Paying your bills via mobile phones: maybe so, maybe not
Robert Maciejko is managing director of the Boston Consulting Group in Warsaw
If you're excited about the prospect of paying for your pizza dinner in Jurata using your mobile phone, don't hold your breath. The longer term question is just how important mobile payments could be to boost usage and revenues for mobile phone operators and to spur demand for a new generation of handsets and point-of-sale equipment. Will mobile payment applications alter consumer behavior, igniting a revolution in the payments industry, and make mobile services an even more central part of how many consumers live? Or will consumers give mobile payments the cold shoulder and refuse to make a habit of using their handsets as a replacement for cash and credit cards?
Many network operators and banks understand that no single group will bring about a revolution in consumer payment. Telcos, banks, credit card associations and influential merchants must all charge into the brave new world of mobile payments. There are prominent examples in Spain and the Czech Republic of associations uniting such broad groups of parties and dozens of other European initiatives with smaller number of players. Overall, though, results so far have been limited. To be successful, companies must focus on three key objectives: developing a convincing value proposal that would interest consumers and merchants alike into taking the first steps; smoothing the integration of new technology with the old payment and banking structures; and effectively trensforming traditional consumer behaviour.
The case for failure
History is littered with technology-driven visions that generated hype but failed to materialize because of complex implementation issues and low user adoption. Indeed, the initial e-commerce and m-commerce bubbles have long since burst, leading to heavy casualties and a rethinking of business and revenue models.
A key roadblock is that widely accepted standards are needed in order for consumers and merchants to fully accept a new way to pay. To create a real standard, all three Polish mobile network operators have to agree on a common platform together with a critical mass of banks. Given the history of cooperation (or lack thereof) between these organizations, this will likely not happen any time soon.
Security is another big concern. Consumers perceive that there is a significant risk of interception when data moves from a handset to a point-of-sale reader, regardless of whether the path is through the mobile network, infrared line-of-sight technology, or short-range wireless networks such as Bluetooth. There is also the risk associated with stolen or lost handsets.
Merchants could become pioneers in mobile payments, including online entities (for gaming or gambling, for example) and offline players (such as mass transport systems). But until there is a critical mass of end users, no merchant will have the incentive to push forward and accept a new payment method, especially if it requires a major overhaul of point-of-sale equipment.
With no individual player willing - or able - to spark sufficient demand, and with the interests of various industry segments sufficiently misaligned to prevent the formation of cross-industry consortia, the concept of mobile payments may never get the kick-start it clearly needs.
The case for success
Despite the concerns suggesting a bleak future for mobile payments, dramatic change is certainly possible. Even the worries about security are subject to debate. Perhaps more important, the concerns of people in their thirties and forties may not be shared by people in their teens and twenties, many of whom already transmit their secrets and love letters through short message service (SMS). We might see a generational shift as young people use mobile phones for purchases before they have their first bank cards.
Use of handsets at the point of sale and as a tool for m-commerce is already evolving in some countries where, for example, consumers can use their mobile phones to buy drinks from vending machines. With improved contactless technologies such as Bluetooth, these applications should become faster and easier to use. In Japan, young people use handsets to download cartoons and images from websites available to NTT DoCoMo subscribers. The company not only receives a 9-percent commission from providers, but also benefits from increased traffic revenue.
The opportunity - and challenge - for banks lies in linking their current services to mobile devices. They own today's payment systems and have had a monopoly on key related services. This core business could be theoretically threatened if telcos were to build their own payment networks. A key industry payment association started by PTC, Centertel and Polkomtel shareholders - T-mobile, Orange and Vodafone - does not include any banks to date.
Mobile network operators, on the other hand, are still quite busy in building their core business and might not have the focus to succeed alone. Banks have exactly what mobile operators lack in this area: access to the existing payment infrastructure, refined credit-management skills, and brand names that consumers trust when dealing with payments.
The course of action
Ultimately, a revolution in payments will depend on many millions of people having a simple and satisfying experience: seeing a product, deciding to buy it, punching in the necessary numbers on a handset or simply waving at the point-of-sale, receiving the product, and then being efficiently billed for it. The revolution can happen - if mobile operators, banks, credit card associations, equipment manufacturers and merchants find a way to work together to create it. Agreeing on common approaches in Poland will be tricky, though, as parties often have diverging agendas as well having their key decision makers based elsewhere.
The next three to five years will determine the extent of the possibilities that mobile payment has to offer. But the real impact will be felt over a period of five to ten years. In the meantime, keep your cash and cards handy.
