Abstract– This post was originally published on 26-October-2014 on Linkedin portal (Click here to read on). In current times, almost everyone has a mobile handset/device in their hand but these devices may differ in type/model/form. Some devices are equipped with more innovative features and enhancements which help daily life to ease down on some front. In the previous article I wrote about the emergence of the Apple Pay feature, this time I am going to deep dive into the topic of Mobile payments as an alternative payment method. Instead of paying with cash, check, or credit cards, a consumer can use a mobile device to pay for a wide range of goods and services.

Mobile money, compared to cards that can be cloned / copied or are prone to fraud and cash that can be lost or stolen, is still rates the safest. The key to mobile money security is to make it easy to use but also as secure as possible. Mobile wallet blended with hardware level security can be best mix for security. The recharge service is the most common type of payment system where one exchanges monetary value in return (Airtime Value) for the ability to make voice/sms/data calls. In one way or another, today’s mobile money transfer service originated from Airtime where one can do a P2P transfer of Airtime which cant be en-cashed but used for one of the telecommunications purposes i.e. voice / sms / data calls..

Introduction – In a speech titled “Issues in payments systems”, Reserve Bank of Australia Governor Glenn Stevens likened the project to “building a piece of national infrastructure” and said every opportunity should be taken to increase its potential value to the nation (Reuters reported). Visa Poised to Invest €200 million a year in New Payments Technologies (Clear here to read on). Most of us usually makes 20-30 payments in a month. Valu of each payment can differ and can be categorised as either micro or macro payment.  The micro payments space has been highly lucrative hence we have seen many players venturing into this segment with the latest entrant being Apple which is now jostling with older players like PayPal. Mobile Money Players (e.g. FeliCa of Japan) and Plastic Card companies (Visa and MasterCard) around the globe are also jumping into the micro payments space.

Main Story – Mobile payments are being adopted all over the world in different ways. In 2008, the combined global market for all types of mobile payments was projected to reach more than $600B by 2013 which would be double the figure as of February 2011. The mobile payment market excluding contactless NFC transactions and money transfers is expected to exceed $300B globally by 2013. Nigeria To Attain 80% Financial Inclusion By 2020 as per ventures Africa report. We can imagine how much that would drive on Mobile.In Kenya it’s now possible to pay taxes via mobile money. According to a recent report in Mobile Money Africa, mobile operator Airtel has partnered with the Kenya Revenue Authority (KRA) to introduce the new service.

Money in MobileIn developing countries, mobile payment solutions have been deployed as a means of extending financial services to the “unbanked” or “under banked” segment of the population which according to the Financial Access 2009 Report “Half the World is Unbanked” is estimated to be as much as 50% of the adult population. Due to the financial standing of the people involved, these payment solutions are often used for micro payments. The use of mobile payments in developing countries has attracted public and private funding by organizations such as the Bill and Melinda Gates Foundation, USAID and MercyCorps. Consumers expect that new technology will continue to facilitate the convenience of carrying out daily and repetitive payment related tasks, for example, an area that is still generating a great deal of attention is the use hard cash in conducting commercial and personal daily payments. It is now widely expected that some new pervasive technology-based solution should be introduced to minimise this problem.

Consumers demand that whatever the ultimate nature of new technologies, processes or products, they should not add any significant shortcomings to the existing solutions but are supposed to bring improvement. Furthermore, although there are already some service offerings capable of substituting cash, so far no technology or service has achieved the necessary acceptance to become a true alternative primarily because new burdens that consumers were not ready to accept were added. Since mobile devices have achieved full market penetration and rich service levels, they are an ideal channel for payment instruments. The usage of the mobile device is hereby primarily considered for payment initiation whereas the underlying payments are based on existing payment instruments.

While the “Year of Mobile” remains elusive for advertisers, To do so will require financial institutions and Mobile Network Operators (MNOs) to work together with regulators on a country-by-country basis. Smartphones, tablets, and, in the near future, watches, eyewear and other wearables, will emerge as new points of sale. Online retailers with a well planned, flawlessly executed, and tightly integrated mobile presence stand to gain the most. More impulse buys come from mobile, with clothes, books, and music noted as leading impulse buys. In 2014, mobile commerce was expected rise to $57 billion (Google as source). By 2017, mobile is poised to represent nearly a third of all digital sales at $115 billion (Google as source). In 2013, physical and digital retailer, Target raked in 43 percent of its digital sales from mobile-only users (Read more)

it appears to have already arrived for e-commerce. Smartphone and tablet users are more likely to visit a retail website or app than desktop computer users, and more than a third of visits to the top 50 e-commerce sites come exclusively from mobile devices, according to a new study from analytics firm comScore. In June, 91% of tablet users and 90% of smartphones users accessed a mobile e-commerce web properties. That’s compared with the 78% percent of desktop web users that accessed e-commerce sites. The importance of e-commerce on mobile devices is further reinforced the study’s finding that 35% of visitors to the most popular e-commerce sites only access those websites from mobile devices.

“Retailers who do not (at a minimum) optimize their mobile browsing experience or introduce mobile apps are effectively turning away a third of their potential customers,” comScore said in a blog post about the study. The mostly used technologies in mobile payments are plain sms, encrypted sms, USSD, GPRS under GSM, CDMA and 3G umbrella but currently the majority of interbank mobile fund transfer transactions are channeled through the NEFT system. Under NEFT, transactions are processed and settled in batches hence are not real time. Also, the transactions can only be done during the working hours of the RTGS system except in a few markets like Kenya where funds transfer from mobile wallets to bank accounts are almost conducted in real time, for example if Mr. X (who also has a Mobile Wallet) needs to pay 500USD from his bank ABC account in real time to Mrs. Y in her bank ZYX account; Mr. X will pull funds from his bank ABC account to his Mobile Wallet in real-time then he will push funds directly to Mrs. Y in her Bank ZYX bank account in near real time fashion.

In recent development US bank-backed ACH The Clearing House is to undertake a multi-year effort to build a new real-time processing platform, as the country finally begins to get to grips with its antiquated payment systems as digital economy moves in real time and our customers expect us to keep pace,” says Richard Davis, chairman, president, and CEO of US Bank and chairman of The Clearing House. “We will work with the industry to build a real-time payment infrastructure, which will enable consumers to pay and get paid securely and conveniently.” To overcome the above constraint and after carrying out a pilot study involving some select banks, the National Payments Corporation of India (NPCI) has introduced the Interbank Mobile Payment Service (IMPS) from the 22 of November 2010. The IMPS offers an instant, 24X7, interbank electronic fund transfer service through mobile phones.

pay

The IMPS facilitates customers to use mobile instruments as a channel for accessing their bank accounts and push high interbank fund transfers in a secure manner with immediate confirmation features. This facility is provided by NPCI through its existing NFS switch.. Mobile payments may broadly be classified as “contactless” (also known as “proximity”) or “remote” payments. For mobile “contactless payments” the payer and payee (and equipment) are in the same location and communicate directly using contactless radio technologies such as near field communications (NFC), QR Codes, Bluetooth or infrared. For mobile “remote payments” the transaction is conducted over a telecommunication network such as GSM or the internet and can be made independent of the payee’s location and/or his/her equipment thus creating ease, convenience and trust for end-customers (payers/consumers and beneficiaries/merchants). This concept is hereby regarded as critical for further development of mobile payments.

Sign-tConclusion – Today’s consumer expects a seamless mobile payment experience, failing to meet those expectations can be devastating to a brand, idea, innovation and eventually the payments industry. Experts agree that mobile-driven loyalty will be critical in garnering consumer adoption of mobile payments through apps, USSD, SMS, NFC, GPRS or QR Code. Fortunately, the rest of the payment industry players who were not part of the initial painful experiments have the unique opportunity to learn from the growing pains and avoid making the same costly mistakes as one mistake could make them miss the opportunity to convert an occasional customer into a regular loyal customer.

Point of Sale terminals (POS), Mobile-POS, NFC-POS, VCN-POS, ATMs and subscriber handsets are different payment instruments which we will discuss in much more greater detail in the next article.

 

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Posted by V Sharma

Specialised in Financial Technology(FinTech), Artificial Intelligence for Fintech. Mobile Financial Services (Cross Border Remittances, Mobile Money, Mobile Banking, Mobile Payments), Data Science, IT Service Management, Machine Learning, Neural Networks and Deep Learning techniques in FinTech. Mobile Data and Billing & Prepaid Charging Services (IN, OCS & CVBS) with over 15 years experience. Led start ups & new business units successfully at local and international levels with Hands-on Engineering & Business Strategy.

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