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Published: February 28, 2006

 
 

Dueling Technologies at the Point of Sale

DoCoMo’s near-universal market reach has allowed it to essentially impose its m-payment system on tech-crazy Japanese customers who are typically open to new shopping and banking channels. And with a potentially huge customer base to tap, merchants are more than willing to work with NTT DoCoMo to implement m-payment sensors in their outlets.

In Korea, the telecommunications market is more pluralistic. The country’s three biggest mobile operators — SK Telecom, KTF, and LG Telecom — are currently offering cell phones that can double as credit cards and smart cards. The telecommunications companies take the lead in promoting these systems, while credit card companies manage their financing and operations and share a 2.5 percent cut of all m-payment transaction fees with the other companies involved. One percent goes to subsidize the cost of m-payment phones for customers and 0.3 percent goes to the wireless carriers, leaving 1.2 percent for the credit card companies.

Since the launch of its m-payment system in 2003, SK Telecom, which commands slightly more than half the wireless market in Korea, has signed up 1.5 million m-payment users, approximately 5 percent of the total Korean wireless subscriber base. In other words, by aggressively courting alliances, SK Telecom has reached the same kind of “tipping point” in its customer base — a point where so many people are connected that more and more companies and, in turn, additional customers feel compelled by market forces to join in — that DoCoMo reached through market control.

No single U.S. or European wireless company has the overwhelming market share to set up m-payment systems alone the way DoCoMo has. Instead, they will have to follow the Korean model and work closely with established financial firms — banks, POS network operators, and credit card issuers — along with handset manufacturers and retailers to design a viable mobile payments infrastructure that reaches its own tipping point. This will require a greater degree of standardization than has occurred in the past. For example, the pioneering ExxonMobil Speedpass, a proprietary system for quick, one-step POS transactions, is being eclipsed by its more inclusive open-system rival, the MasterCard PayPass.

Even with industry cooperation, it will be difficult to overcome the traditional cultural bias against using cell phones for exotic applications like financial transactions. However, young consumers in the U.S. and Europe appear to be more open than older generations to customized specialty cell phones on which they can play games, send text messages, conduct GPS location scans, listen to music, and watch videos. With this range of activities, m-payment shopping is a natural outgrowth. Moreover, as new electronic payment systems such as MasterCard PayPass present highly promoted alternatives to debit cards, m-payment cell phones may not seem so unusual.

Two forms of cultural change seem to be required at once for a new infrastructure to take hold. The producers — in this case, banks, mobile phone operators, credit card companies, handset suppliers, and merchants — must embrace alliances to reduce the costs of transactions and work together to achieve coordinated success. Meanwhile, consumers must see and appreciate of the increased speed, convenience, and capacities of the new system.

In short, m-payment systems will meet with little success in the U.S. and Europe unless it is demonstrated to mobile phone users that m-payments are much more attractive than other, more familiar, electronic payment approaches. In the next few years, m-payment features — safety, security, availability, speed, and convenience — will be marketed individually, most likely to target groups with young demographics, the early adopters of new mobile technologies. If these groups indeed change their habits accordingly, they will alter the financial structure of the world around them as well.

 
 
 
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