BY NIINA MALLAT, MATTI ROSSI, AND VIRPI KRISTIINA TUUNAINEN Mobile banking Services Adopting new and innovative mobile financial applications and service provisioning methods. he rapid pace of adoption of next-generation mobile handsets in Asia and Europe has created opportuni ties for new and innovative mobile services. Some of the most promising, while still marginally adopted are mobile financial services. Here, we investigate emerging mobile financial applications, including both mobile payments and banking services, show works and identifying the main players in the emerging mobi ct ing how the new financial services can be deployed in mobile ne inancing value chain. We use examples from the European context to highlight the features of the new services as we explore the play ers particular strengths and weaknesses in providing the services The wide penetration and personal nature of dence, and the overall effort-saving qualities [7] mobile phones, the overall stability of mobile More generally, security and convenience have communication technologies, and the positive been suggested as the key drivers for the growth experiences with m-commerce payments have of mobile commerce 4,8. Personal mobile made mobile solutions applicable for a variety of devices are effective in identifying the payer and financial services. Current mobile financial appli- confirming the transaction. Despite the claims of cations indude mobile banking and a variety of insecurity B3], the users seem to be willing to use different micropayment solutions. Today, mobile quite simple mechanisms, for example MSISDN payments are mainly used to pay for popular (the users mobile telephone number) and PiN mobile content and services since there are few (personal identification number) for authorizing alternative payment solutions available. Other mobile micropayments For proximity micropay successful applications include ticketing and ments, technologies such as infrared, RFID, and vent Bluetooth have been applied. Macropayments Mobile banking services are valued by users and account transfers require higher security, and because of the inherent time and place indepen- for these purposes wireless adaptations of PKI 42 May 2004/Vol 47. No 5 COMMUNICATIONS OF THE ACM
42 May 2004/Vol. 47, No. 5 COMMUNICATIONS OF THE ACM Mobile Banking Services By Niina Mallat, Matti Rossi, and Virpi Kristiina Tuunainen T he rapid pace of adoption of next-generation mobile handsets in Asia and Europe has created opportunities for new and innovative mobile services. Some of the most promising, while still marginally adopted, are mobile financial services. Here, we investigate emerging mobile financial applications, including both mobile payments and banking services, showing how the new financial services can be deployed in mobile networks and identifying the main players in the emerging mobile financing value chain. We use examples from the European context to highlight the features of the new services as we explore the players’ particular strengths and weaknesses in providing the services. Adopting new and innovative mobile financial applications and service provisioning methods. The wide penetration and personal nature of mobile phones, the overall stability of mobile communication technologies, and the positive experiences with m-commerce payments have made mobile solutions applicable for a variety of financial services. Current mobile financial applications include mobile banking and a variety of different micropayment solutions. Today, mobile payments are mainly used to pay for popular mobile content and services since there are few alternative payment solutions available. Other successful applications include ticketing and vending. Mobile banking services are valued by users because of the inherent time and place independence, and the overall effort-saving qualities [7]. More generally, security and convenience have been suggested as the key drivers for the growth of mobile commerce [4, 8]. Personal mobile devices are effective in identifying the payer and confirming the transaction. Despite the claims of insecurity [3], the users seem to be willing to use quite simple mechanisms, for example MSISDN (the user’s mobile telephone number) and PIN (personal identification number) for authorizing mobile micropayments. For proximity micropayments, technologies such as infrared, RFID, and Bluetooth have been applied. Macropayments and account transfers require higher security, and for these purposes wireless adaptations of PKI
and TLS/SSL (for example, the WAP 2.0 standard con- for a variety of different services such as passage control, tains specifications of WPKI and WTLS) have been digital signatures, and mobile government services developed to enhance the security of mobile transac- The Finnish Population Register Centre together tions(for more information, see[2D) with Finnish telecom operators, is developing a mobile authentication service based on a wpKi solution Mobile Payments Mobile authentication can be used for m-government Mobile payments are expected to become one of the services and digital signatures both on Internet and most important applications in m-commerce[9. They are commonly categorized into micro- and macropay- d Pos un ments with the distinction between the two occurring Mobile conte nding,self-service at approximately 10 euros or U.S. dollars, and are fur Micro- ther subdivided into remote and proximity payments,payment depending on whether the purchase takes place at the Parking point of sale(POs)or remotely via an electronic net -10s Person-to-person payments work(see Figure 1) Micropayments. Remote mobile micropayments Parent digital content/ Taxi payments enable purchases of mobile content and services such as serices Prepaid card news,games, tickets, and location-based services. Mobile micropayments also provide a potential pay- ment method for e-commerce (see the sidebar on micropan In Finland, Helsinki City Transport offers a mobile mobile networks and is subway and tram ticket -an example of a successful expected to be available for (adapted from [5D mobile payment service. Customers can order a one- users later this year. of the tram tickets and nearly 10% of all individual them to a monthly mobile phone bill. The advantages tickets for Helsinki public transportation are currently of operator billing are that it is widely available to cus- purchased via a mobile phone. According to Helsinki tomers and requires no additional service enrollment. City Transport, mobile ticket users have been satisfied In Great Britain, Vodafone m-pay is a special example with the new service, which has also reduced the prob- of operator billing-based mobile payment, which can lem of traveling without a ticket. be used to pay for purchases on the Internet or at WAP Mobile micropayments at unmanned POS include sites. When a consumer visits a merchants Internet site pplications such as purchase of soft drinks or items and wants to make a purchase using m-pay, he or she from vending machines, and payments on self-service logs in to the payment service by user name and pass- stations,for example paying for gas without cash at word. In the service, the consumer checks the details and Mobile micropayments at manned POS include and accepts payment. The payment is then authorized small purchases at shops, kiosks, and fast food restau- and charged to the mobile phone bill or, for prepaid rants. While there are several pilot projects utilizing customers, deducted from the airtime credit(see mannedPosmobilepaymentstheuseofthesesoluwww.vodafone.com) tions has been marginal as the traditional payment In a credit card billing scheme, mobile payments are methods are often more convenient in these purchase included in the consumer's credit card bill. The mobile situations Payment Forum is working on standards for this area Macropayments.Mobilemicropaymentscanbe(seewww.mobilepaymentforum.org).Anotherbilling used to pay for larger purchases both electronically solution is to provide customers with a separate account (e-commerce, mobile ticketing, gaming) and on for mobile payments. Separate accounts reduce credit manned and unmanned POS(restaurants, retail shop- risk but administering them may be inconvenient for ping, and so forth). Mobile micropayments face more customers. In a direct debit solution, the customer's competition from well-established traditional payment bank account is immediately debited with the mobile instruments. However, solutions developed for user payments. This solution is convenient for users because authentication in micropayments provide possibilities it utilizes the current bank account and requires no COMMUNICATIONS OF THE ACM May 2004/Vol 47. No 5 43
and TLS/SSL (for example, the WAP 2.0 standard contains specifications of WPKI and WTLS) have been developed to enhance the security of mobile transactions (for more information, see [2]). Mobile Payments Mobile payments are expected to become one of the most important applications in m-commerce [9]. They are commonly categorized into micro- and macropayments with the distinction between the two occurring at approximately 10 euros or U.S. dollars, and are further subdivided into remote and proximity payments, depending on whether the purchase takes place at the point of sale (POS) or remotely via an electronic network (see Figure 1). Micropayments. Remote mobile micropayments enable purchases of mobile content and services such as news, games, tickets, and location-based services. Mobile micropayments also provide a potential payment method for e-commerce (see the sidebar on micropayments). In Finland, Helsinki City Transport offers a mobile subway and tram ticket—an example of a successful mobile payment service. Customers can order a onehour SMS ticket via their mobile phones by sending a SMS message to a service number. Approximately 55% of the tram tickets and nearly 10% of all individual tickets for Helsinki public transportation are currently purchased via a mobile phone. According to Helsinki City Transport, mobile ticket users have been satisfied with the new service, which has also reduced the problem of traveling without a ticket. Mobile micropayments at unmanned POS include applications such as purchase of soft drinks or items from vending machines, and payments on self-service stations, for example paying for gas without cash at hand. Mobile micropayments at manned POS include small purchases at shops, kiosks, and fast food restaurants. While there are several pilot projects utilizing manned POS mobile payments, the use of these solutions has been marginal as the traditional payment methods are often more convenient in these purchase situations. Macropayments. Mobile macropayments can be used to pay for larger purchases both electronically (e-commerce, mobile ticketing, gaming) and on manned and unmanned POS (restaurants, retail shopping, and so forth). Mobile macropayments face more competition from well-established traditional payment instruments. However, solutions developed for user authentication in macropayments provide possibilities for a variety of different services such as passage control, digital signatures, and mobile government services. The Finnish Population Register Centre together with Finnish telecom operators, is developing a mobile authentication service based on a WPKI solution. Mobile authentication can be used for m-government services and digital signatures both on Internet and mobile networks and is expected to be available for users later this year. Billing solutions for mobile payments. Currently, a common way to charge mobile payments is to add them to a monthly mobile phone bill. The advantages of operator billing are that it is widely available to customers and requires no additional service enrollment. In Great Britain, Vodafone m-pay is a special example of operator billing-based mobile payment, which can be used to pay for purchases on the Internet or at WAP sites. When a consumer visits a merchant’s Internet site and wants to make a purchase using m-pay, he or she logs in to the payment service by user name and password. In the service, the consumer checks the details and accepts payment. The payment is then authorized and charged to the mobile phone bill or, for prepaid customers, deducted from the airtime credit (see www.vodafone.com). In a credit card billing scheme, mobile payments are included in the consumer’s credit card bill. The Mobile Payment Forum is working on standards for this area (see www.mobilepaymentforum.org). Another billing solution is to provide customers with a separate account for mobile payments. Separate accounts reduce credit risk but administering them may be inconvenient for customers. In a direct debit solution, the customer’s bank account is immediately debited with the mobile payments. This solution is convenient for users because it utilizes the current bank account and requires no COMMUNICATIONS OF THE ACM May 2004/Vol. 47, No. 5 43 Figure 1. Mobile payments framework with examples (adapted from [5]). Remote Micropayment –10 €/$ Macropayment POS, manned POS, unmanned Mobile content – ring tones – logos – information – games Parking Small purchases in shops, kiosks and fast food restaurants Vending, self-service – soda – tickets – cigarettes – instant photos – launderette Gas Toll Internet purchases – physical goods – digital content/ services – Prepaid card reloads Restaurants Retail shopping Taxi payments Car wash Ticketing Person-to-person payments
additional administration from the customer phone directly. Retailers can integrate these types of The Dutch company Moxmo offers an example of a payment functionality using Moxmos Web services mobilepaymentsolutionbasedondirectdebittoainterface(seewww.moxmo.com) bank account. When making a purchase via Momo mobile payment service, the consumer gives the mer- Mobile Banking chant his or her mobile phe one number. Momo /R In their simplest form, mobile banking g ser then calls the consumer and asks for a pin, which the users to receive information on their account balances consumer enters via the mobile telephone keys to con- via SMS. The new WAP- and Java-enabled mobile firm the purchase and the payment is debited to the phones using GPRS support a wider variety of banking consumer's mobile wallet. Similarly, the consumer can services such as fund transfers between accounts, stock charge or decharge his or her mobile wallet against a trading, and confirmation of direct payments via the settlement bank account, or pay to another mobile phones microbrowser. Several European banks have Micropayments: A Technology with a Promising but Uncertain Future By David Hinds n the context of e-commerce, micropayments are Recent successes in Europe and Japan with the Web-enabled financial transactions in which col sale of ring tones and other wireless services and umers can purchase online content or services for products indicate that consumers are willing to make small amounts, typically defined as purchases of less small value purchases of digital content. Further- than $1. Since the mid-1990s, various micropayment more, Apple's decision in April 2003 to offer 999 MP3 providers have attempted to achieve this goal by downloads may have signaled the beginning of a new developing payment processing technologies To b era for micropayments. Beginning in 2003, a new gen- economically viable, a technology for handling pay- eration of micropayment providers was launched(for ments of less than $1 must have related transaction example, Peppercoin, BitPass, Paystone Technolo- costs in the range of 10 cents or less. Because mini- gies)[1]. These companies claim to be able to sup- mum credit card transaction costs are typically 25 to port payments as low as one cent by offering creative 35 cents, credit card processing is not a viable option techniques such as Peppercoin's statistical sampling for such payments. method, which lowers effective transaction costs by a cropayments provide a payment model in which factor of a hundred. ntent can be unbundled and sold using a pay-per- In the future, micropayment providers will be chal view concept. In terms of business needs, micropay- lenged by the mobile payment systems, which have ments provide a means for merchants and individuals inherent advantages that could allow them to achieve to obtain at least some revenue for content they are low transaction costs. Additionally, it is possible that presently providing at no charge. To some extent, they traditional credit card companies will adapt to handling also provide an alternative to digital prac micropayments as their efficiency continues to improve The overall business challenge for micropayment and as the competitive threat from other payment sys- providers is to achieve a critical mass of both con tems continues to increase. Will one or more of the new sumers and merchants. Merchants may be skeptical micropayment providers achieve critical mass? Are of their ability to begin charging for previously free micropayments really ready to take off or will they content and they may also be concerned with losing merely continue to simmer? As with any emerging tech revenue by unbundling their products. Consumers may nology, only further experience and time will tell. c ve an inherent preference for flat-rate pricing (bundled or subscription models)over metered pric- REFERENCES ing(micropayments model), and some may merely 1. Huang, G.T. The Web's new currency. Technology Review 106, 10 (Dec.2003/an.2004,28-36 believe that Web content should be free [2] 2. Odlyzko, A M. The case against Earlier micropayment developers, such as Digicash attempted to bypass the credit card system, using the Notes in Computer Science #2742,(Spring 2003), 77-83 www.dtc.umn.cdu/-odlyzko/doc/case.againstmicropayments.pdf concept of digital cash. These initiatives were unsuc- cessful and subsequent efforts recognized credit cards aspartofthesystemandwerefocusedonreducingtheDAVIDHINDS(dhh123@bellsouth.net)isastrategic effective cost per transaction through the use of tech- management consultant and Ph D student in the Department of Decision Sciences and Information Systems at Florida niques such as aggregation and prepayment International University 44 May 2004/Vol 47. No 5 COMMUNICATIONS OF THE ACM
44 May 2004/Vol. 47, No. 5 COMMUNICATIONS OF THE ACM additional administration from the customer. The Dutch company Moxmo offers an example of a mobile payment solution based on direct debit to a bank account. When making a purchase via Moxmo mobile payment service, the consumer gives the merchant his or her mobile phone number. Moxmo IVR then calls the consumer and asks for a PIN, which the consumer enters via the mobile telephone keys to confirm the purchase and the payment is debited to the consumer’s mobile wallet. Similarly, the consumer can charge or decharge his or her mobile wallet against a settlement bank account, or pay to another mobile phone directly. Retailers can integrate these types of payment functionality using Moxmo’s Web services interface (see www.moxmo.com). Mobile Banking In their simplest form, mobile banking services enable users to receive information on their account balances via SMS. The new WAP- and Java-enabled mobile phones using GPRS support a wider variety of banking services such as fund transfers between accounts, stock trading, and confirmation of direct payments via the phone’s microbrowser. Several European banks have I n the context of e-commerce, micropayments are Web-enabled financial transactions in which consumers can purchase online content or services for small amounts, typically defined as purchases of less than $1. Since the mid-1990s, various micropayment providers have attempted to achieve this goal by developing payment processing technologies. To be economically viable, a technology for handling payments of less than $1 must have related transaction costs in the range of 10 cents or less. Because minimum credit card transaction costs are typically 25 to 35 cents, credit card processing is not a viable option for such payments. Micropayments provide a payment model in which content can be unbundled and sold using a pay-perview concept. In terms of business needs, micropayments provide a means for merchants and individuals to obtain at least some revenue for content they are presently providing at no charge. To some extent, they also provide an alternative to digital piracy. The overall business challenge for micropayment providers is to achieve a critical mass of both consumers and merchants. Merchants may be skeptical of their ability to begin charging for previously free content and they may also be concerned with losing revenue by unbundling their products. Consumers may have an inherent preference for flat-rate pricing (bundled or subscription models) over metered pricing (micropayments model), and some may merely believe that Web content should be free [2]. Earlier micropayment developers, such as Digicash, attempted to bypass the credit card system, using the concept of digital cash. These initiatives were unsuccessful and subsequent efforts recognized credit cards as part of the system and were focused on reducing the effective cost per transaction through the use of techniques such as aggregation and prepayment. Recent successes in Europe and Japan with the sale of ring tones and other wireless services and products indicate that consumers are willing to make small value purchases of digital content. Furthermore, Apple’s decision in April 2003 to offer 99¢ MP3 downloads may have signaled the beginning of a new era for micropayments. Beginning in 2003, a new generation of micropayment providers was launched (for example, Peppercoin, BitPass, Paystone Technologies) [1]. These companies claim to be able to support payments as low as one cent by offering creative techniques such as Peppercoin’s statistical sampling method, which lowers effective transaction costs by a factor of a hundred. In the future, micropayment providers will be challenged by the mobile payment systems, which have inherent advantages that could allow them to achieve low transaction costs. Additionally, it is possible that traditional credit card companies will adapt to handling micropayments as their efficiency continues to improve and as the competitive threat from other payment systems continues to increase. Will one or more of the new micropayment providers achieve critical mass? Are micropayments really ready to take off or will they merely continue to simmer? As with any emerging technology, only further experience and time will tell. References 1. Huang, G.T. The Web’s new currency. Technology Review 106, 10 (Dec. 2003/Jan. 2004), 28–36. 2. Odlyzko, A.M. The case against micropayments. Financial Cryptography: 7th International Conference, FC 2003, R.N. Wright, Ed., Lecture Notes in Computer Science #2742, (Spring 2003), 77–83; www.dtc.umn.edu/~odlyzko/doc/case.against.micropayments.pdf. David Hinds (dhh123@bellsouth.net) is a strategic management consultant and Ph.D. student in the Department of Decision Sciences and Information Systems at Florida International University. c Micropayments: A Technology with a Promising but Uncertain Future By David Hinds
introduced successful mobile financial services for these Banks want to preserve their position as a central smart phones, whereas some U.S. banks have recently payment and banking services provider in the financial closed their mobile banks due to lack of users. The market. They are interested in participating in different mobile services are typically modified versions of the pilot projects to see whether mobile technology has Internet banking services of the potential as a platform for particular bank and the architec- Res financial services, and to protect tures are backed by several banking their interes industry consortiums, such as bapan Banks are also interested in sup Mobey forum and ECBS, for Europe porting their smart card stan- Scandinavian nordea bank environment. Credit card com- vides users with a wireless banking worldwide awareness, panies are interested in promot- application, which is built using usage, and intent to ing mobile payment services especially in those the same back-office infrastructure use mobile currency. countries and among those user groups where credit as its Internet bank. Customers can card penetration is low [1]. use WAP over GPRS to track their ators ne ore t affic and larger mar account and credit card transac- kets for mobile content services and applica- tions(se 2)and transfer tions. Efficient mobile payment solutions funds between accounts. Further- facilitate the sales of mobile content and also more,they can pay bills and trade generate more traffic for mobile network equities using a menu-based inter- 6 Technology providers hope to create stan- face. There is also a connection to Card nfo dards, on which the more advanced applications the solo market, a virtual market 210115420 ould be build. For example, the Mobile Pay- place, where users can make pay- EE MEMBER DIGTAL LBR/8 ment Forum provides an open framework for ments by using the WAP service. 678 3436 standardized mobile payments based on pay- The service uses changing pass ment cards. Pay Circle is a more technically ori- words and WTLS for securing ssooAToN FOR NEDRM404-651 ented forum that proposes standard APIs for transactions www. Valinnat Takaisin defining m-commerce applications nordea. fi/eng/hen/ solo/wap. asp navi Each of these players has different core com- thelin&item=wap petencies. Banks' strength lies in managing account-based payments, micropayments, and in Key players display for a Nordea mediation of payments. Telecom operators are good at ank accoun The applications and solutions handling small payments, collecting payment informa- presented here seem to form ion, and billing. Operators also own the location info overly complex and mismatching set of possibilities. which is based on their network services. Retailers core This complex structure of the mobile commerce busi- competencies are in the actual commerce regardless of ness environment is caused by multiple players: tradi- the channel. Technology providers and software houses tional phone operators, Internet companies, content are needed to deploy the terminals, telecom switch fea- providers, and new m-commerce start-up companies, tures, and application infrastructure. the various players having different backgrounds, agen- The roles of these key players are not, however, nec das, and motivating interests [6]. Delivery of m-com- essarily apparent: in addition to their core strengths, merce applications and services requires the network, both banks and telecom operators have a role as con- m-commerce technologies, contents, the user interface, tent creators and providers. Sometimes telecom opera and an efficient billing system. Each player has differ- tors also attempt to serve as financial institutions by ent strengths and weaknesses in providing these services granting credit for micropayments. Furthermore, the nd app roles and functions these players perform coday are not From the perspective of mobile financial services, necessarily sustainable. Retailers, for instance, are intro- the key players include banks and other financial insti- ducing services that bypass both operators and banks tutions, such as credit card companies, the telecommu- For example, a finnish gas station chain allows the cus- nication operators, and retailers. Also, equipment tomers to pay for gasoline on the spot by sending a manufacturersof both handheld devices such as SMS message directly to the chain. mobile phones and PDAs, as well as of POS registers The STl gas station chain is conducting a pilot test and software vendors enabling the servicesare incre- in Finland of a mobile solution in which customers can mental in creating the infrastructure order a security code to their mobile phone and pay at COMMUNICATIONS OF THE ACM May 2004/Vol 47, No5 45
introduced successful mobile financial services for these smart phones, whereas some U.S. banks have recently closed their mobile banks due to lack of users. The mobile services are typically modified versions of the Internet banking services of the particular bank and the architectures are backed by several banking industry consortiums, such as Mobey forum and ECBS, for example. Scandinavian Nordea bank provides users with a wireless banking application, which is built using the same back-office infrastructure as its Internet bank. Customers can use WAP over GPRS to track their account and credit card transactions (see Figure 2) and transfer funds between accounts. Furthermore, they can pay bills and trade equities using a menu-based interface. There is also a connection to the Solo Market, a virtual marketplace, where users can make payments by using the WAP service. The service uses changing passwords and WTLS for securing the transactions; see www. nordea.fi/eng/hen/solo/wap.asp?navi= puhelin&item=wap. Key Players The applications and solutions presented here seem to form an overly complex and mismatching set of possibilities. This complex structure of the mobile commerce business environment is caused by multiple players: traditional phone operators, Internet companies, content providers, and new m-commerce start-up companies, the various players having different backgrounds, agendas, and motivating interests [6]. Delivery of m-commerce applications and services requires the network, m-commerce technologies, contents, the user interface, and an efficient billing system. Each player has different strengths and weaknesses in providing these services and applications. From the perspective of mobile financial services, the key players include banks and other financial institutions, such as credit card companies, the telecommunication operators, and retailers. Also, equipment manufacturers—of both handheld devices such as mobile phones and PDAs, as well as of POS registers and software vendors enabling the services—are incremental in creating the infrastructure. Banks want to preserve their position as a central payment and banking services provider in the financial market. They are interested in participating in different pilot projects to see whether mobile technology has potential as a platform for financial services, and to protect their interests in the market. Banks are also interested in supporting their smart card standards (EMV) in the mobile environment. Credit card companies are interested in promoting mobile payment services especially in those countries and among those user groups where credit card penetration is low [1]. Mobile operators need more traffic and larger markets for mobile content services and applications. Efficient mobile payment solutions facilitate the sales of mobile content and also generate more traffic for mobile networks. Technology providers hope to create standards, on which the more advanced applications could be build. For example, the Mobile Payment Forum provides an open framework for standardized mobile payments based on payment cards. PayCircle is a more technically oriented forum that proposes standard APIs for defining m-commerce applications. Each of these players has different core competencies. Banks’ strength lies in managing account-based payments, macropayments, and in mediation of payments. Telecom operators are good at handling small payments, collecting payment information, and billing. Operators also own the location info, which is based on their network services. Retailers’ core competencies are in the actual commerce regardless of the channel. Technology providers and software houses are needed to deploy the terminals, telecom switch features, and application infrastructure. The roles of these key players are not, however, necessarily apparent: in addition to their core strengths, both banks and telecom operators have a role as content creators and providers. Sometimes telecom operators also attempt to serve as financial institutions by granting credit for micropayments. Furthermore, the roles and functions these players perform today are not necessarily sustainable. Retailers, for instance, are introducing services that bypass both operators and banks. For example, a Finnish gas station chain allows the customers to pay for gasoline on the spot by sending a SMS message directly to the chain. The ST1 gas station chain is conducting a pilot test in Finland of a mobile solution in which customers can order a security code to their mobile phone and pay at COMMUNICATIONS OF THE ACM May 2004/Vol. 47, No. 5 45 Worldwide awareness, usage, and intent to use mobile currency. 40% 49% 44% 22% 38% 2% 2% 1% 0% 4% 44% 50% 46% 38% 43% Worldwide Japan Europe U.S. Rest of Asia Region Current Usage Intent To Use Awareness Source: AT Kearney, February 2002 Figure 2. Screen display for a Nordea WAP bank account
the station with the code instead of using a credit card. are not involved. Bank-based solutions may emerge To use the service, the customer first registers and especially in POS and Internet payments and when the announces the mobile phone number(s) and credit mobile network is used as a data carrier only. card number(s)to be included in the service. The cus- The roles and tasks we have discussed are not, how- tomer can order the code to his or her phone in ever, necessarily fixed, but subject to change and evolu- advance. When making the payment, the customer tion. Currently the only successful and widely adopted keys in the code to the gas ATM and the payment payment applications have been based on the operator debited from the credit card account. Telecom opera- billing and service infrastructure, but the emerging tors provide STl with an enhanced telephone number macropayment applications could be the domain of authentication service but are not involved in the pay- the incumbents--banks and credit card companies. ment solution as such. STI intends to launch the ser- We believe each of the trends described is plausible vice for the general public during 2004. The and that they are likely to coexist. Within all of them, company estimates the service is especially valuable applications will range from single-purpose applica- for small-and medium-sized enterprises, for example tions to full-service suites. Operators single-purpose taxi companies, which do not want to keep company micropayment solutions, for example, can be used for credit cards in cars for security reasons small purchases and could also easily be integrated into other applications, such as microbrowser-based m- Conclusion commerce. Full financial applications combine these While there is currently a whole range of mobile finan- individual applications into full-fledged suites applica- cial services available, most of these services are in an ble for all types of financial services and transactions. early phase of development and have not reached criti- While application developers choose which services to cal mass. The current full-fledged financial applications offer to the customers, the final decision to adopt one need technologies that are not yet widely used, such as or several of these rests with the end customer who ini- GPRS and Java. However, when we move toward true tiates transactions and pays for the chosen services. C 2.5G and 3G mobile networks and the applications increase in the number of users of these services. At the 1. Begonha, D.B., Hoffmann, A, and Melin, P. M-payments: Hang up, try same time, mobile payments must become faster, eas- 2.Claessens, Dem, V, De Cok, D. Preneel. B, and vandewalle, ] . On the ier, and more convenient to use, and must have low security of today s online electronic banking systems. Computers and Security transaction fees, wide availability, and standardized 32.3(2002), 257-269 3. Herzberg, A. Payments and banking with mobile personal devices. Com- technologies in order to emerge as a mainstream pay- mm. ACM 46,5(May 2003),53-58 ment solution 4. Jarvenpaa, S, Lang, K.R., Takeda, Y. and Tuunainen, VK Mobile com On the payment solution provision side we expect hand ce at crossroads: An international focus group study of users of mobile held devices and services. Commun. ACM 46, 12(Dec 2003), 41-44. that, as illustrated by the mobile payments framework, 5. Mobile Electronic Transactions Ltd. MeT White Paper on Mobile Transfe- (2003);www.mobiletransaction.o different solutions will be developed for different ser- 6. Pavilainen, J. Mobile Busines Smatrgis: Understanding the Technologies and vices, depending on the size of the payment(micro or Opportunities. Addison-Wesley, 2001 macro) and location (remote or local, manned or 7 Suoranta, M. Adoption f Mobile Banking n Finland Doctoral dissertation unmanned). There are several possible trends where 8 Tsalgatidou A and Pitoura, E Business models and transactions in mobile mainly still by banks, the mobile operators, and credit (2001) 221-236 rd 9. Varshney, U. and Vetter, R. Mobile commerce: Framework, applications and networking support Mobile Networks and Applications 7, 3 (une 2002) First, financial institutions and operators can coop- rate and provide mobile payments together, dividing the responsibilities according to their core compete Department of Inform NIINA MALLAT (niina. mallat@hkkk fi) is a researcher in the cies.In this trend, mobile operators aggregate the pay- Economics in Finkine ation Systems Science at the Helsinki School of ment data in mobile networks and banks are MATTI RoSSI(mrossichkkk f) is a professor in the Department of ond possible trend is that operators act alone and Finland on Systems Science at the Helsinki School of Economics in responsible for the actual financial transactions. A sec- Informat develop solutions such as separate accounts or their VIRPI KRISTIINA TUUNAINEN (cuunaine@hkkkfi)is a professor in the Department of Information Systems Science at the Helsinki Schoo own clearinghouse or credit institution where banks are of Economics in Finland. not involved. This trend is most plausible for m-com- merce micropayments and is possible if different play- ers cannot find a way to cooperate. Third, it is possible that banks develop payment solutions where operators o 2004 ACM/04/0500$5.00 46 May 2004/Vol 47. No 5 COMMUNICATIONS OF THE ACM
the station with the code instead of using a credit card. To use the service, the customer first registers and announces the mobile phone number(s) and credit card number(s) to be included in the service. The customer can order the code to his or her phone in advance. When making the payment, the customer keys in the code to the gas ATM and the payment is debited from the credit card account. Telecom operators provide ST1 with an enhanced telephone number authentication service but are not involved in the payment solution as such. ST1 intends to launch the service for the general public during 2004. The company estimates the service is especially valuable for small- and medium-sized enterprises, for example taxi companies, which do not want to keep company credit cards in cars for security reasons. Conclusion While there is currently a whole range of mobile financial services available, most of these services are in an early phase of development and have not reached critical mass. The current full-fledged financial applications need technologies that are not yet widely used, such as GPRS and Java. However, when we move toward true 2.5G and 3G mobile networks and the applications and devices mature, we can expect quite a rapid increase in the number of users of these services. At the same time, mobile payments must become faster, easier, and more convenient to use, and must have low transaction fees, wide availability, and standardized technologies in order to emerge as a mainstream payment solution. On the payment solution provision side we expect that, as illustrated by the mobile payments framework, different solutions will be developed for different services, depending on the size of the payment (micro or macro) and location (remote or local, manned or unmanned). There are several possible trends where different services are offered by different key players, mainly still by banks, the mobile operators, and credit card companies. First, financial institutions and operators can cooperate and provide mobile payments together, dividing the responsibilities according to their core competencies. In this trend, mobile operators aggregate the payment data in mobile networks and banks are responsible for the actual financial transactions. A second possible trend is that operators act alone and develop solutions such as separate accounts or their own clearinghouse or credit institution where banks are not involved. This trend is most plausible for m-commerce micropayments and is possible if different players cannot find a way to cooperate. Third, it is possible that banks develop payment solutions where operators are not involved. Bank-based solutions may emerge especially in POS and Internet payments and when the mobile network is used as a data carrier only. The roles and tasks we have discussed are not, however, necessarily fixed, but subject to change and evolution. Currently the only successful and widely adopted payment applications have been based on the operator’s billing and service infrastructure, but the emerging macropayment applications could be the domain of the incumbents—banks and credit card companies. We believe each of the trends described is plausible, and that they are likely to coexist. Within all of them, applications will range from single-purpose applications to full-service suites. Operators’ single-purpose micropayment solutions, for example, can be used for small purchases and could also easily be integrated into other applications, such as microbrowser-based mcommerce. Full financial applications combine these individual applications into full-fledged suites applicable for all types of financial services and transactions. While application developers choose which services to offer to the customers, the final decision to adopt one or several of these rests with the end customer who initiates transactions and pays for the chosen services. References 1. Begonha, D.B., Hoffmann, A., and Melin, P. M-payments: Hang up, try again. Credit Card Management 15, 10 (Dec. 2002), 40–42. 2. Claessens, J., Dem, V., De Cock, D., Preneel, B., and Vandewalle, J. On the security of today’s online electronic banking systems. Computers and Security 21, 3 (2002), 257–269. 3. Herzberg, A. Payments and banking with mobile personal devices. Commun. ACM 46, 5 (May 2003), 53–58. 4. Jarvenpaa, S., Lang, K.R., Takeda, Y. and Tuunainen, V.K. Mobile commerce at crossroads: An international focus group study of users of mobile handheld devices and services. Commun. ACM 46, 12 (Dec. 2003), 41–44. 5. Mobile Electronic Transactions Ltd. MeT White Paper on Mobile Transactions (2003); www.mobiletransaction.org. 6. Paavilainen, J. Mobile Business Strategies: Understanding the Technologies and Opportunities. Addison-Wesley, 2001. 7. Suoranta, M. Adoption of Mobile Banking in Finland. Doctoral dissertation. Jyväskylä University Printing House, Jyväskylä and ER-paino, Lievestuore, 2003. 8. Tsalgatidou, A. and Pitoura, E. Business models and transactions in mobile electronic commerce: Requirements and properties. Computer Networks 37 (2001), 221–236. 9. Varshney, U. and Vetter, R. Mobile commerce: Framework, applications and networking support. Mobile Networks and Applications 7, 3 (June 2002), 185–198. Niina Mallat (niina.mallat@hkkk.fi) is a researcher in the Department of Information Systems Science at the Helsinki School of Economics in Finland. Matti Rossi (mrossi@hkkk.fi) is a professor in the Department of Information Systems Science at the Helsinki School of Economics in Finland. Virpi Kristiina Tuunainen (tuunaine@hkkk.fi) is a professor in the Department of Information Systems Science at the Helsinki School of Economics in Finland. © 2004 ACM 0001-0782/04/0500 $5.00 c 46 May 2004/Vol. 47, No. 5 COMMUNICATIONS OF THE ACM