It’s Time to Get Realistic about Mobile Payments

By Cian O’ Sullivan, GoMo News

Mobile shopping is in the news a lot this holiday season. It has mostly been appearing in the form of services like ShopSavvy or shopkick – where the mobile is used to compare prices, or earn location-based rewards. But a lot of people are trying to make mobile payments more attractive to consumers, where they can actually use their phone to pay for goods instead of cash or a credit card. We spoke to Jay Emmet, General Manager of OpenMarket, about the need for the mobile payments industry to get real.

Who is OpenMarket?

OpenMarket views itself as a hub. Mobile operators can offer a lot of different services and functions to a merchant. Unfortunately, getting access to those services requires you to deal with the operators – which is generally a painfully slow process. What OpenMarket does is act as a, well, open market between the merchants and the operators. They do deals with the operators so the merchants don’t have to. Then they provide packaged mobile operator services to those merchants. This means that a merchant doesn’t need to do a deal with 120 separate operators – OpenMarket provides APIs that allow them to plug in services from multiple operators.

The Interview:

Do you believe operators will be the ones to power mobile payments?

Payments is an emergent sector in the US, but we’ve been working at this for 6 years now. What we’re seeing is operators opening their functionality, and providing new functionality – in particular what we call “true payment functionality”, by which we mean the ability to buy stuff. Not just entertainment on the phone, or ringtones, but actual real world produce.

The MMA says that mobile shopping services are taking off, but that very few people will actually use their device to pay.

Sometimes people approach payments with a broad brush. In my personal life, I use cash here; a cheque there; a credit card somewhere else. But what we need is to look at the use cases that mobile will fit best with. From a technology perspective you CAN buy a car with a mobile phone. But it’s the commercial practices that surround which will uphold it. Do people actually want to buy a car with their phone?

So we’re talking about new ways in which operators can make mobile payments happen?

We all feel that payments are moving on to phones – people always have their phones with them; they have an existing relationship with the operators; there are wonderful services like location, etc. But the reality we have to come back to is “what will people buy with a mobile phone?” If you look to existing studies in Europe or Asia, we find mobile payments are being used for impulse purchases, or dealing with vendors you don’t have an established relationship with. There are a few examples of times I feel mobile would work better than cash or credit: riding the tube, paying for parking and other microtransactions. You also need to remember that merchants have to pay for transactions – whether it’s a transaction fee for credit cards, or handling fees for cash. So the opportunity here is NOT buying washing machines with your mobile, quite frankly. It’s in high-volume, low cost transactions for merchants. And these are the systems that operators have that can be monitized.

Even 15 years ago, you would have 60 or 70 rated events on your phone bill. Most of them didn’t cost more than a dollar or two. These are, effectively, microtransactions. Operators already HAVE very economical systems in place to handle that kind of thing. Operators have invested over the past 50 years in very sophisticated high-volume, low-cost items. But when the item costs start getting high, the operators see their profit margins starting to decline. Operators don’t want you to buy your new Rolls Royce with your mobile phone, but they’re more than capable of handling a huge number of tiny payments.

Verizon and AT&T are both experimenting and opening their functionality to trial partners like Zong and Boku. That’s great, and we see these as promising in the short term. Operators are beginning to recognise that there’s an ability to buy STUFF – things like theatre/movie tickets, Farmbook credits. It’s still stuff, not like your typical content/ringtones we’ve usually seen.

But not everyone will be delighted with operator payments. They could be great for consumers, but the long clearing time can hurt merchants.

There are some things that could be commercially improved. Operators have to have time to collect the money that goes on the bill, and that typically takes 30 to 45 days. But it’s the same for companies like Visa! They don’t credit the merchant until the money has been posted against the person’s account. If the person refuses to pay the bill, it’s the merchant that takes the damage. Either way, the merchant carries the risk.

There are some “commercial friction points”. That’s one of them. Another is revenue share. But the operators aren’t stupid. They know that smaller companies and entrepreneurs have a smaller time scale – they have a sense of urgency because they could shut down next month. Big operators don’t have that kind of time scale. They think in long terms, with a lot of risk to manage.

But the trials show that operators realise they are moving into new channels, outside of Premium SMS and ringtones. They’re realising that merchants needs a better experience, like what they might get when interacting with Visa. They are moving that way. They’re just not there yet.

What else can operators do to make themselves more attractive to merchants?

They need to be more explicit around “exception management”. Most of the work comes from failed transactions, not successful ones. Giving merchants visibility into payment systems is a great move for operators. If someone is trying to buy something through a pre-pay mobile account, in theory you can reserve the funds and hold them. If you check into a hotel, they check your credit card and hold 400 dollars for my future transaction. Functions like that could be very important to merchants.

I think the most important thing for them is that they know they’re not the whole market. If a large merchant wants to create a payment system, they want it to be useable by any shopper, anywhere. Walmart, for example, knows that a Visa card or Mastercard will work the same in any Walmart. We know they’re different companies, but the end product is the same. I think operators are starting to realise that payment capabilities shouldn’t be proprietary products. They need to be ubiquitous functions that a Fortune 500 company can offer to its entire audience base at once.

It’s all about ubiquity.

What do you wish the operators would do, in order to create these systems for merchants?

I have two things I’d wish for. These are my Christmas wishes. The first is the recognition of the need for ubiquity. A lot of carriers still think this can be a proprietary offer. My second is for a product or feature set that is more consistent with other payment technologies. So that there is the managed risk and dispute technologies that other payment companies can offer, like credit card companies.