July 15, 2010
In mobile operators' quest for incremental data revenue, mobile money is emerging as a significant opportunity across the globe -- one that will only grow as 4G networks are deployed.
The opportunity is significant, but so are the challenges that threaten to slow the market’s growth, according to the latest Heavy Reading 4G/LTE Insider, "Mobile Payments: Opportunity in the Run-Up to 4G." (See Mobile Money Machines.)Mobile payment systems have been around since the early 2000s when they began taking shape in developing African and Southeast Asian economies, Heavy Reading research analyst Aileen Arcilla writes in the report, but it wasn’t until the Haiti earthquake that operators experienced the power of mobile payments in the form of millions donated via text messaging. (See Mobile Haiti Relief Surpasses $33M.)Now they are beginning to pursue the opportunity, as are handset makers, financial institutions, and third-party vendors.
The market has upside for handset makers that can sell more basic feature phones that only require SMS in emerging markets, and for mobile operators that will collect fees associated with managing transactions. In that respect, the operator becomes the bank for its customers, especially for those who don’t have access to widespread ATM or bank branch networks. (See CTIA 2010: Can Carriers Cash In On Mobile Payments?)
“For every new subscriber that the operator can acquire, the subscriber can also sign up for mobile payment services and conduct transactions,” Arcilla writes. “Because new subscribers in developing countries typically sign up for prepaid accounts, the purchased airtime becomes the currency.”
This becomes more important when subscribers want to send money, via airtime, to long-distance family members, Arcilla notes.
Along with the opportunity comes the challenge, stemming from the fact that it is attracting interest from so many different parties, Heavy Reading finds. The lack of standardization and number of disparate banking systems that use either the operator or the handset is fragmenting the market among proprietary vendors. Security, billing, and varying regulation in different countries also complicate things.
In the US, there’s another potential roadblock to the mobile operator's role in mobile payments, too, and that’s the financial institutions themselves. Many are eager to get into mobile, but they want to own the relationship with the customer in place of the mobile operator, according to the report. That means they also own the revenue stream. The key will be for them to partner in such a way that both parties benefit.
“The concept of conducting financial transactions via my mobile phone has yet to be embraced by all worldwide, so any further innovation that can occur in this space can only help to increase awareness, and subsequently adoption. Until then, the mobile payment systems space will become increasingly crowded, offering potential customers more options than imaginable.”
Included among those jumping into mobile payments is AT&T Inc. (NYSE: T), which inked a deal with mobile payments vendor Apriva last month to use its app that turns smartphones into point-of-sale devices that accept credit or debit cards to target the enterprise. In Kenya, Safaricom Ltd. uses Vodafone Group plc (NYSE: VOD)’s money transfer technology to let mobile phone users keep an interest-earning savings account on their handset. Salt SA is also targeting the African market with mobile payment services, and advances in near-field communications are bringing contactless payments closer to reality. (See AT&T Works With Apriva on Apps, Vodafone Adds to M-PESA, Orange Money Expands in Africa, and Near-Field Inches Nearer.)
— Sarah Reedy, Senior Reporter, Light Reading Mobile
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