There is a lot of hype around mobile payments, almost on a daily basis we’re hearing news about either a new mobile payment service or of a company / partnership that has / intends to enable mobile payments. The mobile payments ‘revolution’ is happening right around us in various ways. This is the first of many posts that will step through some of the basic concepts of mobile payments, sharing how mobile payments are made, and some of the different models being deployed around the world. With this understanding, we should be in a better position to move forward with the SEPA mobile payments deployment as and when it happens.
Unless otherwise stated, most of the information from this post references Wikipedia Mobile Payments and the EPC SEPA Mobile Payments White Paper (January, 2014)
What are Mobile Payments?
Mobile Payments refers to payment services, operated under financial regulation, using a mobile device. With mobile payments the mobile device is used to make the payment in place of the ‘traditional’ channels such as cash, credit / debit card and cheque.
There are many other terms that refer to Mobile Payments – these include mobile money, mobile money transfer, mobile wallet…the list continues. Then there are some abbreviated terms that again refer to the same thing – these include m-payments, m-wallet.. I’m sure there are more….. Again, these refer to the same concept of making payments using a mobile device.
How are Mobile Payments Made?
There are 4 main ways to make a Mobile Payment:
1. SMS Text Message
Typically the buyer sends an SMS (Short Message Service), or a text message to most of us (!!), to their mobile payment provider. The mobile payment provider transfers the money to the vendor, and either adds the cost of the purchase to the buyers phone bill or debits a pre-paid mobile payment account.
2. Direct Mobile Billing
In this instance the buyer pays for their purchase by transferring the cost of the goods/service directly to their mobile phone bill. This is most frequently used for online purchases. At the checkout, the buyer selects Mobile Billing or Direct to Bill as his/her payment method, and is required to enter a PIN (Personal Identification Number) and a One Time Password (OTP) to authenticate themselves.
3. Mobile Web Payments (WAP)
This payment method can only be used by phones that have WAP (Wireless Application Protocol) access. In short, this enables the mobile device to access the web / internet over a wireless network. Having access to the web is the first step. Next the buyer can make a purchase through their mobile device / phone using either:
- An online payment method – such as PayPal, Google Wallet…. other providers are available too 🙂
- Entering your credit / debit card details directly into the checkout
- Adding the cost of the goods to your mobile phone bill
4. Contactless NFC (Near Field Communication) Payments
This is the latest and technically most advance option in the world of mobile payments. Here the mobile device needs to be NFC equipped, which enables the device to send short range radio waves. At the point of purchase, these ‘radio waves’ transfer information such as your bank account from the buyers mobile device to the merchants reading device. This technology enables payments to be made by waving your mobile phone over the reading device. Some transactions require PIN authorisation to complete the payment, others do not.
Mobile Payments: ‘Banked’ and ‘Unbanked’
The ‘banked’ – Generally speaking, in many European and North American countries people have good access to formal financial services and institutions. Banks are generally readily available to service the public. People have access to a personal bank account and the services that the banking institutions provide. In these ‘banked’ countries Mobile Payment services are being deployed in various ways, but there is limited public adoption and acceptance of the mobile payment services. The demand is growing however…
The ‘unbanked’ – Mobile Payments are seeing the biggest growth in both ‘deployment as a service’ and public adoption in ‘less developed’ countries. In countries and regions where individuals have limited or no access to financial institutions, mobile payment services are enabling individuals, indeed communities, access to formal financial services. In many cases the individuals will not have a bank account or easy access to a bank – hence the term ‘unbanked’ is attributed to them.
Mobile phone operators are reaching and connecting ‘unbanked’ communities via their mobile phone networks. Mobile phones are often readily available in these areas, and through the deployment of mobile payments services these communities are able to financially plan, prepare and protect themselves. This deployment and demand for mobile payments in these regions is huge! According to GSMA Intelligence approximately 2.5 billion people in lower to middle income countries are ‘unbanked’, and more than 1 billion of these people have access to a mobile phone. Since the start of GSMA Mobile Money for the Unbanked program in 2009, the number of mobile money deployments and users of the service has grown massively. Take a look at the GSMA Mobile Money for the Unbanked website for further stats and information.
There you have it – an introduction to Mobile Payments! Hopefully this post has given you a better understanding of Mobile Payments, highlighting how mobile payments are made and the difference between banked/unbanked. Look out for the next instalment !
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