Mobile Payments: Six Issues

Awaiting publication in the

INTERNATIONAL JOURNAL OF MOBILE MARKETING

by

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 6653
Phone (Home): +91 - 522 - 273 6502
Fax: +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; have
paved the way for several innovative applications on the mobile phone platform. One fascinating prospect
is to use the mobile phone in order to initiate, activate, and/or confirm a payment, explicitly termed by
[Karnouskos, 2004] as Mobile Payments (MP).

Historically, the MP opportunity arose with the advent of Mobile Commerce (MC). For greater acceptance
of 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 critical
support 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’ for
the 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 business
models discouraged any further attempts at enabling MPS [Camponovo and Pigneur, 2003]. Limited
success 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, colour
screens, greater bandwidth, and compelling content converging, independent researchers
[Urbaczewski et al., 2003] among others [e.g. Mobile Payment Forum, 2002] foresee a healthier
MC environment. Stable demand is estimated for a variety of music, video and location services. Lehman
Brothers 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 ticketing
counters through the mobile phone platform are increasingly the new interpretations of MP. “Push” type
product promotions [Varshney, 2003] over mobile phone networks are also something service
providers 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 include
MB 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 divergent
degrees of success. The sensational success in Philippines contrasts with the short lived Airtel/ICICI
promoted m-Chq procedure in India. The researchers believe that these happenings compellingly
reinforce the complex realities of the lucrative MPS market. They illustrate that numerous issues need to
be 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 unambiguously
identify the decisive factors that have to be addressed before introducing MPS in the market. Related
adoption bottlenecks, challenges and pitfalls are categorised within these recognised factors to ensure a
detailed 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 and
Security Concerns, and Market segmentation. Discussion on each of these factors is presented
under 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 the
payments market. [Camponovo and Pigneur, 2002] note that the telecommunication industry also
inherently nurtures the growth of monopolies. In most markets there is a group of network operators
who 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 do
well to consider competition from the existing players. This section deals with an assessment of the
strengths 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 phone
subscribers.

By the very nature of the mobile telecommunications landscape, the MNO has exclusive and total control
over 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, including
payment authorisations by the customer and the service providers’ confirmation, has to be carried by the
MNO. Furthermore the MNO has sole control over the SIM card. For repudiation purposes, access to this
unique identifier is a must for any PSP. Several authors [e.g. Ondrus and Pigneur, 2005] have noted
that 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 information
such as call patterns and location data which form the basis of a customer profile. A comprehensive data
bank 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 direct
relationship with the customers. They already offer transparent micropayment services. The universal
appeal 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 designed
specifically for the payment for mobile content and have worked well for elementary MC services like sale
of ringtones, music downloads etc. Extending these services to unleash the real potential of MP will be
very difficult as discussed later in Section 2.2.

Though these legacy procedures have never been used for MPS, it is important to factor them into
consideration for two reasons. One, these services have built the content-provider’s and consumer trust
in the operators ability to handle financial transactions (albeit of a small value) and two, these services
have 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 its
competency. The MNO already has a low cost, low friction payment system wherein it can send and
receive data based on a unique id. Since the advent of 3G technologies necessitates newer charging
procedures, it would make sense for a MNO to scale up and make a full fledged entry into the PSP space
as detailed in the popular “Super Operator” scenario by [Lai et al., 2000].

Major hurdles before this “Super Operator” scenario materializes have to do with issues related to the
customer uptake (discussed in Section 2.3), seamlessness (discussed in Section 2.4) and regulatory
approval (discussed in Section 2.5). The other serious challenge that the MNO faces is competition from
banks.

2.1.2 The Banks

Banks are the incumbents when it comes to the payment services sector. They are the driving force
behind two of the more prevalent spending instruments, cheques and credit cards. Facing greater
competition and decreasing margins in their core businesses, banks are hungry for newer ways to grow
through alternate revenue channels. They see that opportunity, in using mobile phones as a personal
secure payment terminal. As is the case with e-Commerce transactions, they are keen to ensure that
payments made over mobile networks are secure while maintaining their pre-eminent position at the
centre of the payments loop.

Like the MNO, banks too have inherent advantages. Being incumbents, they already have finance
management systems, repudiation mechanisms, risk hedging modules and adequate trained personnel in
place. Their advantage is not only that they are better equipped to handle financial risk, but that both
consumers and suppliers actually perceive them so [Siau et al., 2003]. This stems from the two facts.
One, a number of merchants readily accept bank-promoted financial instruments and two, that a large
pool of customers already are in the habit of making payments with plastic cards. Banks could market
their MPS as a new channel for card and account-based systems and leverage their existing resources
and backend to revolve around this new channel. This would ensure that they maintain their pre-eminent
position at the centre of the payments loop.

Since they already have the necessary goodwill and approval of the regulators it would be Banks, over
other competitors who stand the best chance of gaining significant first mover advantages.

An important point of consideration is that the advantages that banks enjoy as incumbents vary radically
across markets. In more mature western markets a significant fraction of the total users and merchant
base already has a direct relationship with one or more banks. Use of credit cards accounts for over 70
percent of retail transactions [CPSS 2004]. The banks’ network of ATMs, acquirers and credit holders is
very strong and bypassing it in such markets will be very difficult (discussed in Section 2.4). However,
there exist many regions that the banking sector cannot reach or does not find cost effective to serve.
This relationship is primarily so, because the banks’ attitude and culture are foreign to the needs of this
market [infoDev Report 2006]. This market is essentially a cash-market banks have little knowledge of
their needs. The lack of a direct relationship between the banks and this majority class of people leads to
an infancy of banking instruments, which destroys the major advantages that the bank has. In contrast,
the MNO would be better placed to launch a MPS in such markets, since it already serves this market and
clearly understand their needs.

Another the major disadvantage that Banks face is that credit cards while remarkably suitable for
macropayments are not appropriate for settlement of low amounts. This is primarily because of two
reasons, one is that it in the current set up it is not economic to process micropayments and two; it is
uneconomical to manage and resolve disputes for low values [CPSS, 2004]. So if banks continue to be
interested in only macropayments, it will pose severe usability problems (discussed in Section 2.4) since
it is unlikely that a bank promoted MNO will be used in all possible scenarios. In the next section the
researchers discuss in detail the possible scenarios for payment.
2.2 Scenarios for Payments
A popular parameter used to classify MPS is payment scenarios, i.e. based on the setting in which a
consumer can make payments [e.g. Kruppa, 2001]. It is clear that different forces will be at work in
different payment scenarios. The researchers categorise the payment settings as Remote Payments and
F2F (face2face) payments, and endeavour to identify the unique forces at work in each of these
scenarios.

Remote payments refer to payments made when the buyer and seller do not physically meet to exchange
goods or services. Payments made for settlement of traditional MC services and next generation
applications fall under this classification. As indicated in Section 2.1 charging for MC data services in a
packet-based network will be a complex task for a MNO. This is because payments for settlement of MC
services cannot simply be done by scaling up the traditional SMS based payment procedures [Mobile
Payment Forum, 2002]. These premium and reverse billed SMS methods were designed for settlement
of micropayments for specially labelled data packets at previously fixed quantised rates. They were not
designed for the diverse applications that designers seem to be throwing up and consumers increasingly
demanding. The sub-scenarios as listed by [Paycircle, 2002] require alternate, more complex charging
procedures like pay per view, per click, per event etc.

However, the researchers stress that this scenario will not include EC over mobile phone networks. It is
now accepted that given current device and technological levels commerce over mobile networks in a
sense similar to online shopping is unlikely to take off in the near future [Urbaczewski et al., 2003].
[Karnouskos, 2004] noted that commerce over mobile phones will not be about surfing the Internet
for specific goods and services but about leveraging the characteristics of the mobile device to create an
entirely different experience for the user.

It is to be asserted that, though providing for the content is not the core competency of the PSP, it must
ensure availability of relevant content. Without the availability of content the need to pay for content
does not arise. So it is important that the PSP works consciously with content providers to provide
valuable services to consumers, else the lack of suitable services may reduce interest in mobile
payments. In case of the imode service of NTT DoCoMo, it is educative to know that the company
realised its core competencies and rather than focusing on selling space to content providers and
compatible website developers, it actively helped them design better applications [Friedrich et al,
2005]. This translated into 2000 official NTT websites and more than 20000 independent yet compatible
websites [BCG, 2000], which implied a greater variety of more relevant services for the customer.
Greater bearing aided the acceptance of both the MC applications as well as the payment procedure.

Furthermore content needs to be tailor made for the mobile phone because of its unique physical
constraints and bandwidth considerations. Since sufficient literature on the issues with application design
exist [e.g. Venkatesh et al., 2003], their reproduction here is deemed unnecessary. A brief discussion
on the necessity of content is presented in Section 2.3.

However, the necessity of the complex payment procedures arise only if there is a demand for the value
added applications. That is, the availability of value added applications and compatibility of charging
procedures are not a necessity for the uptake of MPS. In the Philippines, there simply was no demand for
next generation applications, which allowed the MNO to scale up its existing SMS channels for deploying
MPS [infoDev Report 2006]. It remains to be seen if these solutions maintain their present form when
the wave of next generation MC applications hits Philippines.

F2F payments are the generic term given to all payments for physical goods or services over the mobile
phone platform. In fact F2F payments are consistently the main focus of the wave of MPS that have
launched in recent times.
Conventionally the PSP may request authorization for payment from the mobile user directly with
something like an SMS pin request. Though no PSP has as yet experimented with contactless proximity
payments, the convergence of technologies such as Bluetooth and 802.11 have the potential of
transforming the mobile phone into a sophisticated payment device that can process both micro and
macro payments [Mobile Payment Forum, 2002].

Till then, the various innovative charging procedures have been developed allow market players to
leverage existing infrastructure. Pioneering concepts involve Mobile Retailing and Mobile ticketing among
other possibilities [Urbaczewski et al., 2003]. As previously stated, increased user acceptability and
progressive technology have augmented the recognition of using the mobile phone as an effective tool
for replacing the wallet and managing payments in real time over other channels like PC, retail outlets, or
ticket sales counters.

F2F payments include C2C payments as well. The opportunity to transfer money from customer to
customer represents mostly an incentive for usage and spreading of MPS through tribe behaviour.
Although for special target groups, the C2C MP may be the main reason to use this payment procedure;
this is unlikely for the average user [Pousttchi, 2004].

Since vanguard technologies are involved, major issues with enabling F2F payments include identifying
the correct target audience (discussed in Section 2.6) and technology adoption issues faced by
customers and merchants (discussed next, in Section 2.3).

2.3 Suitability
As frontline technologies are involved, it is reasonable that technical issues receive a lot of attention in
academic literature. However, since insufficient user acceptance has long been an impediment to the
successful adoption of any new payment system [Wu and Wang, 2005], it is imperative to consider
what factors drive users (consumers and merchants) to adopt new MPS or inhibit them from doing so.
The three principal forces which determine user uptake are dealt with in the following sub-sections.

2.3.1 Habit
It is a well established fact that the force of habit dictates the continuation of the same type of behaviour
[Aarts et al., 1998; Gefen, 2003]. It is noted that once behaviour has become a habit it becomes
automatic and is carried out without conscious decision [Ouellette et al, 1998]. Indeed, when habit is
well-entrenched, people tend to ignore external information or rational strategy, without a conscious
evaluation of the perceived benefits and costs offered [Lin and Wang, 2006]. This is true of, both the
retailers and the customers.

As specified earlier, in developed markets, the use of plastic cards is deeply embedded in the average
user’s psyche. Use of plastic cards comes naturally to the consumer, and the retailers accept credit cards
as a preferred mode of payment. The population simply isn’t eager to move away from its familiar
payment systems [Friedrich et al, 2005], so breaking set habits in such markets will be difficult. A PSP
like a Bank, may in such circumstances profitably leverage its existing offerings (credit cards) to which
people are already habituated. Getting the customers to use the accepted means of transaction, through
a different channel may increase the acceptability of such a solution.

On the count of habit, it must be pointed out that MPS which charge per transaction have a disadvantage
vis-à-vis solutions with a one time fixed cost or no cost-to-customer. Repeated use reinforces familiarity
in an upward spiral to create a habit of using the solution [Ensor, 2003].
Habit also has an indirect affect on the technology to be deployed. SMS is usually chosen over WAP, even
though it allows lesser functionality and security. This is because people are more familiar with SMS as
compared to WAP. They are already in the habit of using these short messaging services. The Mobipay
solution expected users (both customers and merchants) to make USSD calls to service payments and
ended up with 13000 customers before folding up [Ensor, 2003]. Its’ failure may partially be attributed
to the difficulty in educating customers and merchants on this technology. This is because a near-zero
learning curve i.e. perceived ease of use have strong effects on behavioural intention to use [Wu and
Wang, 2005].

An important detail of note is that NTT DoCoMo did not initially provide for mobile payments. Its i-mode
service was advertised and positioned as a value-add service. This successfully laid the groundwork with
customers for introduction of the payment functionality [BCG, 2002]. Customers had six years to get
used to using their phones as lifestyle tools, which promote convenience rather than just as
communications devices; and could then easily take advantage the m-payment function [Friedrich et
al., 2005].

2.3.2 Convenience
It is highly unlikely that the average user will embrace MPS just for the sake of technology. There has to
be something more to draw him away from the set methods. An important ingredient for uptake of
solutions is an acceptable value proposition. [Ondrus et al., 2005] argue that the disparities in success
of individual solutions can be traced to the lack of value propositions answering specific needs of the
customers. Unless MPS offer a clear value add over set methods the user is unlikely to use these methods
over existing solutions like cash and credit cards.

Direct benefits of mobile payments for customers in retail stores are related to speed and convenience.
Since people rarely forget their mobile phones, [Consult Hyperion, 2002] find the use of the mobile
phone as a payment device for impulse purchases to be significant. Additionally, consumers get a more
convenient solution as they would not lose time looking for their credit card or exact change in their
wallets. They would not wait for the credit card to be processed and authorized. Then, they would not
have to sign a receipt. Moreover, they would not forget their credit card in the reader the end of the
transaction [Ondrus and Pigneur, 2005].

Direct benefits for merchants include lower processing times and lesser transaction fees. Additionally they
would not have to invest in costly POS terminals for each of the credit card acquiring company, one
terminal will do for all. However, convincing merchants to invest in new payment systems before a
sizeable number of customers actually use the payment system will be especially difficult (further detailed
in Section 2.4).

The point of note is that the offered value propositions must match some of their needs. Even though
mobility has its own advantages, other values are needed. [Yankee Group, 2003] argue that failure of
previous MPS was because users' needs and adoption behaviour were not sufficiently understood. Typical
added values originate from ubiquity, context-sensitivity, identifying functions or command and control
functions of MC applications [Salvi and Sahai, 2002]. A PSP must work closely with content providers
to develop suitable applications which focus on the permanently changing the routines of everyday life
through personalisation, localisation, timeliness. Smart user support for tedious, advanced or complex
tasks on adaptive user interfaces [Dahlberg and Mallat, 2002] are definite incentives for uptake of
MPS. The focus of solutions should be on providing convenient value added services.

On the account of convenience, a major benefit that the bank has as a PSP is restricted access to the
users’ bank account. If the user wants a prepaid settlement account, then there is no need for him to tie
up funds with a PSP (by opening a separate account) as the bank already has access to their account and
can handle transactions from that account itself. In case of post paid solutions, banks have the necessary
experience in dealing with credit and has customary systems in place which both the regulator and
consumer are comfortable with. A one stop account for all payment needs should serve as a great
value-add for users.

In the Philippines the service of international remittances from overseas Philippine workers was a relevant
value-add in the market, as corroborated by high registration rates for this service [infoDev Report
2006]. The large immigrant population that regularly needed to repatriate small funds at regular
intervals found this service a very simple, instantaneous and reliable alternative over e-transfers which
would normally take days.

Advertising on mobile devices has large potential due to the very personal and intimate nature of the
devices and high targeting possibilities. By keeping track of user’s purchasing habits and current location
and thereby forming an exhaustive customer profile, a context sensitive advertising campaign can be
performed. Depending on interests and personality types of individual users, advertisers could decide
whether a “push” or “pull” form of advertising is more suitable [Varshney, 2002]. According to
[Göthlin 2004] most users do not mind being forwarded with mobile location-aware services
information, as long as they really need the information or are given right incentives. Distribution of
discount coupons may be a great value added service for segment with great price sensitivity.

2.3.3 Price and Acceptability

[Kreyer et al., 2002] through an examination of the development of past payment procedures show
that the key to acceptance of any solution is in the hands of customers. [Wu and Wang, 2005] discuss
that from the customers’ perspective the cost concern is typically the most important issue with uptake of
MPS.

Direct relationship costs to be considered are the expenses that the user has to incur to be able to use
the payment solution. This would include the non negligible cost of changing services [Chen and Hitt,
2002]. Typically all solutions with high move-in costs like the dual-slot phone offerings (like “Paiement
CB sur mobile”) have failed. Direct costs also include follow up procedures like the hassle to initiate the
payment service.

Indirect relationship costs are those that occur if the offering does not function as promised and
psychological costs materialize when a customer fears that problems will occur in the relationship [Wu
and Wang, 2005]. However, [Chou et al. 2004] evaluated various payment technology alternatives
and found that social factors play an important role in these perceived. [Huber, 2004] indicates that
these differences are well grounded in the adoption of mobile technologies. Other cultural factors that
can influence what payment services are offered and how they are adopted include industry strengths,
home-banking affinity of consumers, and strong/little mobile phone inclination. Based on their findings,
[Ondrus and Pigneur, 2005] confirm that cards are still preferred to phones for payments in the EU
markets. Users are still uncomfortable with running high telecom bills.

Decisions regarding whether to charge by time, pages viewed or any of the other myriad possibilities will
depend on regional preferences as well. It would seem that American consumers would resist the idea of
pay per view, and similar charging procedures because they are used to the flat rate subscription culture
for fixed line internet access which they would rate as a benchmark [Cheong et al, 2002].

An interesting issue while deploying MPS is the choice of settlement types to be made between Pre-paid
and Post-paid solutions. It will take some fine-tuning to get the charging procedure balance right and
there may be significant regional variances in implementation. Differences are expected on basis of the
acceptability of post paid solutions in the market. A case in point may be the fact that majority of the
American accounts with network operators are post paid, unlike those in India which are prepaid. Cultural
differences vis-a-vis the need for anonymity while registration may also affect the way individual MPS are
structured.

In all, it needs to be demonstrated to mobile phone users, that mobile payment is much more attractive
than other more familiar payment schemes. The bundle of convenience aspects (safe, secure, available,
fast, transparent, etc.) needs to be packaged an ecosystem to play, tailored to the geography to be
served must be sold to target groups individually [Friedrich et al. 2005].

2.4 Ubiquity
The telecommunications industry is the text book example of network effects at work. So it is but logical
that any application leveraging the mobile phone platform should experience similar network effects. The
researchers argue that MPS will not be successful until they manage the similar levels of ubiquity as the
mobile phone. [Pousttchi et al. 2002] argue that even though most MPS have not been successful so
far, the positive outlook persists principally because of the ubiquitous reach of the medium required; the
mobile phone. The researchers identify that this required ubiquity has two layers to it, ubiquity of
availability and ubiquity of use which are presented separately in the sections below.

2.4.1 Ubiquity of Availability

The researchers reason that ubiquity of availability is an important force at work to be considered while
launching MPS. Ubiquity of availability refers to the fact if everybody who wants to be a part of the
solution can do so. It also take into account the number of obstacles that a customer faces on-road to
becoming a consumer.

Most of the MPS listed by [Carat, 2002] were offered either by banks or network operators. Accordingly
the solution was available only to their subscribers. As previously pointed out, most markets are
characterised by a group of network operators commanding comparable market shares. Both these
factors coupled posed an artificial limit on the maximum number of users. Requisites reduce the target
size, and if it is so reduced below a critical mass making an acceptance may not be remunerative to
merchants.

Fewer merchant acceptance points and reduced demand reinforcing each other in a downward spiral may
explain why player centric MPS are not taking off in America and EU [Friedrich et al. 2005]. Already
there is demand uncertainty when it comes to extent of the uptake of MPS and introduction of pre-
requisites like having a contract with a specific MNO or bank unnecessarily reduces the size of the target
audience. Though some prerequisites, like banking restrictions are unavoidable, avoidable requisites like
a good credit history in many markets may tend to alienate a large section of the target audience.

[Pousttchi 2004] observes the vertical alliance (of all banks) as well as horizontal (joint ventures
between banks and operators) approaches to overcome the problems listed in Section 2.1. Vertical
approaches solve the critical mass problem but the procedure still remains bank-centric, which may not
attract too many customers in the developing economies as already discussed in Section 2.1. Other
problems include lack of coordination and agreeable terms of coordination between banks. Horizontal
approaches may offer a procedure which combines the advantages of bank and MNO-centric solutions
but even increases the market share problem as was seen with the failure of ICICI/Airtel promoted
m-Chq.

The low uptake of MTN banking has been partially blamed on excessive pre-requisites, including a
national id, for registration. The target audience of lower section of society is not to savvy with
governmental regulations. So even though a person may be otherwise willing to join a service, the
difficulty/reluctance in acquiring a government certificate may turn him off [infoDev Report 2006].

The case of Japan is of special note. Even though registration necessitated a prior contract with NTT
DoComo, the market dominance of the MNO was such that even then the number of its own customers
who signed up was way more than the critical number of people needed. The number of customers who
signed up for the service was large enough to lure away a substantial number of retailers [BCG 2002].
Increased acceptance points reinforcing demand in an upward spiral lead to further positive network
effects. [Friedrich et al. 2005] note that the launch of this service was accompanied by a considerable
increase in market share.

2.4.2 Ubiquity of use

The researchers reason that ubiquity of use is an important force to be considered while launching MPS.
Ubiquity of use is the issue which considers if the consumer can use MPS to settle payments for whatever
amount he pleases, in whichever scenario he desires.

The researchers note that most of the previous solutions which failed were limited only to those scenarios
which reflected the core business interests of the PSP. Typical examples include MNO-centric procedures
limited to MC or bank-centric procedures limited to the traditional stationary merchant scenario. The end
consumer was given no real consideration in the scenarios in which he could use the solution.

For the customer, the number of acceptance points is critical. Acceptance points refer to places where the
solution can be used. It is obvious that, lesser the number of places where a consumer can use the MPS,
lesser is the likelihood of him wanting to tie up funds with such a solution. The acceptability of the
solution is higher if the user has complete control over all his payments. The payment solution has more
chance of success if the consumer can use it in all possible payment settings that he will normally
encounter. However if the payment system cannot be used in a setting that is important to him (say C2C)
then if at all he takes up the solution he has to still continue with legacy methods of payments to
complete the other transactions. The solution instead of increasing convenience burdens him with one
more payment channel. Greater the seamlessness between the settings that the consumer will encounter
greater is the value to him. [Cheong et al, 2002] argue that MP market breakthrough will not happen
with procedures which are only covering single scenarios or limited payment amount level.

Further lesser the number of users lesser is the incentive for outlets to offer such a solution. The major
hurdle that a PSP will encounter will be the difficulty in being able to convince traditional merchants of
their payment procedures. As pointed out in Section 2.1, the merchants are already in the habit of
accepting credit cards and breaking this habit will be very difficult as pointed in Section 2.3. The
[infoDev Report 2006] report argues that, ensuring that an independent community of users and a
strong ecosystem of merchants outlets thrive and become pervasive is the major hurdle that will be
encountered for rivals in markets where the banking sector is mature. Reaching a critical mass of users
is crucial as pointed previously. The unavailability of a sufficient range of services and inadequate
demand can reinforce each other in a downward spiral. One of the major failings of the Mint solution,
launched in early 2001 in Stockholm was the inability to form partnerships with the retailers. The solution
could only attract 11000 users because it was only accepted in 160 outlets [Karnouskos, 2004]. The
approach used by DoComo is interesting. It circumvented this problem by synergising with its merchants
and subsidizing those who weren’t ready to pay for the new point-of-service technology, for which they
had many security concerns [Friedrich et al. 2005].
2.5 Security and Regulatory Concerns
Security is an important prerequisite for any type of monetary exchange. A secure environment in the
traditional sense requires four elements to be addressed: Authentication, Confidentiality, Data integrity,
and Non-repudiation [Paycircle, 2002]. When applied to transactions over mobile networks security
issues regarding device limitations and network immaturity have also to be addressed.

With numerous developing mobile payments consortia, issues of standardisation and interoperability also
have to be addressed [Lim, 2005]. The battle for establishment of proprietary standards which led to a
lack of secure and interoperable standards as well as incompatible operating systems and devices was a
major reason for the failure of the first wave of mobile payments [Mobile Payment Forum, 2002].

Since over half of the published academic research on MP addresses these technical issues
[Dahlberg et al, 2006] the researchers only note the additional layer of complexity that payments over
mobile networks face. Implicit to the success of MPS is the perception of security of transaction among
users. Though any payment solution necessarily has to be secure, extra effort is required on part of the
PSP to convince the user of the strength of MPS. Given the peculiarities of the transaction environment
this will require a lot of effort.

Perception of security is a subjective issue affected by socio-economic and cultural parameters

[Lin, 2005]. So efforts of the PSP must also differ accordingly. In context of the peculiar security
concerns of the payment procedures, it would seem that a branded name would stand a better chance of
succeeding in the market. People tend to trust the well-known, and familiarity obtained through frequent
exposure has the potential to stimulate trust [Wu and Wang, 2005].

Security guarantees required for macropayments and micropayment are obviously different [Salvi and
Sahai 2002]. Macropayments need stronger security mechanisms because of the large amount of
money involved and the greater possibility of fraud. For micropayments, this is not as important as
concerns regarding simplicity and speed. Ideally, the all mobile transactions should be secured with a
legally enforceable digital signature, for which technology is already available [Mobile Payment Forum
2002]. But there are large costs and complexities involved in implementing these technologies. The best
possible solution appears to align security features with the financial risk that customers and merchants
take during the transaction [Ondrus and Pigneur 2005].

The reliability and security needed to cultivate trust are equally important for MPS as a whole, especially
in the early stages, since disappointing performances of the wireless communication system will make
customers suspicious of its ability to deliver on promises of security [Ensor 2003]. For this reason the
operators in Philippines specially offer automatic account updating services free of charge. They believe it
to increase consumer confidence in the payments solution [infoDev Report 2006].

[Siau et al, 2003] claim that the technology trust and vendor trust are equally important in securing
customer trust. Building customer trust in m-commerce is a continuous process, which extends from
initial trust formation to continuous trust development, and with mobile technology and vendors as
essential framework elements. In order to enhance trust in mobile technology, technical hurdles must be
surmounted. Design improvements are needed on current mobile devices that enhance usability, enabling
customers to perform business activities easily and effectively at no sacrifice to mobility and flexibility.

Regulators, essentially the government sets the legal and societal framework for evolution for all the
other players in the industry [Ondrus et. Al, 2005] have to be factored into the calculation. When
banks offer MPS, meeting regulatory requirements are not a major issue. Regulatory authorities treat
MPS as a new channel for activities which the bank already has license for since the bank has adequate
experience with fraud management and money laundering prevention. It is when the MNOs or third
parties provide MPS that the maintenance and operation of a clearing house facility which records all
transactions and arranges settlement between the concerned parties that needs to be overseen by a
regulator. Additionally difficulties in getting a banking license have to be considered, since regulations
may prohibit the settlement of services others than telecommunication-related ones via the telephone
bill. Considering the player’s inexperience at handling financial risk regulators may impose additional
constraints like pre requisite of a formal ID for registration or an artificial upper limit on payment values.

Countries in Asia have an advantage in that they operate in a considerably more liberal regulatory
environment, so m-payment opportunities are more easily exploited. Stringent EU guidelines about the
transfer of money are a roadblock to widespread implementation on the scale that is developing in Asia
according to [Ondrus and Pigneur 2005].

2.6 Market Segmentation and Targeting

Market segmentation is the process of dividing a market into distinct subsets that respond similarly to
similar marketing strategies. The process of segmentation is usually followed by targeting i.e. choosing
which products have to be offered to which segments, if at all.

Surprisingly these concepts have largely been ignored by past solutions. Majority of the past solutions
offered a one-size-fits-all product. There was little product customisation [Karnouskos, 2004]. This had
as much to do with the solutions disregard of the immaturity of the wireless market
[Dahlberg et al, 2006] as with the fact that users' needs and adoption behaviour were not sufficiently
understood [Yankee Group, 2003].

Previous solutions based their strategies on flawed demand estimations, so it is no surprise that not many
of them survive. The issue of note is that there are a number of doubts [e.g. Kreyer et al, 2002], if the
average mobile user is the correct target audience for a pioneering service like mobile payments. This
should serve as motivation for an honest assessment of the market, without getting carried away by hype
as was done in the last wave of MPS.

Traditional targeting strategies in the payment space have by and large revolved around the value of
payments that a PSP may wish to service. Issues with such payment based segmentation are well known.
Macropayments demand higher security levels and effective management of claims with relatively lesser
emphasis on cost-efficiency. With micropayments the main issue is cost efficiency and relatively low
requirements for security and management of claims.

The main focus while deciding on value of payments should be on understanding the market at hand.
The dual success in Philippines is a case in point, because both the companies predefined that they
wanted to target the widely dispersed lower-segment with a need for low-cost financial transaction
delivery for which financial services are not easily accessible [infoDev, 2006]. Accordingly they
customised their networks (in different fashions) to process these low value high volume transactions by
striking a logical trade-off with security features, thus enabling major cost savings.

Though these services have been successful penetration wise, it is uncertain if the return on investment
is worth the efforts. One reason for this doubt is the gap of four years between introductions of the
competing services. The reservations with introduction of micropayment-only services are stressed
because of the limited success of several other micropayment schemes listed by [Karnouskos, 2004].
While macropayments are profitable for low volumes, high volume of transactions is a must if a
micropayment only solution has to survive.

The researchers argue that there are variables other than payment value that can aid customer
identification and market segmentation. Variables like ease of use, low transaction costs and speed of
transaction may also serve as profitable parameters for segmentation.
[Ondrus et al., 2005] point that such an approach can be used in the ticketing arena. This is an
audience market that needs to make micropayments with only considerations being price, speed and
simplicity. It should be possible that a successful MPS be introduced with this market in mind. Using,
contactless card-based payment technology, Octopus provided filled all these needs and worked as an
excellent replacement for traditional card purchased tickets. In contrast to most other solutions, which
needed back and forth messaging Octopus does not need to be removed from pocket and takes 1/3
second for transactions [Paynter and Law, 2001]. The popularity of the solution was such that, what
was launched as a value-add service grew into a universal payment service.

A well thought of product aimed at a specific audience is likely to meet with success unless it violates the
concepts discussed in Section 2.4. Limited usability may kill a potential MPS. The primary factor for the
failure of the m-Till solution was that it could be used to pay only for e-books, and nothing else. Though
Octopus also initially enabled payment only at stations, most people in Honk Kong did travel by train.
This ensured that the usability of the solution was not compromised and everybody could use the solution
to pay in a scenario relevant to them (for travel). This should indicate that solutions which segment their
customers on the basis of services-demanded and focus on adding value to a particular audience rather
than functioning merely as a newer channel of payment would also do well [Ondrus et al., 2005].

A one-size-fits-all service clearly appears economically unfeasible given that numerous previous failures at
it. What seems to be more relevant are services which add value to the customer, by improving the
payment process in a way that is relevant to him.

3. Conclusion
The purpose of this study was to provide a better understanding on the issues that affect the uptake of a
MPS. The researchers attempted to do so by identifying and detailing the six factors which govern the
success of MPS. A bulleted summary of “The Six S Issues” has been provided in the annexure.

The implications of this research for the practitioners can be distinguished as counsel to organizations
exploring the MPS idea. For scholars new to the field of Mobile Payments, this paper may serve as a
valuable starting point for research work in this area. Connotations for researchers already in this field
include the clarity of which factors impact the mobile payment services market and to what extent they
do so. The researchers hope that the issues presented by them may be further developed by others as
market observation tools, to investigate and speculate on the success of various MPS.
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5. Annexure
The Six S Issues

1. Strength of existing Payment Relationships (who are the competitors, their strengths and
weaknesses)
2. Scenarios for Payment (where the customer can use the solution)
3. Suitability (if the customer is ok with the solution)
4. Seamlessness (if everybody can use the solution and if they can use it anywhere)
5. Security (security and regulatory issue)
6. Segmentation (defining and targeting the correct audience)