Just like the beginning of the SMS whirlwind - all that’s needed is a trigger.The market is still learning, but considering the fact that millions upon millions of people are placing calls and sending SMS’s from their mobile phones every day - all that subscribers need is one single good reason, an incentive, from their mobile operator, to start making M2M payments and the market will take-off.Mobile operators can become the bankers of the future, and increase loyalty, ARPU, and profitability by offering M2M payments.

Becoming the Bankers of the Future

Mobile operators could become “the bankers of the future.” Mobile operators already have large subscriber levels, perform millions of billable transactions a day, and most importantly, are trusted. The foundations of mobile commerce are currently being laid and the market is expected to take-off within the next few years. Many people have an interpretation of what mobile commerce will entail, however few have a shared view. For the sake of clarity, and because it is one of the first steps along the path to a comprehensive mobile commerce offering, this paper will concentrate solely on mobile-to-mobile (M2M) payments.

The groundwork for offering M2M payments has already been laid: you have a mobile subscription. This enables you to make phone calls, send SMSs, access WAP sites (if your handset is capable), receive content – all of which you will pay for either now or later. Your mobile has become an important element in your life, as it has become for millions of people worldwide, and going without it is like going out without your shoes on – something is missing.

In many ways, your mobile subscription is already like a “bank” account for you – you have to manage and maintain your account with the mobile operator to continue receiving service. Extending your mobile subscription to enable the transfer of funds from your mobile phone account to another means that a mobile operator effectively becomes the middleman in a mobile payment transaction. Just like your bank offers you a debit or credit card when you open an account, mobile operators could use M2M payments to entice new subscribers and keep existing customers from straying.

M2M payments are the first step toward offering extensive mobile commerce services. Unisys M2M payments allow mobile subscribers to buy from and borrow from other phone users. It also allows customers to lend to and pay back other phone users.

 How do M2M payments work?

Say you want to go to lunch with a friend, but don’t have any cash. You both are hungry and don’t want to make a big detour to the ATM. Your friend agrees to “lend” you €5 cash for lunch. You have set yourself up with M2M payments, and can therefore pay him back by dialling your service, and transferring €5 to his mobile number. After the Unisys M2M payments system verifies you have an account, and sufficient funds in it, the system transfers the funds and notifies you and your friend of the successful status of the transaction. If your friend does not have an account, the system (optionally) creates one, and makes a notification to him either with SMS or as a phone call.  This means any mobile user can have an account, and you can pay to anyone, even if they have not yet subscribed.

But this also works for purchasing goods and services…

The sound of your Gold Card sliding through a reader to complete a transaction may be music to the ears of most brick-and-mortar merchants, but not for the pizza delivery man or taxi driver. For these people, mobile transactions generally mean cash. But with your mobile, you can now transfer the money you owe to their mobile phone number. You simply dial the service access code (for example, 4321) and transfer the funds to his mobile number – or he can call the access code and instruct the service to call you to ask for payment, and you enter your secret code to agree to the withdrawal.

If you are the pizza delivery man, you have the ability to transfer funds to your usual bank account on a regular basis. By using the M2M payments service, you also have a more secure way of ensuring you have the funds, without the risk of robbery by carrying large amounts of cash.

When you make an M2M payment to the pizza man, the system checks that you have a valid account with sufficient funds, the pizza man is legitimate and you are not being ripped-off. The system then transfers the specified amount to the pizza man and notifies you both of the successful status of the transaction.

Link this service with prepaid accounts, and it can easily be used to add to prepaid accounts without the hassle and expense of scratch cards. Special accounts can be offered whereby a merchant can pay for an amount of airtime, and earn his commission with every recharge he does or by being awarded a bonus each time he sells more airtime to a customer. For example, a merchant buys €1,000 worth of recharging, he only pays the mobile provider €900. However, his account is loaded with €1,000 and when a customer pays for airtime, he receives the cash directly, and keeps the difference. The system then notifies both about the status of the transaction.

 But haven’t m-Payments been tried before? There have been many mobile commerce trials lately, largely focussed on Internet purchasing. These trials – which some think is the only definition of mobile commerce – have cast a pall on many mobile commerce initiatives. Nevertheless, some modest successes have been experienced with these kinds of service. It will be mass-market adoption that will signal the beginning of the next “killer application.”

 And Unisys M2M payments will help unlock mass-market adoption because

• The service does not rely on only one network – anyone with a mobile can
  use the M2M payments service, meaning you benefit from the “snowball”
  effect.
• It uses simple, familiar interfaces such as placing a phone call, using IVR,
  and SMS.
• Subscribers and merchants are assured of increased security since it is less
  risky than carrying cash.
• Average time taken to notice your phone is lost or stolen is 68 minutes.
  versus average time of 26 hours to notice a lost or stolen credit card.
• It can remain an anonymous service for prepaid users.

The market is evolving

The change in subscriber lifestyles means a change in the way services are used and valued. It means a change in how and what subscribers will do with the services provided to them. Ultimately, it means a change in what future services will be possible.

M2M payments offer tremendous opportunities to mobile operators and service providers. However, at the same time, it is establishing a new set of challenges for
these players, for example:

• Subscribers will expect more from their services;
• Operators will have to “learn” about what the new business rules
  will be for M2M payments
• “Time to Market” is defined differently, and gains another level of
  importance.

These new opportunities add another dimension of uncertainty on how the market will evolve, i.e. what services will be required in the future to serve subscribers’ needs best. This following will give an overview of what this change means, and how
M2M payments will be adopted.

 A Time of Change

To be a mobile service provider in Europe, it is necessary to be prepared for change. The mobile market in Europe is changing rapidly and changing dramatically. 

 In just a few short years, mobile penetration has increased beyond most service providers’ optimistic predictions, and this has meant a significant effect on the way people communicate. Network technology is bringing the possibility of using the mobile for more than just telephone calls, and with new network technologies, analysts are predicting further increase of mobile usage.

One of the most significant changes in the communications industry in the last 50 years is occurring in Europe right now, propelled in part by the introduction of GPRS and UMTS networks. By adding data to mobile communications, the telecommunications industry will change again.

Paving the way to the future

Directive 2000/31/EC of the European Parliament (8 June 2000) enables all companies and organisations the ability to provide financial services to their customers. This landmark decision will foster the growth of electronic and mobile commerce in Europe. Mobile operators such as Orange and Vodafone in the UK have already applied for banking licences, Vodafone and T-Mobile in Germany have plans to offer a co- operative mobile payments service in future, and more service providers are threatening to enter the market of mobile payment services.

The first step toward subscriber acceptance is by introducing a simple, convenient
service such as M2M payments.We are now presented with a unique situation where banks and mobile operators may be competing for the same slice of pie. The revenues from the M2M payments market, and related benefits such as strengthened customer loyalty for example, are there for the taking. Furthermore, if you consider the ‘romance’ we have seen with consumers and their mobile phones over the past couple of years in particular, it seems only natural to keep building upon existing mobile services and creating new and exciting ones.

Once M2M payments are available, it is logical to extend the service further. Merchants can profit from mobile payments by reducing costs and fraud. Vending machine and parking meter operators, for example, could minimise expenses associated with handling cash and vandalism. Furthermore, certain mobile payment providers will deliberately offer lower commission charges than the credit cards, which could save large merchants significant amounts. It can also be cheaper and easier for merchants to register for mobile payments than it is to register for a credit card terminal. Hence, subscribers will find they can use their mobile phone to pay in places that previously only accepted cash. Additionally, these merchants will boost sales by providing an additional payment option to their customers. Surveys have shown that mobile payments have directly resulted in a sales increase of 20%.

Generating Revenue, Creating Profit

Now that you have decided that mobile commerce is the killer application of the
future, the most important point needs to be addressed: “Show me the money”

Revenue is earned in three ways

• Fees associated with use of the service
• The amount held in the service (cash held), and associated interest and
  investment income, or lowered cost of borrowing
• Settlement time between the service and external calls on the money

There are several ways in which a mobile operator could charge for such a service, and we have designed our application to enable one, all, or a mix of factors to suit all business models, such as:

• Subscription fee
• Airtime call costs
• Monthly fee
• Transaction fee (flat or scaling)
• Percentage of the amount transferred (with minimum value option)
• Account inactivity fee

Of course, all of the above can be threshold driven.

To realize revenue, you can imagine several scenarios from the subscriber’s perspective...

Paying someone back - Say you are transferring the money you owe to a friend. You have €50 in your M2M payments account. You dial the access number to the service to arrange for funds to be transferred to your friend’s mobile phone number.

• You pay the airtime charges to access the service

Borrowing money - You want to borrow €25 from your mother so that you can buy a pizza with some friends. You dial the service and request funds from your mother’s mobile number. Your mother is notified of the request, and she accepts. You receive the funds, less a service fee.

• You pay the airtime charges to access the service
• You pay a set amount, which is deducted from the amount
  transferred to you

Merchant account - You have a merchant account, and people are transferring funds to your account. You pay 2% of the value of all the transactions to the service provider, and once a week you have the funds in your account transferred to your current account at your usual bank.

• You pay a one-time subscription fee to have the service
• You pay a percentage of the value of all sales made using this
  service, which is less than if you had a credit card facility, and more
  convenient than having to handle cash and stand in line at the bank
• You pay an additional fee if you want money transferred to your
  bank account more frequently than once a week
• Optionally, if you call to request payment, you pay the airtime and
  a flat rate transaction fee, plus the percentage of the sale value.

Given the current levels at which merchants are charged for their cash handling, credit card facilities, and banking, M2M payments represents good value to them. For example, some banks charge for cash handling, plus there are problems with security (having to hire armed guards or specialist companies to transfer funds), employee theft (skimming), time taken to count the cash, and so on, all of which add to the cost of accepting cash.

 The Mobile Landscape

The mobile market has exploded onto the scene over the past 2 - 3 years, and in particular – the prepaid mobile phone market.

There is an established and thriving set of subscriber segments, ranging from the under 12’s and teenagers to young adults (18-25), professionals and the retired.
Worldwide, there are almost 1 billion mobile phone users. It is estimated that 600
million of them are GSM users. Voice has obviously been the most popular basic service globally, but a range of additional services have been taken-up positively and have flourished, perhaps even surpassing basic voice usage for some subscribers. For example, text base services have been adopted aggressively and have flourished, making up to 20% of an operator’s revenue.

Asia – Pacific* (specifically Japan, China, Korea)

Very much seen as the early adopters of new. The m-Internet has really taken off here with millions of people accessing and paying for content related services every day.

*Source: TowerGroup Research

North America*

While having a huge audience and enormous potential subscriber base, North America is possibly viewed as being a follower rather than a leader in the space of additional services. Mobile phones / voice and 2way pagers still dominate the telco market however in terms of Internet usage, the PC still dominates over all.

*Source: TowerGroup Research

Europe

SMS is the killer application. Billions of SMSs are sent EVERY MONTH worldwide. In the UK alone in January 2002, 1.4 billion SMSs were sent.

Research Highlights

The mobile world revolution is on the horizon…

• “The European m-Commerce market is expected to grow from € 323 million last year (2000) to € 23 billion by 2003” Durlacher Research Ltd.
• “The value of goods and services bought and sold over mobiles will be $ 13 billion by 2003. This figure will contribute 7% of all consumer e-Commerce by that time” Analysys
• “Estimates for the total worldwide m-commerce market by 2005 range from $64.4 billion to $210.8 billion” Global Mobile Commerce Forum

Ben Donnelly, Research Analyst at Frost & Sullivan, notes that it is more a question of how and when, rather than if, mobile payments will gain mass market acceptance. “Analogies can be drawn with the introduction of credit cards 50 years ago, currently the principle alternative to cash. They were perceived as a niche product and unnecessary luxury for many years until global technology standards made them viable for the mass market,” he says. Mobile payments enable impulse or last-minute purchases, as well as traditional shopping, but also booking and paying for tickets, and managing stock-trading or financial transactions.

Market Demand

On the demand side, there are a range of societal trends within the consumer sector which have been augmented by the increasing take-up and usage of mobile telephony.

These include:

• The demand for increased personal productivity and its impact on the
  quality of life. Mobile telephones offer the user the opportunity to make
  use of what might previously have been considered ‘down-time’, like
  commuting or waiting to meet up with a friend.
• The increased public concern of personal and family security,
  especially given the increases in crime. The mobile telephone gives many
  consumers greater freedom to travel alone or make journeys they may not
  have previously considered, because they have the ability to call for help if
  necessary. It has also given children greater freedom, and their parents’
  greater peace of mind in allowing them out. For elderly people, mobile
  telephones have been designed which provide a panic or emergency button
  to summon assistance easily and from any location. Such a service is
  preferable to many alternatives because it operates outside the home.
• The increasing acceptance among the young of high technology and
  consumer electronics goods, coupled with an ever-present awareness of
  fashion trends. The mobile telephone has found a perfect niche among the
  12 – 25 year old age group, which has responded to the scope it offers to
  keep in touch with friends, to play games and to act as a fashionable
  accessory. In some countries, this age group has also made extensive use of
  features such as the short message service (SMS), which is part of the GSM
  service set, to exchange jokes and stories with each other.

 Future direction, target market

In Europe, the “acquisition phase” of the mobile market is coming to an end, and mobile operators are looking to lure their competitors’ subscribers to their company.

This is currently causing “me-too” services that are not providing significant differentiation, and ultimately leads to price wars, which means pressure on profitability. Retaining subscribers means increasing loyalty. To increase loyalty, market segmentation is key. While the success of the M2M payments service will be when the mass-market adopts it, it is essential to “hook” the early adopters in order to achieve the critical mass necessary to get the M2M payment service rolling.

Reports show that smoking is not as cool as having a mobile – so sales of cigarettes are dropping! The youth market clearly values mobiles over other forms of “looking cool” – research has shown that there is a significant decline in the purchase of cigarettes – and this has been attributed to youth preferring to spend their money on their mobiles. Teenagers are a unique target market who will benefit most from an M2M payments service. Additionally, teenagers pick up new services very quickly.

If you are under a certain age, you are unable to have a credit card. Most can only have a “special” bank account with limited facilities. This limits the payment choice of many young people to primarily cash. Yet, this same group have a high disposable income. In fact, 70% of young people living at home receive an allowance. Research by Youth Monitor, a syndicated service of Nickelodeon and Yankelovich Clancy Shulman concludes that allowances average at €64.22/month (US$56.54 or £35). And, an allowance only represents 45% of their income, which means a disposable income of over €140/month. Imagine how this will contribute to ARPU if they deposited all their allowance into their mobile account. With a disposable income of over €140/month, the youth market is the perfect catch for M2M payment service.

Youths save, on average, one third of their income for specific items they want to buy. Add to this the fact that the average number of shopping days a year for the youth market is over 200 days. This means there is a clear benefit for them to use a secure M2M payment service for storing their money safely, and ability to make payments without the fear of having their cash stolen. Additionally, this same teen market has a high level of mobile penetration.

There are two key elements that concern teens

• Access – the phone itself, as well as the ability to achieve what they
  want with the service
• Security – physical security is an issue for the teen market segment, as
  well as emotional security.

By offering an M2M payments service, youth have a safe place to “store” their cash. This will help promote both physical and emotional security.

 By Susan Bushe

http://www.unisys.com/