
But banks and credit-card companies generally see mobile as an extension of their their existing services — not a moneymaker in and of itself. Financial institutions are increasingly marketing their wireless services as a way to lure new customers and increase stickiness with existing patrons. It’s unlikely, though, that consumers are willing to pay regularly for the privilege of checking their accounts or moving money around over the phone.
So where’s the money going to come from?
Wireless is hoping to create a place for itself in the value chain with contactless payments, allowing consumers to use their phones to make micropayments of $5 or less at convenience stores and snack counters. Those transactions account for an astounding $1.8 trillion every year, according to Hodnett, and “99% of them are cash.”
But there’s much work yet to be done before wireless subscribers reach for their phones instead of their wallets. Contactless payments — which are often based on NFC, or Near Field Communication, technology — requires costly equipment at the retail counter, and chips must be installed in phones at the factory (although at least one player, Tyfone, is looking to place the hardware on memory cards that can be inserted in the phone by users). A lack of standards continues to plague the contactless-payment space, and it’s still unclear whether consumers really want to “carry” cash on their phones.
So the next logical move for m-commerce may be a two-step: banks could use mobile to decrease costs by reducing fraud, alerting customers to fraud and slashing churn, then try to generate revenues by attracting new customers and cross-selling existing users, according to Reetika Grewal of ClairMail, a Bay Area-firm that powers mobile services for Fidelity National Information Services and WAUSAU.
“Today, people are using (mobile) very much as a pull channel” to perform basic functions, Grewal told the audience.
“But across the board, things are getting used. People are starting to be more adventurous with how they use their phones.”
August 16, 2008 07:52 pm
True value of cell phone and mobile payment can be achieved when a person can make credit card or banking transactions from any place, anytime including at POS. In fact today you can do online transactions from any place and anytime using a computer and Internet except from the POS. Duplicating the online transaction features to a cell phone is not that difficult. The issue is how to provide a POS mobile solution. NFC may not be a cost effective solution. What else can be used to make a secure POS mobile transaction maybe in less than minute?
August 11, 2008 05:59 am
VV Wow great insight from JC below.
August 8, 2008 05:59 am
I agree with JC on every point - until the last sentence. There is an example in the US for exactly what JC describes. It is offered by a company called Air-Bank, Inc.
August 7, 2008 03:11 pm
M- Commerce is missing a business model if you apply the current US version of M-commerce on the opportunity. The US version of m-commerce is based on providing fully banked customers informational access to their well-funded bank accounts sold with a 'convenience' pitch. This approach has marginal value and thus low economic value to these users as they have an abundance of alternatives and lets face it - do we really want to respond to a low balance alert while hanging off a cliff on a rope? (see a recent large US bank advertisement for mobile banking)The real promise for mcommerce lies in bringing access to the unbanked both in the US and particularly abroad utilizing the only ubiquitous technology available to these people the mobile phone. Contactless payment via new and costly POS terminals and embedded technology in wireless devices is whiz bang but is a fools errand.Providing a low cost, safe, secure and immediate way to store value on the phone and send it to relatives across geographic divide has real value and utility for both the ecosystem members, the consumer and the carrier and more importantly is key to sustainable economic development for much of the population of the globe. The business model is very clear just dont look to the US for examples.