Mar 13, 2007

Mobile Phone: The New Way to Pay?

I have been reading a paper from the Federal Reserve Bank of Boston, titled “Mobile Phone: The New Way to Pay?” It provides a good general overview of mobile payments. There are a few things that I would have liked to see in more depth, and several assumptions which need to be looked at more critically. All in all though, it's a good introduction to the subject.

One area that deserves a more critical outlook is the assumption that mobile payments are already very common in other parts of the world:

“In some areas of the world, particularly Asia, mobile payments are prevalent. Japan’s NTT DoCoMo, for example, implemented the largest and most sophisticated wireless system in the world. Introduced in July 2004, the company’s service, known as FeliCa, sold five million wallet phones in its first year. The phone can be used to pay for goods in retail stores, to buy items from vending machines, and to pay for transit fares after January 2006. Technology-friendly consumers in Singapore and Malaysia can use one service, TeleMoney, to pay for transit fares, top off their prepaid wireless phones, buy concert tickets, and make retail Purchases.”

Unfortunately, these types of claims rarely include figures on actual transactions performed with mobile phones. I haven't actually seen anybody in Asia use their phone to pay. I have seen RFID readers in taxi cabs in some places (Korea comes to mind) but when I asked the cab driver how often people use their mobile phone to pay, he told me that he had only had a few transactions over the past year. I didn't check, but maybe Korean cabs add a surcharge like they do in Singapore, which would kill any desire a customer might have to pay with a mobile phone.

An important section in the document is titled Challenges to the Adoption of Mobile Payments, and examines all kinds of barriers, with a special emphasis on the infrastructure players, wireless carriers, financial institutions, card associations, mobile handset manufacturers. A much smaller part addresses merchants acceptance, and concludes essentially that since contactless is already successful, merchants automatically have what it takes to accept mobile payments. Unfortunately, the paper doesn't address the challenge of interchange. The most disturbing part of the document is the very small section which looks at challenges related to consumer adoption.

“Perhaps more research needs to be conducted to determine the ‘compelling’ reasons why a consumer would want or need to substitute mobile payments for traditional or other electronic payment methods.”

But that’s the key to the whole thing! It's unfortunate to see the consumer value proposition treated pretty much as an afterthought.

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