Sunday, April 06, 2008

Where is the money?

Mobile payments is an interesting concept. I have heard a lot of people talking about how making payments from a cellphone could be earth-shattering - how it would change the way that people shop and do business for ever. And I believe that they are right, but in order to make this vision happen we have to solve a difficult problem... where is the money?

No, I don't mean, how we are going to make money by running a mobile payment scheme. I mean, what are people going to use as money to pay with. If they complete a transaction and they hit "send" (or "pay") where will the money come from to do this payment. To put it in another way: "which account will be debited". Many different solutions have been suggested and implemented, but all have significant challenges. Below is a summary of some of the Value Stores that could be used as the money in mobile payments:
  • Using an existing credit card as the source for doing a mobile payment would seem to be the most obvious approach. This has successfully been implemented, but suffers from the following challenges: A relatively small percentage of people with mobile phones have credit cards globally, the transaction can be expensive as credit card fees must be paid before any other revenue can be generated and the rigid (but sound) rules regarding fraud places a very big risk on such an approach.
  • Using the mobile operator's billing engine as the source for payments have been proposed, but this approach can even be more expensive than credit card transactions. (See one of my previous blogs) . In addition, expect regulatory problems and significant challenges to extract cash out of the system. It is also unlikely that the mobile operator would be happy with sharing money earmarked for telecommunications with other retailers.
  • Utilising existing bank accounts could be interesting, but integrating telecommunication systems to core banking systems can be expensive and time-consuming. Also the strain on a banking system when millions of small transactions starts hitting it, can be outside the design limits of such a system.
  • A new dedicated mCommerce account may be the way to go. Remember that when credit cards (a new payment system) were launched in the 1970's, it came with its own dedicated account management system. Why should that not be the case for mobile payments?

4 comments:

mahmoodd said...

There could be another option, using pre-paid card issued in cooperation with a bank.

Hannes@Home said...

Thanks Mahmood this is a great contribution. Any others?

dgwbirch said...

It seems to me that a more likely outcome is that the payments business and the other lines of banking business will begin to separate, as the mobile provides a different platform and a different cost model for payment. Hence it may well be that the payments are provided by new specialist companies rather than by banks.

bankelele said...

Safaricom M-Pesa works quite well in Kenya transfering money both for banked and unbanked subscribers. It is much cheaper than Western Union for domestic money transfer, and is an even better substitute for debit cards offered by banks