Why mobile payments didn't happen in until now
The number of ways in which you can pay with your mobile phone keeps growing. Many people predict that we are at the brink of the mobile breakthrough in all sorts of domains. But why hasn't it happened before? Was the problem technology? Were the different players were not ready? Or was the public not ready? In this article we will explore the various issues that stand in the way of mobile payment adoption.
Mobile payments can be done using three main methods: through prepaid cards, billing to the mobile carrier bill or a phone number linked to a (credit) card. This for both commercial activities and person-to-person payments. Despite these interesting possibilities, it seems that the general public has little notion of them. It might be up to the parties involved to educate the people in using this technology, and promoting its existence.
And like every new technology, especially something as sensitive as payments, people wonder about the security of their payment details or even privacy. Numerous stories of data breaches have made them more alert. So while the general public doesn’t trust these new applications, the different players involved are still uncertain among themselves. For example banks are only slowly starting to launch m-payment services because of unclear legal implications of every transaction. In case of any fraudulent activity it is unclear who is accountable. So until there is a clear legal framework, we can expect this kind of feet shuffling.
Besides these legal issues, there are a couple of security issues that come to mind with regards to mobile payments:
- Authentication: is the person that is using the service actually the owner of the phone. A phenomenon called SMS spoofing is a good example of this. This technique allows impersonation of any cellphone number, the number of the sender can be chosen (spoofed).
- Confidentiality: how secure is the transaction data stored at the merchant and card company.
- Integrity: are there checks are in place to make sure the service hasn’t been tampered with? Although it has an encryption, the GSM protocol isn’t foul proof.
- Proof of delivery: by standard the SMS protocol doesn’t have a way to give confirmation of the transaction. In case of a delivery report this is actually a second message being sent.
All these security challenges have to be kept in mind while designing a mobile payment system. But it is even more important to keep the user in mind. A balance has to be found between security and usability. The user that is interacting with the system has no intention to send a million different sms or remember 10 passwords.
It is up to the creators of these systems to properly address these issues and convince the public that their money is in good hands. A way that actually avoids these security concerns but exercises some damage control is by creating spending limitations. Many phone carriers have already taken this measure by putting a spending limit when the customer gets his purchases charged to his mobile carrier bill. A prepaid card automatically implies this kind of limit. Entry of a PIN for purchases over a certain amount is another damage control measure.
The above mentioned legal or regulatory frameworks are for a large part the task of the government legislators. An interesting point is made by Dave Birch at the Digital Money Forum. The article investigates the link between mobile payments and terrorism. Although a bit off-topic, it offers an interesting view on the matter. What are the consequences of certain government restrictions. The main concern of a government probably is to control money streams and thereby combating fraud and money laundering. It can for example limit the amounts per transaction or per year. But even with a spending limit, lots of small amounts still add up to significant sums of money. Forced registration of SIM cards with which m-payments are possible is a better idea.
But probably the biggest barrier that stands in the way of mobile payment breaking through is the discussion between banks and mobile network operators(MNO). The discussion is about who gets to play the main role and more important, who gets the bigger percentage of the user’s money. Both parties have their specialty. Banks have the infrastructure and knowledge on financial transactions. Mobile network operators have the expertise on the network itself, the technologies and possibilities. And the strength of one is the weakness of the other. A MNO is not a financial institution, lacking expertise in such fields as cash management. Customers might be quicker to trust a financial institution with its money. But the mobile network operators have the clients, they are the key to the user and his money.
It is hard at this point to define how will come out on top. Depending on the region one party will have more power than the other. Take for example developing countries where people are unbanked but do have mobile phone. In other markets there will probably be a partnership between the two parties, as they are dependent on each other to ensure success.
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