Mobile Payments - A Tool Kit For A Better Understanding Of The Market by mmcsx


									                                                                            Mobile Payments    1

                         Mobile Payments:
       A Tool Kit For A Better Understanding Of The Market

                                       Jan Ondrus
                                INFORGE - Ecole des HEC
                                  University of Lausanne

      Abstract. This paper primarily proposes an overview of the mobile payments market.
      In order to have a better understanding of this alternative payment method, we review
      different techniques supported by tools that can be used to analyze the mobile payment
      and its market.

With the growing prevalence of the electronic commerce and the widespread use of mobile
phones, a new type of channel is emerging, called mobile commerce, or m-commerce. The
use of e-commerce has already digitalized the payment process, so physical contact be-
tween the buyer and seller is no longer necessary. The conversion from physical to virtual
payments has brought enormous benefits to consumers and merchants alike [38]. Moreover,
mobile commerce will likely require real-time cashless wireless payments for buying phys-
ical and digital goods anywhere at anytime. The immediate consequence is a race between
payment service providers such as banks, card companies and mobile network operators to
be the first to offer a new successful mode of virtual payments. However, some recent anal-
ysis show that mobile payments have not proven to be a source of competitive advantage
for neither financial institutions nor for mobile operators [53]. Hence, the current tendency
for each actor is to try to pick the right business model to maximize their market share rather
than trying to lead the market.
Mobile payments, defined as payments carried out wirelessly via a mobile device, are likely
to become an important section of the retail payment sector [34]. Gartner Research predict-
ed that the transaction value of mobile payments will expand to $15 billion in Western Eu-
rope by year-end 2005 [4]. In an attempt to overbid this forecast, Forrester Research,
predicted that mobile payments will amount to only €26 billion in 2005 -- €87 per mobile
phone user per year -- and just 0.5% of consumer spending, excluding housing and vehicle
purchases [24]. However, mobile payment is confronted with technological and business is-
sues that delay its development. The biggest challenge that mobile payment providers face
at this time is convincing European consumers and merchants that they need new payment
systems [30].
The current slow start of m-commerce can be attributed to the fact that it suffers from the
same problems troubling e-commerce, plus a few of its own [48], such as device and net-
work limitations, maturity of payment solutions, and customers’ lack of interest [8]. Nev-
ertheless, according to Durlarcher Research, the potential of m-commerce remains
enormous, predicting that the market could be worth €23 billion in Europe by year 2003
[39]. This has prompted many mobile and financial industries to claim that it is time to pro-
mote mobile payments in order to accelerate the development, acceptance and use of the m-
                                                                        Mobile Payments     2

Another way to explain the real enthusiasm around m-commerce would be the penetration
of mobile phones estimated in Western Europe to reach almost 70% by the end of 2003
[62]. Moreover, the arrival of the new 3G services that will be coming with UMTS may ad-
dress some disabling problems and deliver more possibilities for new mobile applications,
which will need a good payment system. Consequently, we expect that more people might
want to make payment transactions over their mobile handset. Some recent Gartner survey
data indicates that approximately 46% of Western Europeans already use a mobile device
for making some kind of mobile purchase [4] (e.g., news alerts, logo, ringtones).
The types of mobile device that can be used for m-commerce range from the classic mobile
phone, PDA and laptop, to more surprising devices such as refrigerators and cars. The
growing need for ubiquity and mobility promises a bright future for m-commerce, which
creates an environment where consumers and merchants are able to conduct business any-
where, anytime and any way they like. Herzberg insists that security and convenience are
two essential properties that mobile devices should have [28].
The mobile telecommunication area is subject to an important debate which concerns the
current and future successful technology in m-commerce. It has been observed that mobile
voice telephony (e.g., GSM, GPRS, UMTS, ...) and data communication (e.g., WLAN,
Bluetooth, infrared, RFID, ...) are converging to offer the same type of services. Sooner or
later, the telecommunication market will change in the sense that one type of network will
be able to handle voice conversations and data transfers with good quality of service. The
objective is to respond to the desire of increased mobility, whether for carrying voice or da-
ta. Some mobile network operators are preparing to compete on both markets. For example,
Swisscom bought a UMTS license to offer 3G services, but they are also promoting WLAN
hotspots. Today, these technologies are different enough to be complementary, especially
concerning the speed of transmission and coverage. However, in the future, we cannot be
assured that the distinction will be so evident.
In this paper, we review different payment mechanisms to obtain a better understanding of
the impact of mobile payments. Therefore, we propose to use some description, classifica-
tion and decomposition tools for existing payment systems. Furthermore, we identify the
actors in the mobile payment arena and the various strategies that these actors can choose.
In addition, we identify some mobile payment issues that we use for an actor/issue analysis.
Then, we try to evaluate the mobile payment’s potential as disruptive technology. Lastly to
view how mobile payments could be practically applied, we propose two mobile payment
case studies; one on Paybox, and another on JoinKey, a fictive infrastructure designed for
retail business, which combines a CRM infrastructure and mobile payment possibilities to
increase customers’ loyalty.

We define a payment as a transaction of a monetary value from one party to another party.
This can be done through one or many intermediaries, such as a bank or a card company.
By enabling new technologies, especially wireless, we expect to see more possibilities to
initiate a payment transaction. The objective is to improve payment systems to approach a
more frictionless process.
Traditionally, in the real world, the most popular modes of payments are cash, cheques,
debit cards and credit cards. With the possibilities created by the Internet, a new generation
of payments appeared, such as electronic payments, digital payments and virtual payments.
Now, with the growing penetration of the mobile phone and the development of m-com-
merce, the mobile payment will become an uncontested mode for paying goods.
                                                                        Mobile Payments     3

A logical evolution occurred in the monetary value transaction environment due to the
progress of technology. In fact, at the beginning, payments were mostly conduct on a face-
to-face basis (cash-, paper-, card-based). As technology progressed, remote transactions
gained in popularity with the development of data wired networks (credit cards, e-pay-
ments). The current trend is now to implement wireless systems that can handle remote as
well as face-to-face mechanisms with a single device.

A Simple Payment Transaction
A simple two-party commerce transaction consists of three basic phases (Figure 1). First,
the consumer chooses the desired product by shopping. Then, when the consumer is done
with the shopping phase, the merchant gives a bill to the consumer. Lastly, the consumer
has to pay the merchant for the good.

                Figure 1 : The Three Basic Phases of a Commerce Transaction
There are many possibilities to extend the number of phases during a payment transaction.
However, a payment system has to be very simple. Moreover, the transaction has to remain
as transparent as possible for the consumer, even if the backoffice system is complex. With
a complicated payment solution, the consumer will be discouraged from using it.

A Tool for E-Payment Modeling
To fully understand the form a digital payment transaction can take, Weber [61] imagined
a simple figure that can represent a payment scenario (see Figure 2).

                         Figure 2 : A Basic Digital Payment Scenario
The payer (consumer) makes the payment. The payee (merchant) then receives the pay-
ment. The issuer is the third party (bank or service provider) interacting with the payer. The
acquirer represents the third party of the payee (the bank or service provider).
As defined by [1], payment models classify the digital payment systems according to the
necessary flow of information between the participants of an electronic transaction. We first
introduce some of these models suggested by [21]. To illustrate an example, we present a
                                                                       Mobile Payments    4

direct cash transaction in Figure 3.

                           Figure 3 : A Direct Cash Payment Model
In direct cash systems, the consumer (payer) withdraws the money from the bank (issuer),
hands it to the merchant (payee) who deposits the money from the payment to its bank (ac-
quirer). This system can also work with a token money model that we can use with smart
cards, for example. This explains the last «optional» phase which is the settlement between
the acquirer and the issuer who transforms the token into real money.
To demonstrate the flexibility of such representation, we suggest to taking a look at a com-
plex system described in Figure 4. The SET system has been developed by the credit card
industry to facilitate secure payment card transactions over the Internet.

                            Figure 4 : A SET Payment Transaction
Nowadays, there are few successful electronic payment solutions. They follow either a
three- (e.g., American Express and Discover handle card payments within a single organi-
zation) or four- (e.g., Visa and Mastercard have a number of member banks, which issue
cards, authorize and acquire the payments for merchant) party models [63] which gather the
consumer, the merchant and the payment solution provider.
Buhan, Cheong and Tan have described the main phases of mobile payment [8] with the
same type of representation tool introduced above (see Figure 5).

                            Figure 5 : M-Payment Main Phases [8]
As we can see, we have a four-party network where content provider represents the mer-
                                                                                            Mobile Payments           5

chant, the payment service provider is the acquirer and the trusted third party is the issuer.

The Payment Dimensions
Payment transactions have identified multiple dimensions. A distinction between the dif-
ferent types of payments should be also be described. Therefore, we propose a classification
of the payment market’s dimensions in this following table adapted from [53]:

                               Table 1 : The Different Payment Dimensions
  By means                        Cash, Paper (Cheques, Bankers draft), Card (Credit, Debit, Smart), Electronic (e/
                                  m-commerce, virtual money, e-wallet, stored value account), Tokens/money surro-
  By size                         Micro-payments (generally below 10 Euros), Macro-payments
  By place of Purchase            Real-world or F2F, Remote (Internet, Mail and telephone orders)
  By Seller/Buyer Origin          B2B (rare for m-payment), B2C, P2P
  By Type of Purchase             Physical goods, Digital/electronic goods, Rights (rich media)
  By Clearing and Settlement      Bilateral, Multilateral (joint clearing house), Using intermediaries
  By Type of Transaction          Pay Per View (PPV), Pay Per Unit (PPU)
  By Time of Payment              Pay now (debit), Pay later (credit), Pre-pay (against stored value)
  By Geography                    Domestic, Cross-border, Single currency, Multiple currency
  By Location of Payer’s Account Network-/server-based, Device (client-based), Chip (client-based)

Micropayments and Macropayments
An important strategic issue for mobile payment system suppliers is to choose the type of
payment dimension they want to focus on. For example, micropayments generally represent
a payment which is below 10 Euros and is usually supported by cash or debit cards. Mer-
chants are reluctant to accept credit card transactions for small amounts because of transac-
tion fees. Consequently, mobile payments could be an attractive substitute for this type of
transaction, especially since most current mobile purchases are news alerts, logos and ring-
tones. However, most companies promoting micropayments failed because the margins on
small value payments are notoriously low, and sufficient economies of scale are extremely
difficult to attain [15]. On the other hand, macropayments, which are thus logically every
payment above 10 Euros, represent a real challenge for mobile payments. They need stron-
ger security mechanisms because of the large amount of money involved and the greater
possibility of fraud.
A survey from SpeedFacts shows a very surprising fact: the mobile phone is the preferred
payment method between 12.5 and 50 Euros [49]]

                 Figure 6 : Preferred Payment Method of Internet Users if Away [49]
                                                                                                          Mobile Payments   6

Face-to-Face and Remote Payments
The location of purchase is another dimension that electronic payment has already changed.
Mobile payments will deliver even more new features to improve the current systems.
F2F (face-to-face or proximity payment) transactions are the most common way to pur-
chase goods. However, considering the explosion of e-commerce, remote payments are go-
ing to become more and more popular. Mobile payments should revolutionize these two
types of transaction. In fact, a mobile phone can replace a wallet for small expenses. So if
people were to go to their local retail store they would be able to pay with their mobile hand-
set directly at the POS (Point-of-Sale). Therefore, proximity payment transactions usually
involve two parties using an ad-hoc network based on a wireless technologies such as Blue-
tooth, infrared and radio frequency identification (RFID) which enable short range wireless
device-to-device payments [38].
For remote payments, the major benefit for the consumer is that there is no need to be
present at the time of the purchase. Another possibility is the payment of goods on the In-
ternet via a mobile device. The problem for the merchant is that there is no payment guar-
To have better understanding of the different characteristics of the remote payment means,
Thomann presents the following table (Table 2). He includes the different risks, the pay-
ment time and the transaction costs [59].

             Table 2 : Characteristics in Remote Payments (Internet, MO/TOa)
                                      credit risk        fulfillment      payment time           transaction
                                     (merchant)              risk         (cardholder)               cost
                    Check                high                high               later              medium
                    Pre-paid              low                high              before              medium
                    Post-paid            high                low                later              medium
                    Debit card         issuer’s              low  b              now               medium
                    Credit card        issuer’s              lowb               later               highc
                    E-Purse            very low              high              before               low
                       a.   Mail Order (MO), Telephone Order (TO).
                       b.   Fulfillment risk for debit/credit is low due to chargeback rights.
                       c.   Credit card transaction cost is high due to commissions.

Mobile Payment Multidimensional Statistics: Size and Location
Forrester’s research predicts some values of mobile payment transaction types considering
two distinctive dimensions [22]. This forecast was done in 2001 for Europe from years 2000
to 2005 (Table 3).

       Table 3 Past, Actual and Projected Value of M-Commerce Transaction, Europe
                       2000              2001              2002              2003                2004          2005

     Micro Remote      <1 mio            <1 mio            1 mio             4 mio               12 mio        27 mio

     Macro Remote      5 mio             24 mio            162 mio           619 mio             1’890 mio     3’014 mio

     Micro F2F         26 mio            87 mio            423 mio           3’370 mio           4’440 mio     5’005 mio

     Macro F2F         19 mio            67 mio            314 mio           1’387 mio           5241 mio      12’674 mio

As we can see, proximity (F2F) payments appear to offer the best medium term revenue op-
portunities. In the short term, micro proximity payments seem to be the more valuable trans-
                                                                          Mobile Payments   7

The Exploration of Mobile Payments
In spite of the differences between the various mobile payment systems, most of them are
similarly structured [36]. As we can see on Figure 6, in most cases a customer needs a pay-
ment intermediary.

                       Figure 7 : The Structure of Mobile Payments [36]
To be successful, we suggest that a mobile payment solution should be able to handle most
of the dimensions presented in Table 1. In general, consumers will be more predisposed to
subscribe to a very flexible and universal system compared to another that would not offer
the same number of possibilities. Furthermore, the payment solution must always be avail-
able since consumers want to pay anytime and anywhere.
There are different reasons why a mobile phone has the potential to become a payment de-
vice in the future. The number of users of mobile phones is already considerable, and mo-
bile payments can be made in all types of payment transactions, such as manned (any
merchant), unmanned (vending machines, parking meters, ...) POS and e-commerce via a
mobile phone [35].
The benefits of using a wireless device to pay are narrowly linked to the convenience of
using an easy, real-time, cashless and frictionless payment system. Consumers expect mo-
bile payments to be easy-to-use, fast, personalized, secure and universal. The challenge for
a wireless device is that it should be able to conduct any transaction, anytime and anywhere.
However, mobile payments also bring many problems to solve. One of the most crucial is-
sues is the price that a mobile payment will be charged. More than ever, consumers are re-
luctant to pay more without having an added value service; arguments like convenience and
security will probably not be attractive enough. Moreover, Dahlberg argues that, from the
businesses’ perspective, SMS and value added services are considered expensive, and op-
erator’s and banks’ transaction fees irritate some consumers [18]. Hence, service providers
have to find the right revenue model if they want the mobile users and merchants to adopt
their new mobile application. Otherwise, there is no chance that the mobile payment solu-
tion will succeed. Technology suppliers also have the mission to design mobile devices that
are easy-to-use, fast and reliable in a payment context. Without a convenient device, the
consumer will not make any effort. A very popular m-commerce example is the book or-
dered in 40 minutes using a mobile phone!
To summarize the various factors that can lead a mobile payment system to success, Watson
proposes a list of four features that can be applied to mobile payments [60]:
      - Ubiquitous (anywhere, anytime)
      - Universal (universally usable)
      - Unique (customized)
      - Unison (synchronized)
This vision is shared by important actors like Visa and Acceture who co-published a white
paper on the U-commerce. They introduce universal commerce as an environment where
buyers and sellers will literally be able to conduct commerce anytime, anywhere and any
                                                                                 Mobile Payments   8

way they like [46]. Moreover, they predict that this new environment will provide more
choice, more convenience, and more control over how business will be done with one an-
other. However, this still implies the continued existence of traditional payment means such
as cash, checks, debit and credit cards. For them, several global phenomena, such as the per-
vasiveness of technology, the growth of wireless and increasing bandwidth and connectiv-
ity are market drivers that accelerate as technology goes forward.
In order to determine the success of a payment system, de Clercq proposes some commer-
cial, juridical and technological requirements [10].

                 Table 4 : Some Requirements for the Success of a M-Payment System
     Commercial requirements              Juridical requirements        Technical requirements
  Universality                      Digital signature              Network technologies
  Instant connectivity              Current legislation on         Service technologies
  Personalization                   payment systems                M-commerce terminals
  Convenience                                                      M-commerce security
  Expenses                                                         mechanisms

  Protection of the privacy

Technologies Enabling Mobile Payments
The intention of this paper is not to detail all the technologies involved in mobile payments.
Nevertheless, we categorize the different technologies. Therefore, we introduce a mobile
payment framework (Figure 8) inspired from a m-business application framework designed
by [10].

                                Figure 8 : Mobile Payment Framework
We propose three dimensions to classify the different technologies in mobile payments.
First, «Network» gathers the technologies used in a wireless network infrastructure. Then,
«Device» represents the user wireless infrastructure. Finally, «mobile application» de-
scribes the technologies used mostly by mobile application developers, mobile application
service providers and content providers.
Further details and descriptions on technologies that enable mobile payments can be found
in [47].
                                                                                   Mobile Payments          9

Security in Mobile Payments
Security in mobile payments is certainly one of the most important problems that providers
encounter. In fact, there is no guarantee of total security while sending sensitive information
over an open network like the Internet. So far, the two main card association initiatives are
Visa 3-D Secure Specification and MasterCard SPA [15]. However, there are some major
consortia or forums (e.g. MeT Initiative, Mobey Forum, Mobile Payments Forum and Pay-
circle) trying to gain the clout that mobile payment players believe they need to create a
workable m-payment system [3]. They all want to develop standards to provide secure mo-
bile transactions. Security is also a very critical factor in enabling consumers to trust mobile
A mobile payment solution should respond to the five classic security criteria such as:
   • Authentication
   • Availability
   • Confidentiality
   • Data Integrity
   • Non-repudiation
Since financial services like payments can be subject to fraudulent activities, they require
well-secured infrastructure. The potential flaws are that someone can eavesdrop on the
communication and that a third-party impersonifies the provider. Therefore, authentication
and confidentiality should be implemented in the solution to prevent these flaws.
Security can be hardware- or software-based. On the client side, there are at least four [20]
or five [13] potential designs for mobile phones to accommodate secure mobile payment
(see Table 5).

         Table 5 : Four Possible Handset Designs to Enable Secure Mobile Payments
                                       SIM and WIM (Wireless Identification Module) combined in a sin-
Multi-application chip card
                                       gle chip card

                                       Both the SIM and WIM have their own slot inside the mobile
Dual-SIM phone

External WIM card reader               An external card reader can be connected to the handset.

                                       The mobile phone has a built-in smart card reader. Consumers
                                       insert their existing debit or credit card into the smart-card reader-
Dual-slot phone
                                       slot and type in a four-digit PIN, issued by their bank, in order to
                                       authenticate purchases [13].

Payment software built into the phone The functionalities of the WIM would be inside the phone memory.

To prevent the fact that consumers have to replace their mobile phones, most current system
use a SMS or USSD-based solution for authentication and payment confirmation mecha-
nisms. This is the case for most newcomers and intermediaries mobile payment schemes.
The only way for mobile payment mass adoption would be if the client device would not
cost too much.
As discussed above, security can also be implemented in the network infrastructure. In or-
der to fulfill the security requirements at the network layer, some researchers designed a
                                                                                            Mobile Payments   10

functional model of a mobile commerce terminal [63].

 Figure 9 : Functional Model of a Mobile Terminal Designed for Mobile Commerce Applications
This functional model describes the sophisticated mechanisms and protocols. The designers
stress that in addition to transport layer security protocols (e.g., TLS and WTLS), it is im-
portant to provide an access to basic cryptographic system from the application layer. Now-
adays, the cryptographic algorithms used are SHA-1 and 3DES. Moreover, in the future,
AES might be implemented in the terminal. Public Key Infrastructure (PKI) can also be
used in the mobile context. However, the PKI will have to support efficient mechanisms for
certificate management (e.g., issuing, distributing, validating and revocating the certificate)
Security is probably one factor of success in mobile payment transactions. For now, the big-
gest challenge is agreeing on few technology standards that would be able to rally most ac-
tors on the payment market. Salvi and Sahai propose that subscribers should be able to
specify different levels of security for different amounts [45]. Therefore, they suggest four
increasing levels of security which can be applied to the payment service (Table 6).

                                     Table 6 : Security Levels [45]
            Level 0      No PIN is required. For making micro payments.
            Level 1      PIN to authorize payments
            Level 2      PIN + digital certificate signed by a third party on behalf.
            Level 3      Digital certificate stored in the mobile and protected by a PIN.

The generic dimensions help to classify and describe the different possibilities to build a
payment system. However, to overview the real market of mobile payment, we need anoth-
er classification framework.
Currently, mobile payments can be classified into two general types of payment methods,
namely devices with payment applications and devices without payment applications [47].
Each type of payment solution is described in the Appendix A.

                       Table 7 An Application Device-based Classification
           Devices Without Payment Applications              Devices With Payment Applications
          - Site wallet                                   - Personal wallet
          - Remote wallet                                 - Electronic purse
          - Distributed wallet                            - EMV
          - Network operator specific mobile payment      - Network operator specific mobile payment
                                                                                                Mobile Payments          11

From his point of view, Hennessy thinks that the main types of mobile payment schemes
can be classified into two categories: client wallet and hosted wallet [27].

                           Table 8 A Wallet Location-based Classification
                Client wallet                                          Hosted wallet
       A client wallet is stored on the    A hosted wallet is stored on a server.
       user device. It is a hardware-
                                           Self-hosted wallet. A service pro- Third party hosted. The wallet
       based system (SIM Application
                                           vider hosts the wallet on his serv- server is managed by a third party.
       Toolkit card).                      ers.

A Framework to Classify and Decompose Mobile Payment Solutions
As the previous classifications were too restrictive, we introduce another framework to
classify and decompose a current mobile payment system. We propose to use a multidimen-
sional table that allows us to get a better overview of the solution’s properties. Therefore,
we present a table to classify the system in types (client-based, server-based and hybrid so-
lutions), then select who the provider(s) is or are (mobile network operators, financial insti-
tutions, newcomers/intermediaries), define the type(s) of relationship that the payment
system can handle (B2C, P2P), determine the location(s) where the transaction can happen
(face-to-face and remote) and at last the time when the payment is completed (pre-paid, di-
rect pay, post-paid). Table 9 provides an equitable way to compare one system to another.

                Table 9 : A Simple Table to Describe a Mobile Payment Scheme
   Name                                                                    Dimensions
  Of The      M-Payment Solution
                    Type              Mobile Payment Solution Providers    Relationship    Location        Payment Time
  System     Client- Server- Hybrid    MNO       Financial Newcomer/       B2C      P2P   F2F    Remote   Pre   Direct Post
             based based                        Institution Intermediary

Filling in the table is convenient and fast because it is sufficient enough to put a cross in the
columns that apply. The dimensions are not exhaustive. However, there is the possibility to
find out what the system’s limitations are, especially concerning the relationship and the lo-
cation. This table is not created to provide an assessment of the quality, but it allows us to
judge the flexibility of the system. A similar table was designed by Carat at the end of his
report [12]. The only difference is that he selects more dimension. He described over 100
electronic payment initiatives with this table. Some results were especially interesting by
helping to deduce the probable evolution of the number of electronic payment offered by
different actors (Table 10).

                                 Table 10 : Profile of the system providers
                                               Initiated by banks /near          Non-banks Mixed profile
             All schemes = 100                             39                       41             20
             Introduced before 2000                        20                        9             5
             Introduced in or after 2000                   19                       32             15

A similar framework is proposed by a group of German researchers [14]. They call their
system a morphological box, which describes the characteristics of a mobile payment solu-
tion. Even if this method seems to be complete, it does not allow to decompose the different
initiatives into clusters or types. Apparently, one way to classify mobile payment systems
                                                                       Mobile Payments     12

in groups is to choose just one dimension that solutions have in common [e.g., Table 7].

     Figure 10 : Morphological box of mobile payments characteristics and instances [33]
To examine the Paybox system, the use this morphological box. The result is in Figure 8.

                    Figure 11 : Paybox within the morphological box [33]
As discussed above, the need to analyze more deeply the mobile payment system is crucial
to discover the limitation of the proposed solution. To measure the potential of a system,
we think that all the requirements of a payment system should be taken in account.
Some already existing research have been made with the goal to see which payment system
answer the best to most requirements. Weber also proposes to describe payment systems
with the most probable requirements a solution can have. In his paper, he illustrated many
payment system with the use of this table.
                                                                                          Mobile Payments      13

Table 11 presents as an example the requirements profile of traditional payment systems,
such as cash, cheque and credit card [61].

                 Table 11 Requirements Profile of Traditional Payment Systems
    Requirement/System                                  Cash                     Cheque          Credit Card
    Token System                               Yes                      No                No
     Atomicity                                 Yes                      No                No
     Consistency                               Yes                      Yes               Yes
     Isolation                                 Yes                      No                No
     Durability                                Yes                      Yes               Yes
     No Double Spending                        Yes                      n.a.              n.a.
     No Counterfeiting                         Some                     No                No
     No Overspending                           Yes                      No                No
     Non-Refutability                          No                       Yes               Yes
     No Unauthorized Use                       No                       Some              Some
     Anonymity                                 Yes                      No                No
     Untraceability                            Yes                      No                No
     Divisibility                              Yes                      n.a.              n.a.
     Bidirectionality                          Yes                      Yes               No
     Respendability                            Yes                      No                No
     Acceptability                             Yes                      Yes               Yes
     Multicurrency Support                     Yes                      Yes               Yes
     Exchangeability                           Yes                      Partly            No
     Transferability                           Yes                      No                No
     Portability                               Yes                      Yes               Yes
     Scalability                               Yes                      Yes               Yes
     Off-line Operation                        Yes                      Yes               No
    Economical Issues
     Operational                               Yes                      Yes               Yes
     Large User Base                           Yes                      Yes               Yes
     Buyer Risk                                Yes                      No                Limited
     Seller Risk                               No                       Yes               No
     Reliability                               Yes                      Yes               Yes
     Conservation                              Yes                      Yes               Yes
    Ease of Use
     Unobstrusiveness                          Yes                      Yes               Yes
     Low Latency                               Yes                      Yes               Yes
     Micropayments                             Yes                      No                No
     Macropayments                             No                       Yes               Yes
     Low Fixed Costs                           Yes                      Yes               Yes
     Buyer HW Independence                     Yes                      Yes               Yes
     Seller HW Independence                    Yes                      Yes               No

To compare payment solutions, Buhan, Cheong and Tan use a simple table containing the
different characteristics that a payment network can have.

                Table 12 : Comparison of Characteristics of Payment Networks
                  Transaction criteria                Pay per view
                                                      Pay per unit
                                                      Recurrent subscription
                                                      Direct debit
                  Content criteria                    Digital goods
                                                      Hard goods
                                                      0-0.1 euro
                                                      0.1-10 euros
                                                      >10 euros
                  Level of upgrade/customization      For consumers
                  needed                              For content provider
                                                      For Payment Service Provider
                                                      For Trusted Third Party
                                                                                                                            Mobile Payments   14

An Existing Tool for Inventorying E-Payment Systems
An impressive work has been done for compiling most of the electronic payment systems
in Europe. The ePSO (ePayment Systems Observatory) database is available on the official
website [55]. There are two ways of searching the inventory database:
    • Free text search where the user can search for specific concepts (such as
       PKI, voice recognition, etc.) or by the e-payment system name.
    • Advanced query is an explicit three-level structure of keywords presented in
       three list boxes. The first list box indicates the type of payment solution or
       initiative. The second and third offer additional criteria to refine the search. In
       addition, the user may input the geographical location and the members of the
Moreover, another survey on electronic money development has been realized by the Bank
for International Settlements [6]. In this digest, electronic money solutions are classified by

Evaluate the Potential of New M-Payment Systems
As briefly suggested before, mobile payments are a key enabler for m-commerce. However,
in recent years, a number of new payment solutions have been introduced with little suc-
cess. These solutions have been mostly technology driven at the cost of convenience and
value to the consumer. Gordijn stresses that when launching an innovative idea, it is crucial
to offer a sound value proposition to the customer in order to be a profitable enterprise [25].
One idea would be to find a formula to evaluate the chance of acceptance of a new payment
system. Therefore, Dalhberg and Mallat suggest measuring the customer perceived value,
which helps to describe how characteristics of products and/or services are related to the
adoption of new (payment) technology solutions [19]. For that, they propose to use the fol-
lowing equation first introduced by Grönroos [26]:

                                          Core Solution + Additional Services                                                            -
               Customer Perceived Value = ------------------------------------------------------------------------------------------------
                                                       Price + Relationship Costs

Applied to the mobile payment problem, the core solution represents the ability to pay with
a specific method. Additional Services are the features offered by the specific payment
method (e.g., security, mobility, compatibility). Price refers to the price/cost generated by
the payment transaction. The relationship costs are threefold: (i) the investment of the con-
sumer to be able to use a specific technology, (ii) the indirect costs if the system does not
function as promised and (iii) psychological costs that are related to the level of trust. The
use of this equation will show if the customer perceived value for mobile payments is great-
er than for payment methods that already exist.
The Mobile Payment Case Study
The responses from interviews directed by Dalhberg and Mallat [19] show interesting facts.
For additional services, the use of m-wallet and smart cards is seen as valuable for small
purchases of physical and digital goods. Concerning the price, responses show that inter-
viewees do not want to use mobile payment systems if the price is higher than buying good
with the traditional payment solutions. Regarding relationship costs, they estimate that the
configuration for setting up a wireless device should not be too difficult. But, they have
doubts concerning the security of online wireless payment transactions at the POS. Finally,
the most trusted providers of mobile payment solutions were banks and credit card compa-
nies, followed by mobile operators, if there were the only one to offer such solutions.
                                                                                    Mobile Payments   15

The first step in this presentation of the actual mobile payment market is to identify the main
actors which participate actively or passively. There is a difference made between an actor
which can be involved directly in a mobile payment transaction (Players) and another actor
which has also an importance but not in the real-time processing (Rulers). Each actor brings
its own contribution to enable the mobile payment mechanisms.

              RULERS                        National Independent Bodies        Legal framework

               International institutions          Regulators                Governments

                                                                       Technological constraints
                Device makers                                                 Device retailers
              Technology enablers
                                             Technology suppliers
                                             Technology suppliers            Equipment vendors

              PLAYERS                                                                       Supply
                       Network                   Intermediaries              Financial
                       operators                                            institutions
                                                  Specific platforms
                    Telephony                                                   Banks
                Data communication                                          Card companies

                           Merchants                                   Consumers

                               Figure 12 : The Mobile Payment Arena
This figure shows that there are two groups of actors: the rulers and the players. Then, each
group is classified according to the types to which they belong: legal framework, techno-
logical constraints, supply and demand. The triangle can illustrate the number of actor in
each group. In fact, they are many more consumers and merchants than regulators. The cir-
cle represents the potential «active» links between the players during a mobile payment
As we can see, the five main players in the mobile payment arena are consumers, mer-
chants, mobile operators, newcomers/intermediaries and financial institutions. On one
hand, the presence of a demand, represented by consumers and merchants, is essential.
However, on the other hand, depending on the system in use, the supply can take on many
different forms as network operators, newcomers/intermediaries and financial institutions
compete, interoperate, co-operate. Therefore, their presence depends upon if the mobile
payment solution asks for an intervention of one, two or all supply actors.

A Description of Actors
The objective of this overview is to introduce the different actors involved in the mobile
payment arena.
The demand of mobile payments is generated by merchants and consumers.
   • Merchants want the payment process to be transparent to the user, as this
     encourages greater usage and/or propensity to complete a purchase. They also
     want any payment scheme to facilitate swift and easy completion to ensure
     they get paid on time [38]. They hope that a mobile payment system can also
                                                                     Mobile Payments    16

       improve consumers’ loyalty.
   • Consumers represent the major target of all mobile payment initiatives. They
       decide if they want to use a mobile device for monetary value transactions.
       Their main expectation is that their payments have to be fast, easy, personal-
       ized, and secure. Most of them already possess a mobile handset. The phe-
       nomenal success of the Short Messaging Service (SMS) highlights the
       appetite for non-voice services on mobile device. Therefore, mobile pay-
       ments will play a very important role if the consumer asks for new value
       added mobile applications.
The supply of mobile payments is composed mostly of service providers coming from dif-
ferent industries. Network operators, financial institutions and newcomers/intermediaries
will try to provide their solution to the mobile payment issue.
   • Network operators manage the mobile communication infrastructure,
       enable mobile telephony and data communications. Moreover, some of them
       already provide a wired network for electronic payment transactions between
       business premises and banks’ financial systems. A technology distinction has
       to be made to provide an overview of the different family of actors involved.
       The convergence of voice and data brought two types of competing or com-
       plementary technologies:
       - Telephony technologies (GSM, GPRS, UMTS, ...)
       - Data communication technologies (WLAN, Bluetooth, infrared, RFID, ...).
       Network operators are natural candidates for providing payment services
       since they are already involved in billing for voice and data transport services
       [34]. Moreover, they have the desire to recoup the cost of the UMTS license
       which makes them very interested in taking over the mobile payment market
       with the idea of generating revenue with payment transactions.
   • Financial institutions are primarily concerned with ensuring the integrity of
       the payment system and reducing the risk of fraud. They can be a bank, a card
       company, a clearing house or all at the same time.
   • Newcomers/intermediaries principally exist because of the missing standard
       that should have been chosen by network operators and financial institutions.
       Actually, the technology to enable mobile payment and the demand for such
       service are there, but the supply is late to emerge. Therefore, newcomers/
       intermediaries’ objective is to propose a well-integrated solution in the cur-
       rent mobile payment market with the current popular technologies in use such
       as SMS (Short Message Service) and USSD (Unstructured Supplementary
       Service Data). They use the mobile communication network to transmit the
       data and control the veracity of the payment process with a bank or card com-
       pany. Intermediaries usually act as a third-party between financial institutions
       and network operators. To illustrate the importance of these new actors, we
       can look at Paybox which already has 10,000 merchants and 750,000 sub-
       scribers for its m-payment service across Europe [17].
Other actors are in the background, but they still have their importance. They are the most
powerful entities and they can easily influence the market of mobile payments. Despite be-
ing totally passive for mobile payments, they can be considered facilitators of the various
mobile payment models [4]. They do not affect the real-time transaction, but they draw the
future of mobile payments.
   • Regulators have the role of making the rules and controlling their applica-
     tion. The existence of network effects calls for interoperability between the
                                                                                             Mobile Payments             17

      systems of different network operators. This interoperability can only be
      achieved by cooperation. It contains, however, the possibility of collusive
      behavior to the disadvantage of customers. Therefore, many network indus-
      tries are supervised by a special regulator. Traditionally, regulation of pay-
      ment systems has been a part of banking regulation and/or monetary policy
      [34]. For example, California has started to regulate the use of mobile phones
      as payment devices. That regulation, in addition to the expected federal regu-
      lation, applies to any non-telecommunications charges placed on a telecom-
      munications bill, including wireless bill [9]. Other institutions, such as
      standardization groups, are also very important because they will make the
      market more accessible to their followers.
   • Technology suppliers invent and provide new technologies to the mobile
      communication market. Their role is crucial because they continuously
      improve devices that will enable an easier and more secure mobile payment
To assess the role of the different actors in a selected market, Camponovo and Pigneur rec-
ommend to briefly but clearly describe the business model of each actor [10]. They adopted
an ontology or framework for e-business models developed by [41] and represented in Fig-
ure 13.

                             Figure 13 : Mobile Business Model Framework

Description of Actors Using Business Models
To succinctly illustrate the use of business models to describe actors, we propose to take the
network operators as an example in Table 13.

                           Table 13 : Network Operators’ Business Model
Value proposition   They operate mobile voice and data communication network. They mainly provide mobile telephony
                    to end-users. Surrounding services like messaging (SMS), WAP and other network value-added ser-
                    vices (content provider, location-based services, billing for third parties, ...) are also part of their
Target customers    Telcos’ targets are almost everyone from children to grandparents, including professionals such as
                    business men.
Infrastructure      Telcos’ main activities are network promotion and contract management, service provisioning and
                    infrastructure operation [11]. Telco’s have a typical value network configuration [50]. They partner
                    with technology suppliers, other network operators (roaming), content providers and application
Revenue model       They earn revenues from different sources such as fees for registration, monthly subscription, air-
                    time, volume of data transferred, the income from other activities like roaming and transaction for
                    other parties.
Examples            Swisscom, Vodafone, AT&T, Tele2, Globalstar, ..
                                                                   Mobile Payments    18

Actors and Roles
To describe some strengths and weaknesses of different actors to act as payment service
provider, Buhan, Cheong and Tan use Figure 14.

                         Figure 14 : M-Commerce Actors and Roles

Four Appropriate Mobile Payment Models
Gartner Research proposes four model involving the different actors of the mobile payment
arena [4]. These models are based on the needs and roles of these stakeholders.

                   Figure 15 : Gartner’s General M-Payment Models [4]
                                                                                              Mobile Payments            19

Table 14 describes the different models introduced by Gartner.

                     Table 14 : A Description of the Gartner’s M-Payment Models
     Given names        Description                                       Comments

 A   Walled garden      Customers buy directly from the carrier and       Closed system. Invoices directly to the monthly
                        the carrier servers as the sole provider of the   wireless bill. Low value transactions to limit the
                        content or operates as the «storefront» for       financial risk for the carrier. Mostly adapted for
                        other merchants.                                  digital goods.

 B   High-value garden Carriers choose to accept payments through         Natural extension of the walled garden model.
                       the traditional financial network to avoid the     Payment with a debit or credit card. Need for car-
                       financial risk coming from values greater than     riers to establish relationships with banks and
                       $10.                                               external payment processors.

 C Buy direct           Resembles the way PC-based online shopping        Merchants can sell through multiple wireless car-
                        and payments are transacted. Customers con-       riers. Carriers are excluded from any revenue-
                        tract directly and separately with each mer-      sharing of the payment. A payment option can be
                        chant, who in turn must deal with the various     the reverse-billed SMS. Then the carrier would
                        payment processors.                               charge the payment on the customer wireless bill.

 D Mediated             The intermediary serves as the broker, forming    However, this role is not necessary played by an
                        the needed alliances and connections. The         independent entity. A merchant, bank or even the
                        intermediary becomes the «glue» that facili-      carrier can perform the intermediation.
                        tates commerce between all interested parties.    This model minimized the interoperability limita-
                                                                          tions and the number of required relationships.

The Bank-dominated Model
In this model, banks control the whole value chain, since telcos will only perform the data
transport. Actually, mobile device would become another way for consumers to access their
bank accounts.

                               Figure 16 : The Bank-Dominated Model [36]
The device marked with an asterisk may require the use of a smart card in order to make
payments. This card would be issued by a bank to enhance security of data storage and
transmission and allow strong identification [36]. Concerning the mobile device, there are
two obvious solutions designed, such as the dual-slot phone or a separate payment chip em-
bedded in the mobile phone.
In this case, banks have complete control over the customer relationship and the payment
process. They will thus keep their supremacy in providing payment services.

The Role of Network Operators
The potential of mobile payment has already been demonstrated, but the role that network
operators have to play is not very clear. They are already offering payment services, but if
they want to become a real payment service provider, they will have to manage the financial
risk and apply for a bank licence [35]. For this reason, it is legitimate to wonder what net-
                                                                                              Mobile Payments             20

work operators will do. Krueger describes three different roles that telcos could play in the
mobile payment market [35]. Table 15 summarizes his scenarios.

                                Table 15 : The Potential Roles for Telcos
Communication providers        Telcos simply stick to their current business which is not very profitable. Selling value
                               added services like payment is more tempting to generate some extra revenues. Telcos
                               will probably not stay out of the market.

Third-party billing systems Telcos implement third-party billing on behalf of merchants. Such systems allow custom-
                               ers to rely on a trusted billing relationship with telcos. They generate more traffic but also
                               get commissions on payments. The problem that comes with providing this service is the
                               risk of the credit. In fact, Telcos have to manage the risk if the customer cannot pay for the
                               goods purchased before the end of the billing period. Telcos have to take care of such
                               issues as credit limits to prevent fraud. They have to create mobile payment roaming
                               agreements with other national and international network operators. To reduce the risk,
                               they have to increase the frequency of settlements like banks and established payment
                               providers that clear and settle every day.

Pre-paid solutions             Telco simply debits payments to a prepaid card/account. This slightly reduces the risk.
                               However, difficulties appear with payment roaming. Telcos have to monitor each other to
                               take into account the type of payment service offered (prepaid or billing), and how credit
                               and fraud risks are handled. To provide prepaid solutions, telcos have to become either an
                               Electronic Money Institution (EMI) or a bank. The use of prepaid cards for payments of
                               goods and services provided by third parties makes it necessary to get an EMI licence.
                               Managing prepaid accounts is equal to managing deposits. Therefore, such payment solu-
                               tion would force telcos to become banks.

These roles show mobile network operators going alone in the market of mobile payment.
Another possibility would be to team up with a bank, to take advantage of the synergy from
the technological knowledge of network operators and the financial experience of banks.

The Newcomers/Intermediaries Opportunity
Because mobile network operators and banks are not able to launch a successful initiative,
new opportunities appear for others. These parties will be primarily intermediaries working
with mobile networks and banks. Some of them might acquire an EMI licence or even a
banking licence. Therefore, network operators would have the advantage of not being both-
ered with payment regulations if they would work with financial intermediaries. These in-
termediaries would take the financial risk that network operators do not want to support.
However, for example, Paybox is almost owned by Deutsche Bank. This means that banks
are also interested to work with intermediaries that would use their banking system.

                        Figure 17 : The Newcomers/Intermediaries Model [36]
                                                                      Mobile Payments     21

Mobile Payment Consortia, Alliance and Forum
To increase the adoption of mobile payments, financial institutions and telcos formed con-
sortia. Their objectives are to address the security and the compatibility issues by develop-
ping a standard for mobile payments. Since the various consortia have different focus and
some companies participate actively to several consortia, these groups are not opponents.
Moreover, Adrian arrived to the conclusion that enterprises must join or track multiple
groups and drive them to convergence. Otherwise, there will be multiple and poorly con-
nected standards across the many components that support mobile payments [3].
The Liberty Alliance Project
The Liberty Alliance Project was formed in 2001. The objective was to develop open stan-
dards for federated network identity management and identity-based services. Its goals are
to ensure interoperability, support privacy, and promote adoption of its specifications,
guidelines and best practices [56].
The Alliance is made up of more than 160 members, representing a worldwide cross-sec-
tion of organizations ranging from educational institutions and government organizations,
from service providers and financial institutions, to technology firms and wireless providers
The management board members are American Express, AOL, Ericsson, Fidelity Invest-
ments, France Telecom, GM, HP, Nokia, Novell, NTT Do Co Mo, Sony, Sun Microsys-
tems, Verisign and Vodafone. Many other companies are sponsors, associates or affiliates.
PayCircle is a vendor-independent non-profit organization. Its main focus is to accelerate
the use of payment technology and develop or adopt open payment APIs (uniform Appli-
cation Programming Interfaces) based on XML, SOAP, Java and other Internet languages
[42]. PayCircle ensures that the applications can interface with a multitude of devices, car-
riers and transaction processing systems [3].
The MeT Initiative
The Mobile Electronic Transaction (MeT) Initiative is the oldest and largest alliance[3].
This group was created in 2000 by Ericsson, Motorola, Nokia, NEC, Panasonic and Sie-
mens. Their objective is to provide a framework to secure mobile transactions across any
device or payment type. This is a non-bank consortia.
The Radicchio Initiative
The members of this group are technology vendors and card companies. Radicchio’s goal
is to establish a trusted global infrastructure for mobile commerce.
The Mobey Forum
The Mobey forum was created by world’s leading banks in 2000. Their objective is to pro-
mote financial services using mobile technologies. Their commitment to accelerating the
take-off of user-friendly mobile financial services by promoting open, non-proprietary
technology standards [57].
The Mobile Payments Forum
This forum was established by credit card issuers in 2001. Its objective is to make sure that
whatever other m-payment systems and standards emerge, they are able to interoperate with
the current authentication, processing and billing systems [3].
                                                                     Mobile Payments     22

The objective of this section is to identify some mobile payment issues. Therefore, the idea
will be to use what Tarasewich identified as a set of issues concerning the mobile e-com-
merce [52]. He classifies a number of possible issues within five categories1 that we adapt-
ed for mobile payment:
      1. Mobile client issues
      2. Wireless communications infrastructure issues
      3. Other wireless technology issues
      4. Mobile payment application issues
      5. Mobile payment global issues
Using this categorization guides the identification of some issues that could concern the
market of mobile payment.

Mobile Client Issues
The issues in this category concern the hardware and software of mobile clients.
The device’s physical form
The question is to find out which device will be the most successful to support mobile pay-
ments. The device can be a mobile phone or another such as a PDA, a laptop or any wireless
enabled device that could process securely a financial transaction over a wireless network.
The convenience of the device
Convenience and ease of use are very important in boosting the adoption of a new technol-
ogy. People want something that they can easily use. If the device is too complicated, the
majority of the potential users will be reluctant to subscribe to the system.

Wireless Communications Infrastructure Issues
The communication infrastructure enables mobile payment. They are many technologies
today that can support wireless data transfers. In this section, some issues concerning the
infrastructure are described.
The type of network
With all the new wireless communication technology available, the choice of using one net-
work technology over another is difficult. Each technology brings its own advantages and
disadvantages. Therefore, the infrastructure should support the most suitable technology,
depending upon the type of payment. Today, data communication networks (WLAN, Blue-
tooth, ...) and telephony networks (GSM, GPRS, UMTS, ...) bring a new dimension to the
issue. In fact, telcos are confronted with WLAN technology that could be a real threat for
their existing business. Some of the mobile network operators are already anticipating the
potential success of this technology by offering hotspots.
The network coverage
As discussed above, the need for coverage is different depending upon the type of mobile
payment. For example, Bluetooth, RFID or infrared are adapted for proximity payments
(e.g. vending machine) but not remote financial transactions. Then, mobile payment ser-
vice providers have to choose the type of network which provides the most adapted cover-
age to support the payment transaction.

   1. The three first points are considered as technology issues
                                                                       Mobile Payments     23

Other Wireless Technology Issues
The wireless technology brings its own new problem. The fact that data is transmitted in the
air make it more vulnerable to eavesdropping.
Security in wireless environments
Wireless communications present the obvious problem that even unauthorized parties can
access the flow of sensitive data transmitted. There are already some methods that reduce
the risk that unwanted people or devices intercept communication. Natural protections
could simply come from the complexity of the protocol (i.e. frequency hopping). However,
encryption is essential to secure the data. In order to use wireless PKI systems for mobile
payment, improvements in device processing power and network bandwidth will have to be

Mobile Payment Application Issues
Technology issues represent a first limit for the development of mobile payment. Then, ap-
plication is another layer that can slow down the adoption of service. Applications should
respond to the expectation of the consumers.
Micropayments vs Macropayments
A mobile payment solution should be able to support either micropayments, macropay-
ments or both. As discussed earlier, micropayments are a good target for network operators
since credit cards are not adapted for small expenses. However, macropayments generate
more revenues due to the bigger transaction fee that can apply to them. Therefore, macro-
payments are very attractive to most mobile payment service providers. The system should
be adapted to the size of the payment; micropayments have to be fast and convenient, while
macropayments have to be extremely secure.
Proximity vs Remote
Financial transactions can be done either on a face-to-face basis or remotely. Network op-
erators can benefit from a system that allows remote payments since they offer mobile ser-
vice such as ringtones, games, horoscopes and other digital goods. Remote payments can
also be used for e-commerce. Proximity payments enable classic financial transaction be-
tween two parties (B2C and P2P) present at the same place and same time. Mobile payment
providers will have to choose the type of payment they want to support with their system.

Mobile Payment Global Issues
Universality and standardization
One way to promote mobile payments is to offer a universal way to pay. The possibility to
pay anyone, anywhere, at any time should increase the chance of adoption of a new pay-
ment solution. Therefore, financial institutions and network operators are trying to form al-
liances to offer a standard.
The adoption of mobile payment systems depends directly upon who will have to pay the
extra fee. Most consumers would not be willing to pay more without a real value added ser-
vice. It will be very difficult for mobile payment service providers to convince consumers
of the benefits if the cost of using their system is higher than classical solution.
For financial services, there is nothing more important than trust. People will not use a sys-
tem if they do not trust it. Therefore, security and chargeback policies are factors that can
                                                                                                       Mobile Payments               24

improve the confidence of the users. After experiencing a bad situation during a financial
transaction, the consumer will certainly drop mobile payments forever. Moreover, it ap-
pears that consumers prefer to see their financial data consolidated in banks [51]. This
proves that customers care about who control their financial data.
Network operators and newcomers are likely to be the actors most concerned about new
regulation. In fact, banks are already strictly regulated. Mobile network operators tend to
offer more financial services, so they have the choice of either extending their current bill-
ing services, or applying for an EMI licence and becoming a bank [36].

The goals of an issue/actor analysis are to rank the stakeholder’s positions on many strategic
issues, assess the convergence and divergences, and anticipate coalitions and conflicts [43].
This type of analysis can be used to discover perspectives or to support managers to conduct
a negotiation.
Allas and Georgiades propose a five-tool model to help negotiators take decisions on com-
plex issues [5]. They use the three dimensions of position, salience and clout. The position
represents the stakeholder’s preferred outcome on the issue. The salience describes how im-
portant an issue is to the stakeholder as compared with all other issues. At last, the clout
compares how much power the stakeholders have in influencing the decision on an issue.
Another important dimension, influence, should be added to the analysis. This dimension
allows us to estimate the influence that an actor has upon the behavior of another actor.
Some of the above-identified issues will be analyzed under the four dimensions. Tables de-
scribing the actor/issue analysis are used for each selected issue. The goal of these tables is
not to quantify the dimensions but describe the relationship between actors and the issue.

Actor/Issue Analysis: The Device’s Physical Form
The physical form of the mobile device can be debated by the mobile payment service pro-
viders. In fact, depending on the adopted device, some actors will have a disadvantage.

                         Table 16 : Actor/Issue Analysis: The Device’s Physical Form
                                                   Position                                               Salience
Consumers                     The consumers want a device that is easy to carry, Consumers will not use a device that they do not like.
                              solid and eventually something they are already pos- They have to be somehow attracted to the device.
                              sess or are familiar with.                           The form is crucial for innovators and early adopters.
Merchants                     Merchants want a solution that will not cost too much As long as consumers accept the device, they should
                              to integrate to their current system.                 not care about the physical form.
Mobile operators              Mobile operators prefer that the device is a mobile This issue is important for them because if the device
                              phone or a device that would use their telecommuni- does not use their network, they will not be part of
                              cation infrastructure.                              the mobile payment market.
Newcomers/intermediaries They would be content as long as the physical form is Most of these companies are small and flexible, so if
                              compatible with the system they offer.                the device’s physical form changes, they would be
                                                                                    able to adapt. Therefore, they give only a limited
                                                                                    importance to this issue.
Financial institutions        They will be most interested if mobile payments use It is crucial for them to stay on the payment market.
                              a device that can interact with their current financial Therefore, the device form has to be compatible with
                              system.                                                 the current payment scheme proposed by financial
Regulators                    As long as the device is not illegal, regulators have No salience on this issue
                              no position on this issue.
Technology suppliers          Suppliers want their technology to be chosen.         If no one is interest in their technologies, then they
                                                                                    will have to find another business.
                                                                                                            Mobile Payments                 25

                         Table 16 : Actor/Issue Analysis: The Device’s Physical Form
                                                     Clout                                                   Influence
Consumers                     As consumers are the end users, their opinion is very     Consumers can probably influence the other actors
                              important concerning the device. They thus have the       since the service is offered to them. If the device sup-
                              ability to set the standards for usability and features   porting mobile payments is not adapted to their
                              [2]. Their ability to influence the solution of this      needs, then consumers can influence the other actors
                              issue is great.                                           to make them find a new physical form.
Merchants                     Since the support of merchants is required for any Merchants have only a limited influence on the other
                              kind of adoption to occur [2], merchants have their actors. In fact, they are subject to user preferences
                              role to play concerning this issue.                 and demand [2].
Mobile operators              By promoting the use of mobile phones for other Mobile operators depend upon the will of consumers
                              mobile services such as mobile payment, network to adopt mobile phones as a payment device.
                              operators try to familiarize the users with new
Newcomers/intermediaries Because these companies are mostly intermediaries, They do not have any influence on the other actors
                              they will adapt their mobile payment solution to the concerning this issue.
                              current device. Thus, they do not really have influ-
                              ence on this issue.
Financial institutions        Having control of current payment devices such as Since some financial institutions dominate the pay-
                              debit and credit cards, they could have an influence ment market, they could influence the physical form
                              on the demand for payment means.                     of the device if the consumer wants to continue using
                                                                                   their current system.
Regulators                    They could forbid the use of some devices.                They do not have much influence on other actors
                                                                                        concerning this issue.
Technology suppliers          If they provide an adapted device, there would be a Without providing any technologies, no one would
                              greater adoption of mobile payments with the physi- be able to offer mobile payment with any device. So
                              cal form they propose.                              they have a great influence on the business of the
                                                                                  mobile payment service providers.

Actor/Issue Analysis: Micropayments vs Macropayments
Actors can have different opinions on what size of payment they want to support with their
system. Micropayments will generate revenues with transaction volume. On the other hand,
Macropayments fees depend directly upon the size of the payment.

                 Table 17 : Actor/Issue Analysis: Micropayments vs Macropayments
                                                    Position                                                  Salience
Consumers                     They want a system which supports both micro and Depending upon what consumers want to pay, they
                              macro payments.                                  would probably expect a unique mobile payment sys-
                                                                               tem for any amount of money.
Merchants                     Merchants want a system that can handle any size of       Depending upon the price of the goods they sell,
                              payment, depending upon what they sell. For exam-         merchants might want a flexible solution that offers
                              ple, micropayments solutions are adapted for vending      micro and macro payments possibilities. They would
                              machines, but not for purchasing plane tickets.           accord importance if the system does not respond to
                                                                                        their needs.
Mobile operators              Mobile operators have a hard choice to make. They         Mobile operators want to take part in the payment
                              can offer a micropayments mobile payment system to        market to generate some extra revenues. Therefore, if
                              compete with cash or a macropayments system that          they can benefit from either micro or macro pay-
                              competes or uses payment cards (debit/credit). Their      ments they would be happy. However, macropay-
                              position is not clearly defined.                          ments stay the most attractive option for them.
Newcomers/intermediaries They would choose the payment size that gives them Like the other mobile payment service providers,
                              a greater chance to dominate. The market is tight for newcomers/intermediaries are interested to be a part
                              them. They will have to find a way to offer an added of the macropayments market which seems to be
                              value of the mobile payment process. (e.g. security more profitable.
                              for macropayments)
Financial institutions        Financial institutions already dominate the market of It is very important for financial institutions to stay a
                              micro and macro payments. To evolve with the major actor on the payment market either for micro
                              mobile technology and the threat of new payment and macropayments.
                              service providers, they will try to adapt their current
                              system to support mobile micro and macro payments.
                              For that, they could forge an alliance with mobile
                              operators to benefit from their existing infrastructure
                              and customers.
Regulators                    Different regulations have to be made depending The importance that regulators could accord to this
                              upon the size of the payment. Consumers and mer- issue is negligible as long as there is no abusive use.
                              chants have to be better protected from fraud con-
                              cerning macropayments. Micropayments are easier to
                              control and regulate.
Technology suppliers          Technology suppliers have no direct benefits if a sys- Technology suppliers are not directly concerned
                              tem is used for mobile micro or macro payments. about the payment size.
                              They just have to provide technologies that support
                              both sizes of payment.
                                                                                                          Mobile Payments                26

                 Table 17 : Actor/Issue Analysis: Micropayments vs Macropayments
                                                     Clout                                                 Influence
Consumers                    If the payment system is not adapted to the consum- Consumers will probably dictate what they want
                             ers’ needs, there is no chance that the solution will be from the service providers. Then, the mobile pay-
                             adopted.                                                 ment solution will be adapted.
Merchants                    Merchants might be reluctant to accept mobile micro     Merchants can ask the mobile payment service pro-
                             and macro payments if the cost or the risk is too big   viders to design a system that is attractive for them.
                             for them. Moreover, if merchants do not want to         They will not accept to pay and integrate mobile pay-
                             adopt any mobile payment system for any size,           ment terminal at their POS if they have nothing to
                             mobile payments will be only marginal and applied       win.
                             to unmanned POS.
Mobile operators             As long as mobile payments use mobile operators’ Since mobile operators want to take part of the mar-
                             communication infrastructure, they can control a part ket, they probably need to cooperate with the finan-
                             of the process and thus ask for a financial retribution. cial institutions. They could influence the way data is
                                                                                      transferred over a mobile network.
Newcomers/intermediaries Their influence on this issue is almost non-existent. The only influence they could have on the other
                             If they prove that it is possible to offer a successful actors would be a well-designed solution that could
                             mobile micro or/and macro payments solution, then be either taken as an example or be bought.
                             they could accelerate the adoption of mobile pay-
Financial institutions       Having risk management expertise and well-estab-        Financial institutions have a great influence on the
                             lished payment systems, they dominate the micro and     other actors. As leaders on the payment market, they
                             macro payment market. Therefore, they have the          can decide to launch their own solution with or with-
                             choice to decide which system they want to support.     out partners.
Regulators                   They likely have greater influence on macropay- They provide the legal framework concerning finan-
                             ments than on micropayments.                    cial transfers. Therefore, they would draw limits for a
                                                                             payment system that would be offered by mobile
                                                                             operators that are not supposed to offer payment
                                                                             solutions to third-parties.
Technology suppliers         If technology suppliers are not able to design a con-   Depending on the technology they supply, mobile
                             venient and secure system that supports well micro or   payment service providers would consider using their
                             macro payments, the market will be frozen because       technologies to build either a micro or a macro pay-
                             of the low adoption rate of mobile payments.            ment system.

Actor/Issue Analysis: Universality and Standardization
Universality and standardization represent one of the most crucial issues in regards to in-
creasing the adoption of mobile payments. For the moment, no real standards have
emerged. Still, different actors are likely to have different ideas of how they want mobile
payments to be made.

                   Table 18 : Actor/Issue Analysis: Universality and Standardization
                                                   Position                                                 Salience
Consumers                    The consumers want to be able to pay anyone, any- Consumers expect a standard solution. They accord
                             where, and at any time. So without a universal sys- great importance to this issue.
                             tem, the would probably not adopt a mobile payment
Merchants                    Merchants want the solution that will be the most They accord a non-negligible importance because
                             adopted by their clients. They are thus for a standard. they do not want to integrate many heterogeneous
                                                                                     payment solutions in the current systems which
                                                                                     would probably cost more.
Mobile operators             Mobile operators want a standard that is compatible It is crucial for them that the standards enable mobile
                             with their current infrastructure to avoid spending payments through their telecommunication network.
                             money building a new system.
Newcomers/intermediaries They do not really want a standard because they are This issue is important for them because their pres-
                             taking advantage of the fact that mobile operators ence among the mobile payment process can be
                             and financial institutions have not yet provided a optional, even useless.
                             mobile payment standard.
Financial institutions       Because they already dominate the payment market,       By insuring that the mobile payment standard is
                             their standard is widely accepted for traditional and   based on banking or debit/credit cards, they stay
                             digital payment systems. However, mobile payments       competitive on the market. Universality in payment
                             are a challenge because they have to compete or         is pushed by Visa for example.
                             cooperate with network operators to set a standard.
Regulators                   Standardization makes regulation easier to apply. The importance that regulators could accord to this
                             Therefore, the market would be clearer and simpler issue is negligible as long as there is no abusive use.
                             to control. However, the market would lose its com-
                             petitiveness which could give rise to monopolies.
Technology suppliers         Technology suppliers help to develop standards. The Technology suppliers are working hard in hope that
                             one who will provide the most successful technology their technology will be chosen as the standard.
                             will dominate the market because it will become the Therefore, this issue is very important for them.
                                                                                                          Mobile Payments               27

                   Table 18 : Actor/Issue Analysis: Universality and Standardization
                                                    Clout                                                  Influence
Consumers                    They have the ability to set the standards for usability Since the service is offered to them, consumers can
                             and features [2]. Therefore, their influence on this probably incite the other actors to make an agreement
                             issue is great.                                          on the standards.
Merchants                    Since the support of merchants is required for any Merchants have only a limited influence on the other
                             kind of adoption to occur [2], merchants have their actors. In fact, they are subject to user preferences
                             role to play on this issue.                         and demand [2].
Mobile operators             Their clout on this issue is diluted because the others Since mobile operators joined some alliances which
                             actors also take part in the establishment of stan- are trying to provide a mobile payment standard, they
                             dards.                                                  can take part on the decision that will be made. In
                                                                                     return, they offer the customer base.
Newcomers/intermediaries Their influence on this issue is almost non-existent. The only influence they could have on the other
                             Their only chance to survive is to find an intermedi- actors would be their well-designed solution that
                             ary position in the standard mobile payment process. could be either taken as an example or be bought.
Financial institutions       Having control of current payment devices such as Financial institutions created alliances to be more
                             debit and credit cards, they could have an influence powerful on the market that they already control.
                             on payment standards.                                They allow network operators to take part because of
                                                                                  their technology expertise.
Regulators                   They could regulate the way companies do their busi-      They can provide a legal framework in which mobile
                             ness. For example, the solution could be forbidden if     payment service providers have to design their stan-
                             the use of the system goes against the law or is unfair   dard solution. They could intervene if an actor or a
                             to consumers and merchants.                               group of actors becomes too powerful on the market.
Technology suppliers         They are the engine for standardization. Without Depending on the quality of the technology they sup-
                             their research, no technology would emerge as a stan- ply, mobile payment service providers would con-
                             dard. Therefore, the quality of their work in very sider using their technologies to build a standard.

Emerging technologies almost always threaten well-established technologies used to offer
a product or a service. The real challenge for a company is to predict the successes or the
failures of a disruptive technology. Christensen defines a disruptive technology as a tech-
nology or innovation that results in worse product performance, at least in the short-term.
It brings to the market a very different value proposition than had been available previously.
Products that are based on disruptive technologies are typically cheaper, simpler, smaller,
and, frequently, more convenient to use. They generally underperform established products
in mainstream markets [16].
Rafii and Kampas propose a tool that can help to anticipate competitive threats [44]. They
identify six stages in the process before disruptive innovations displace the current technol-
ogy. The six stages are represented in Figure 18.

                              Figure 18 : The Six Stages of a Disruptive Process
At each stage, there are various factors that make the disruption more or less likely to suc-
ceed. To illustrate some of this factors, we use Table 19 as a summary of the library of con-
                                                                                                 Mobile Payments   28

tributing factors developed by Raffi and Kampas.

                    Table 19 : A Summary of the Library of Contributing Factors
                    Stage                                               Contributing factors
        1. Foothold market entry           - population who historically lacked the skill or money to buy
        Can the insurgent gain a foot-     - underserved segments/geographies
        hold (usually in the market        - previously unprofitable low-end markets
        below the main one)                - opportunity to market stripped-down products
                                           - other...

        ...                                ...

        6. Incumbent displacement          - amount of displacement in current markets
        Does the innovation displace (as   - amount of displacement in future markets
        opposed to augment) incumbent      - diversification by the incumbent to limit financial vulnerability
        products and revenues?             - other...

Each contributing factor identified has to be rated with a seven-point scale:
       - 3 = Highly disabling of disruption
       - 2 = Somewhat disabling of disruption
       - 1 = Mildly disabling of disruption
         0 = Neither disabling nor enabling of disruption
      + 1 = Mildly disabling of disruption
      + 2 = Somewhat enabling of disruption
      + 3 = Highly enabling of disruption
Then, because not all factors have the same level of influence, each factor must be weight-
ed. The weight can range from one to three:
         1 = Some influence
         2 = Substantial influence
         3 = Very high influence
Six tables representing each stage should be made (for an example, see Table 20). Each ta-
ble will have a weighted stage score which can be use to measure the forces disabling or
enabling the disruption.

                                 Table 20 : Table To Analyze The Disruption
    Forces disabling disruption Na Forces enabling disruption                               Weight
Factors             -3 -2 -1 0 +1 +2 +3 Factors                           Rating   Weight   score    Comments

Raw column totals                                Average
                                                 Weighted stage score

   a.    Neutral

This approach allow incumbents to detect a potential disruption early and to formulate a re-
sponse to prevent it or, better yet, to turn it into a business opportunity [44].
We propose to illustrate the use of this tool with an example: mobile payment versus credit
cards. However, Table 21 is simplified since only the stage is approximatly evaluated in-
stead of using the weighted stage score that is calculated in each of the six table containing
                                                                                                              Mobile Payments             29

all of the contributing factors.

                      Table 21 : Disruptiveness Profile: Mobile Payment vs Credit Cards
                                  Forces disabling disruption N     Forces enabling disruption
Stage                   Factors                    -3 -2 -1 0       +1 +2 +3 Factors                     Comments
1. Foothold market      unattractive foothold                                   attractive foothold mar- M-payments are used in small pay-
entry                   market(s)                                       X       ket(s)                   ment market like parking meters and
                                                                                                         vending machines.
2. Main market entry high barriers to entry                                     low barriers to entry    Financial transactions regulated
                                                        X                                                depending on the service. Credit
                                                                                                         increases the risk.
3. Customer attrac-     low value added                                         high value added         Lack of standards, not convenient,
tion                                                                                                     few POS equipped. Cost not clear.
4. Customer switch- high costs of switch                                        low cost of switching    Mobile phone already enable m-
ing                                                                     X                                payment (reverse billing SMS,
                                                                                                         USSD, WAP, ...).
5. Incumbent retalia- low barriers to retalia-                                  high barriers to retalia- People are not ready to adopt m-
tion                  tion                                                      tion                      payment in mass. It took more that
                                                                                                          15 years for credit card companies
                                                                                                          to acquire a critical mass of users.
6. Incumbent dis-       low revenue displace-                                   high revenue displace- Credit cards will probably be used in
placement               ment                                                    ment                   mobile payment transactions.

As Table 21 shows, there are many forces that disable disruption, such as the fact that credit
cards are well-established, and that financial institutions are already thinking about mobile
payments. Therefore, credit cards will probably be used in mobile financial transactions.
However, credit cards will only be used for mobile macropayments.


Paybox AG was founded in July 1999. After a pilot phase in December 1999, paybox
was launched in May 2000 in Germany [23]. Deutsche Bank owns 50% of the company and
is responsible for payment clearing and settlement. Companies partnering with Paybox in-
clude Deutsche Bank (payment processing), Lufthansa Systems (central computer and data
security), Oracle (software), Compaq and Hewlett-Parckard (hardware), and Intershop (e-
commerce systems) [14]. Moreover, Paybox claims a world patent on its authentication and
identification system for payments to prevent start ups from imitating the Paybox system
[7]. Paybox is also available in other countries, such as Austria, Spain, Sweden and UK.
Paybox is an open and neutral -- i.e. not tied to a particular network or bank account -- pay-
ment intermediary aiming at banks independent from telecom operators [13]. For the mo-
ment Paybox only processes direct debits, which is cheaper than to process than credit card
payments. Therefore, funds in Paybox transactions are drawn not from credit cards, but
from the customer’s bank account [14]. Moreover, the system does not depend on PKI-
structures and transmits the PIN now via DTMF-procedures (Dual Tone Modulation Fre-
quency), but could migrate to a PKI-structure if widely available [23].
To describe the Paybox scheme, we propose to use the simple table (Table 9) that we de-
signed earlier in this paper.

                                        Table 22 : A Simple Description of Paybox
    Name                                                                                Dimensions
   Of The             M-Payment Solution
                            Type                 Mobile Payment Solution Providers     Relationship       Location         Payment Time
   System           Client- Server- Hybrid        MNO        Financial Newcomer/       B2C       P2P    F2F    Remote     Pre   Direct Post
                    based based                             Institution Intermediary
   Paybox                      X                              (X)           X           X        X       X        X               X
                                                                        Mobile Payments      30

Paybox is a server-based solution because the system links a mobile device or subscription
to a separate bank account or credit card that has been pre-registered with the payment ser-
vice [29]. Since Paybox uses direct debits and Deutsche Bank practically owns Paybox, we
have to include financial institution to the m-payment solution provider even if it is indirect.
However, we must underline the fact that Paybox represents a perfect example of how a
bank is trying to control the entire value chain of mobile payment. In fact, mobile network
operators provide their communication infrastructure but do not take any active task in the
payment transaction.
To subscribe to the Paybox service, consumers have to fill out a form. Once the application
is approved, the consumer can use Paybox for a range of transactions, including [14]:
   • Payment for e-commerce
   • Person-to-Person (P2P) transaction (i.e. the user can send money to another
      individual in any country where Paybox operates)
   • Payments to bank accounts (i.e. for bill payments and P2P transactions with
      non-Paybox users)
   • Payments in the mobile world (e.g. in taxis and for delivery services).
The customer’s requirements for using Paybox is the possession of a mobile phone, a bank
account and a Paybox registration.

                                Figure 19 : The Paybox Scheme
The typical payment transaction using Paybox would go like this:
      1. The customer gives his or her mobile phone number to the merchant
      2. The merchant transmits to Paybox the phone number and the price
      3. Paybox calls the customer and a voice message asks for authorization of payment
      4. The customer authorizes the payment by entering his or her PIN
      5. Paybox informs Deutsche Bank to settle the payment via the traditional payment
         system (direct debit)
      6. The transaction is confirm by an automated voice or SMS.
The advantage of such a system is that only the mobile phone number, not the bank account
number or credit card details, are transmitted. Moreover, consumers can even request a Pay-
box alias phone number if they do not feel comfortable giving their mobile phone number
to merchants. Therefore, Paybox tries to improve the customer’s trust and payment security.
The current business model is to charge a small consumer subscription fee (5 euros per an-
num) and charge merchants for each transaction with an average commission of around 3
percent, which is comparable to credit cards [30].
                                                                        Mobile Payments     31

At the end of the year 2002, Paybox attempted to find new partners to secure its future. In
fact, Paybox looked for 10 million euros in external fundings to provide operating cash and
potentially to replace Deutsche Bank’s dominant holding [32].
On 23 January 2003, Paybox announced that it had failed to find new partners and funding.
Consequently, it will wind down its mobile payment processing activities in all countries
except Austria, where Mobikom Austria will take on the business [31]. Paybox will actually
become a new company (Paybox Solutions) which will supply technology and services for
mobile payment systems.
Gartner’s diagnosis for Paybox’s failure is the lack of demand due to the slow growth of m-
commerce in Europe, the European economic climate and the fact the mobile payments do
not yet offer a sufficient advantage over conventional systems such as credit cards [31].
Moreover, Paybox cited the slow development of the market and the industry’s lack of co-
operation -- particularly among banks and telecoms operators -- as the major factors behind
the decision to exit the UK market [58].

In this section, we propose a mobile payment scenario. The solution described offers to re-
tailers a product named JoinKey [40] that integrates the use of a membership device en-
abling mobile payment and a customer management website following a one-to-one e-
marketing strategy based on data mining. The objective of this scenario is to show that mo-
bile payment can improve business processes and customers’ loyalty.
Description of the system
JoinKey consists of an integrated mobile payment system that uses Bluetooth wireless tech-
nology to communicate to enable cashless proximity payment. Customers will get a small,
light device that can be attached to a keyring. This device contains a Bluetooth chip and
enough memory to keep an encrypted account number. As Bluetooth consumes very low
power, the battery should last, especially because the device will be offline most of the time,
and the power switch will only be activated when the consumer needs to use the device to
As cash registers become more sophisticated, the possibility to plug a USB Bluetooth an-
tenna or an additional wireless-enabled touchscreen seems to be feasible. Whether the mer-
chant adapts the current system with the addition of antennas and update the software of the
current point-of-sale terminals or buy new touchscreens, the benefits will hopefully be
greater than the cost of the infrastructure.
Most existent point-of-sale solutions are already connected to backoffice infrastructure.
Generally, retailers use the data coming from the cash registers to manage the inventory.
Some membership programs enable the merchant to offer coupons but also analyze the cus-
tomers’ behavior. In sum, the JoinKey system does not require a considerable investment.
The solution will integrate the existing network and software infrastructure, but if the re-
tailers do not use any datawarehouse, then the acquisition of such software will be required.
The retailers then have to adapt their current website with a dynamic content engine. The
information published on the website would be different for each consumer. The role of the
website is to access the JoinKey account to update the amount of money charged on the ac-
count, to add allowed users of the JoinKey and to see past purchases history. Moreover,
there could be some coupons and advertisements available on the website to increase the
                                                                               Mobile Payments          32

consumers’ loyalty. Figure 12 shows how the infrastructure works.

                               Figure 20 : The JoinKey System

JoinKey’s Benefits
The JoinKey solution addresses a lot of the current problems of mobile payment. We pro-
pose a table (Table 23) exposing the main benefits of the JoinKey system.

                               Table 23 : Benefits of JoinKey
Simple                    The payment process is very simple with JoinKey. First, the user arrives at the
                          cash registers, then clicks on the power switch. The account number of the
                          consumer will be transmitted to the wireless-enabled point-of-sale terminal.
                          Once the retail employee authenticates the person (photo-based recognition),
                          the cash register gives a receipt to the consumer.

Fast                      JoinKey simplifies the process by decreasing the number of operations the
                          consumer and employee has go through.

Secure                    During transmission, only the encrypted account number will be transmitted.
                          This diminishes the risk of credit card fraud. In fact, the credit card number is
                          only transmitted during the update of the account on the retailers website.

Convenient                Instead of having to have the wallet and credit card ready while packing the
                          goods into bags, the customer only has to press a button.

Personalized              Subscribing to the JoinKey program enables the consumer to get personalized
                          offers and rebates. The retailers will therefore increase the loyalty of their

Multifunctional           JoinKey combines a means of payment and a membership card.

JoinKey’s Limitations
A few things can limit the adoption of such a system. For example, privacy could be one
problem. Therefore, we think that the fact that consumers can have access to their purchas-
es’ history and can also take advantage of such a system by finding better offers and cou-
pons, will limit the impact. Another problem comes from the fact that not all consumers are
familliar with new technologies such as the Internet. JoinKey is not a universal means of
payment, which makes it less likely to succeed in the payment market. However, since retail
stores already offer other non-classical payment schemes, there is a market for JoinKey.
                                                                       Mobile Payments     33

JoinKey Summary
JoinKey is an ideal infrastructure that retail stores can integrate into their current system.
The benefits are great and the cost of implementation is reasonable. This case study had the
objective to demonstrate that mobile payment can be a part of the value proposition without
being the only value added service from which a customer can benefit.

After reviewing the market with the proposed tool kit, we have a better understanding of
what the benefits and the issues of mobile payments are. As we could see, the market for
mobile payments is very immature, unpredictable and open for competition or collaboration
between mobile payment service providers.
The most likely scenario to pass will be that mobile network operators and financial insti-
tutions will collaborate to offer a standardized solution. However, it seems as though Euro-
pean customers are not yet ready to adopt en masse such a payment scheme.
In the meantime, mobile payments could possibly be offered for some niche services, such
as vending machine or parking meters. For now, mobile payments solutions would be most
accepted by consumers for e- and m-commerce.
Even if most of the current issues of mobile payment are solved, there is nothing that guar-
antees that consumers will adopt such a means of payment. Therefore, it is too early to pre-
dict what is going to happen on this market since even the mobile payment service providers
are still looking for a standard solution that would be accepted by everyone.
                                                                                    Mobile Payments         34

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                                                                                                Mobile Payments            36


Devices without any Payment Applications
For these devices a mobile payment can be made using the following mechanisms:
   •    Site wallet
   •    Remote wallet
   •    Distributed wallet
   •    Network operator specific mobile payment

                         Table 1 Device without payment application: Site wallet
Site wallet
Description: A site wallet is a personal profile, containing bill-to, ship-to and credit card data that can be used only at
individual Web or mall sites. The user is required to register with the merchant with his/her personal profile.
Advantages: – A site wallet helps frequent visitors by storing the profile data they enter for reuse later.
            – No wallet software is needed at the client side.
Disadvantages: – A site wallet can be accessed only when the user is logged onto the service affiliated with the site wallet.
                – As no site is alike, one needs to remember the user-id and password individually.
               – Sites wallet generally supports only one payment instrument; they cannot support smart cards and PINs.
                – Users must entrust their personal profile to individual site they registered, which increases the risk of
                  profiles being exposed to hacker.
Existing Applications:, Yahoo, eBay,, Aether, Verisign (E-Visa)

                      Table 2 Device without payment application: Remote wallet
Remote wallet
Description: A remote wallet is a payment service that can generally be used only within a community of merchants hold-
ing a relationship with a service provider or through specific browsers or service providers. Remote wallet payment is cur-
rently the most widely deployed mechanism for mobile payment.
Advantages: – A remote wallet allows the user to store multiple payment instruments.
            – No wallet software is needed at the client side.
Disadvantages: – To use a remote wallet, both consumers and merchants must be enrolled with the service provider.
               – A remote wallet can only be used only when the user is logged onto the service.
               – Remote wallet does not support smart cards or PINs, as required for many international debit cards.
               – Remote wallets hold potentially thousands of card numbers and as a result are “fat target” for criminals.
               – Remote wallets are very expensive to establish and operate.
Existing Applications: Qpass, PayBox (similar to System @ Work), Paypal (Via e-mail), Fundamo (using telephone num-
ber), PayWare (WAP based), InstaBuy

                    Table 3 Device without payment application: Distributed wallet
Distributed wallet
Description: A distributed wallet uses software on the end-user’s machines and on Internet wallet servers to make pay-
ments. It is a hybrid of remote and personal wallet. The client functions are limited to negotiating the protocol for connect-
ing to the server and authentication.
Advantages: – Can support smart cards and PINs.
           – Merchant may not need to subscribe to the distributed wallet service if the wallet client support stand-alone
              payment transaction using SET protocol.
Disadvantages: – Distributed wallets are much more complex than remote wallets and depend on longer messaging chains
                 across potentially disparate environments to operate successfully.
               – No protocols exist to enable the client portion of the distributed wallet to interface with multiple servers.
                 The current one-to-one approach limits the end-user’s payment options.
Existing Applications: GlobalSET specification
                                                                                           Mobile Payments           37

           Table 4 Device without payment application: Telco specific mobile payment
Network Operator Specific Mobile Payment
Description: Here, the network operator acts as the billing provider. The charges for the service are added to the sub-
scriber’s telephone bill.
Advantages: – Uses existing account for payment.
Disadvantages: – Network operator specific payment. Roaming issues.
               – Usually small amount allowed
Existing Applications: SmartTrust, SingTel (Softdrink vending machine)

Devices with Payment Applications
For the second type of devices (devices with payment application), to make a mobile pay-
ment, the following mechanisms can be used:
   •    Personal wallet
   •    Electronic purse
   •    EMV
   •    Telco specific mobile payments

                      Table 5 Device with payment application: Personal wallet
Personal wallet
Description: A personal wallet is software/hardware that runs on the consumer’s device. No wallet server is involved and
no server operator is required. The personal credit information is stored locally.
Advantages: – Low cost to implement.
            – Able to perform offline profile management.
            – Can support advance security methods.
            – Can support smart cards and PINs.
            – User controls all card and personal information
Disadvantages: – Storage size requirement.
Existing Applications (e-commerce based): IBM Consumer Wallet (e-commerce, SET based), Gator (Only assist user in
filling up forms), eWallet from Ilium Software

                      Table 6 Device with payment application: Electronic purse
Electronic Purse
Description: Electronic purse is a system, which caters to reduce consumer reliance on cash and check especially for low
value purchases. It uses smart card technology to store pre-paid monetary value.
Advantages: – Ease of use
            – Flexibility - Multi-currency capability, Pay person to person
            – Reducing the handling of cash and cheques for both bank and retailer
Disadvantages: – Usually only for small amount transaction
               – No global standard
               – Bank centric
Existing Applications: Proton electronic purse by Banksys, Visa Cash, Mondex, Manmont
                                                                                               Mobile Payments            38

                              Table 7 Device with payment application: EMV
Description: Europay, MasterCard and Visa (EMV) is a set of specifications to ensure interoperability
between chip card cards and terminals on a global basis. It is used to store payment application.
Advantages: – Promoted by MasterCard and Visa
            – Smart card based
Disadvantages: – A payment server is needed to manage the interface with the merchant, client and acquirer.
Existing Applications: Nokia EMPS using ENV/SET, EMV compliance bank card from SUMITOMO

              Table 8 Device with payment application: Telco specific mobile payment
Network Operator Specific Mobile Payment
Description: Here, the network operator acts as the billing provider as the bill is added to the subscriber’s telephone bill.
The payment application is incorporated into the SIM card provided by the network operator.
Advantages: – A single SIM card is needed only
Disadvantages: – Telco specific payment. Not all the Telco provides such a service
Existing Applications: Telecom Italia Mobile (using SAT)

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