Wednesday, February 03, 2010

Credit Cards in the Mobile Payment eco-system

Many mobile payment solutions claim to integrate to credit card systems. The examples are myriad and it is very difficult to evaluate the different solutions with each other. "Front-ending" credit cards with mobile devices can unfortunately present itself in many different ways, with different implications, risk profiles and business applications. In order to try and bring some clarity to the many different schemes, I have defined the following three categories:

  • Mobile payment systems acting as a new acquiring mechanism. This type of integration is the most common with many examples. The solution enable the mobile payment provider to accept payment from participants by allowing them to enter card-number into mobile phones. (or sometimes allowing for a pre-registration). These systems usually act as a merchant, super merchant or an acquiring bank and does not involve the issuer at all. The risk associated with card not present transactions should be mitigated in these type of solutions.
  • Mobile payment systems adding utility to existing issued cards. These systems usually augment existing card issuers by providing for mechanisms (outside of the card domain), to increase security. Applications include alerting services and the delivery of dual factor authentications tokens. These solutions can only be deployed with full collaboration (or ownership) from the issuers.
  • Virtual cards being utilised within a mobile payment application. These type of solutions allows for the issuing of a "virtual card number" that is associated with a specific mobile phone. Transactions originating from the phone (and not traditional POS or ATM's) can be performed by these solutions. Very specific niche applications are usually approached by these systems with full support from a specific sponsoring bank (in the role of issuer).
  • New innovations that can not be classified into existing card scenarios. These applications hook onto credit card systems in proprietary ways to offer improved security or more transactional capability. Examples are systems supporting money remittance through dual cards, or new types of transactions, or implementations of Secured by VISA (for instance).
It is important to have clarity on the different approaches when looking for a mobile payment solutions as not all systems will solve a specific problem.

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