Mobile Payments: Six Issues

Awaiting publication in the

INTERNATIONAL JOURNAL OF MOBILE MARKETING

Saji K.B.,

(Corresponding author)Associate Professor (Marketing)INDIAN INSTITUTE OF MANAGEMENT,Prabandh Nagar, Off Sitapur Road,Lucknow - 226 013, India.Phone (Office): +91 - 522 - 273 6653Phone (Home): +91 - 522 - 273 6502Fax: +91 - 522 – 273 4025

Email:

saji_nair@iiml.ac.in

Aditya Agarwal

Student,INDIAN INSTITUTE OF TECNOLOGY,I.I.T Post Office, Off Adyar,Near Guindy National Park,Chennai-600 036, India

E-mail:

i.aditya.agarwal@gmail.com

1. Introduction

Technology push, through maturing wireless networks and market pull via pervasive adoption; havepaved the way for several innovative applications on the mobile phone platform. One fascinating prospectis

use the mobile phone in order to initiate, activate, and/or confirm a payment

, explicitly termed by

[Karnouskos, 2004]

Mobile Payments (MP).Historically, the MP opportunity arose with the advent of Mobile Commerce (MC). For greater acceptanceof MC services it was necessary that quality and performance be ensured through integration of necessary support services

[Mueller-Veerse, 1999]

. It was then that MP emerged as the criticalsupport service

MP was touted, by a number of independent researchers

[e.g. Feldman, 2000;Senn, 2000]

and

research institutions

[e.g. Lussanet, 2001]

as the long awaited ‘killer application’ forthe telecommunication industry. In concordance with that belief, numerous mobile payment solutions(MPS) were launched by the likes of financial institutions, mobile operators and independent players.However, of the several solutions proffered, only a handful met with any semblance of success. Most of the solutions listed by

[Carat, 2002]

survived a few months. The unavailability of proven businessmodels discouraged any further attempts at enabling MPS

[Camponovo and Pigneur, 2003]

. Limitedsuccess and the absence of newer attempts, contributed to an overall deflated outlook on MPS.The fresh spate of MPS in recent times, indicate that the outlook on launching MPS is again changing.With high-speed next generation data networks, sophisticated data-enabled wireless devices, colourscreens, greater bandwidth, and compelling content converging

independent researchers

[Urbaczewski et al., 2003]

among others

[e.g. Mobile Payment Forum, 2002]

foresee a healthierMC environment. Stable demand is estimated for a variety of music, video and location services

LehmanBrothers estimate that even the immature Indian MC market will touch $10 billion by 2010

[IMAI, 2006]

.Meanwhile it is becoming clear that MPS are crucial for, but not limited to MC scenarios

[e.g. Pousttchi,2004].

Management of payments in real time over channels like the internet, retail outlets and ticketingcounters through the mobile phone platform are increasingly the new interpretations of MP. “Push” typeproduct promotions

[Varshney, 2003]

over mobile phone networks are also something serviceproviders are experimenting with. Occasional reference to these procedures as Mobile Business (MB),have led to confusing definitions for Mobile Payments. The researchers stick to convention and includeMB in the scope of MP itself. Within the scope of this paper, MP is defined as

the use of the mobile phone, for product promotion by sellers and the subsequent payment authorisations by the customer for any real /virtual good or service through an intermediate payment service provider (PSP).

The researchers note that recent attempts by payment service providers at launching MPS face divergentdegrees of success. The sensational success in Philippines contrasts with the short lived Airtel/ICICIpromoted m-Chq procedure in India. The researchers believe that these happenings compellinglyreinforce the complex realities of the lucrative MPS market. They illustrate that numerous issues need tobe addressed before expecting mass adoption. Given that there are no established rules of the game

[Camponovo and Pigneur, 2003]

discuss that despite the general consensus on the huge potential of MP, various reservations are arising as to how to actually exploit them.It is the purpose of this paper to outline these rules by making an original attempt to unambiguouslyidentify the decisive factors that have to be addressed before introducing MPS in the market. Relatedadoption bottlenecks, challenges and pitfalls are categorised within these recognised factors to ensure adetailed analysis of the forces at work.

2. The Issues

The researchers identify six factors which they argue govern the success of MPS. These six factors are:

Current Payment Relationships, Payment Scenarios, Suitability, Ubiquity, Regulatory andSecurity Concerns, and Market segmentation

. Discussion on each of these factors is presentedunder separate sub-sections below.

2.1 Current Payment Relationships

It is a well known fact that market players like banks and card acquirers have a dominant hold on thepayments market.

[Camponovo and Pigneur, 2002]

note that the telecommunication industry alsoinherently nurtures the growth of monopolies. In most markets there is a group of network operatorswho command comparable market shares and pose high entry barriers to new entrants. As a result,before entering an industry which straddles two industries, both with high entry barriers, a PSP would dowell to consider competition from the existing players. This section deals with an assessment of thestrengths and weaknesses of both existing payment systems and future competition.

2.1.1 The Mobile Network Operator

A mobile network operator (MNO) is the telephone company that provides services for mobile phonesubscribers.By the very nature of the mobile telecommunications landscape, the MNO has exclusive and total controlover a number of important assets

[Lai et al., 2000]

. Since the MNO controls the mobile network infrastructure, it is but compulsory that all MPS have to pass through the MNO. All information, includingpayment authorisations by the customer and the service providers’ confirmation, has to be carried by theMNO. Furthermore the MNO has sole control over the SIM card. For repudiation purposes, access to thisunique identifier is a must for any PSP. Several authors

[e.g. Ondrus and Pigneur, 2005]

have notedthat ownership of communication channels and ownership of customer are major advantages for network operators. Another unique natural advantage that the MNO has is the restricted access to user related informationsuch as call patterns and location data which form the basis of a customer profile. A comprehensive databank of customer profiles would be of immense commercial value to suppliers interested in deploying “push” type advertisements and value added coupons. That only the MNO can offer these context-sensitive services further strengthens its position as a PSP.Competition from network operators must be considered in light that they already have a directrelationship with the customers. They already offer transparent micropayment services. The universalappeal of their uncomplicated premium SMS methods, places them well to deliver payment services

[Urbaczewski et al. 2003]

. However it must be noted that these SMS methods were designedspecifically for the payment for mobile content and have worked well for elementary MC services like saleof ringtones, music downloads etc. Extending these services to unleash the real potential of MP will bevery difficult as discussed later in

Section 2.2

.Though these legacy procedures have never been used for MPS, it is important to factor them intoconsideration for two reasons. One, these services have built the content-provider’s and consumer trustin the operators ability to handle financial transactions (albeit of a small value) and two, these serviceshave helped the MNO gain valuable experience in the area of in-band micropayment billing. What is of interest is that the MNO is well placed to enter the PSP arena because billing is at the centre of itscompetency. The MNO already has a low cost, low friction payment system wherein it can send andreceive data based on a unique id. Since the advent of 3G technologies necessitates newer charging