Payments Watch

From a purely technical perspective, you can think of mobile payments being enabled via either hardware or software. The hardware approach is the mobile device as a chip carrier (like smart cards). The software approach involves a “virtual wallet” type concept that is accessed via SMS, WAP (browser on the phone) or a mobile software application.

However, the use of any of these technologies probably has to be considered in tandem with the distinction between proximity and remote payments. For example, the phone as chip carrier approach would most likely involve the use of near field communication (NFC) technology built into the mobile device. NFC is a short-range secure wireless technology, and therefore applicable for proximity payments. In this case the consumer would use their phones to make a payment at a point of sale (POS) terminal that is equipped to handle the payment. In the North American market this approach is limited to the contactless footprint and on the surface represents (contactless) card equivalence.

The software approach (SMS, WAP, proprietary application) lends itself to remote payments such as person to person (P2P), overseas remittance, mobile prepaid top up, etc.). PayPal for example, offers mobile P2P payments via SMS. Obopay offers P2P payments using SMS, WAP and a proprietary mobile application. SMART, a mobile network operator in the Philippines, offers overseas remittance via SMS.

So which approach will dominate? In North America, it is too early to tell. For example, NFC enabled handsets are not even readily available, and as mentioned has perhaps the biggest obstacle to overcome: the existing legacy payments infrastructure (swiping magnetic striped cards). The approach also depends on many other factors, including demographics, culture, the MNO’s and even the availability of certain technologies. As Deep Nishar, Director of Product Management at Google noted:

In mobile, a one-size-fits-all solution won’t work…you can’t assume that products popular in one region will be popular everywhere.

SMS is a good example. It’s very popular in Europe and is gaining popularity in the U.S. But people in Japan don’t use SMS; they use mobile e-mail…So we need to make sure our services can be accessed globally, but the product execution is local.

Source: CNET