SKT have had a long history of experimentation and learning in mobile payments. Back in 2002 they began their “Moneta” brand for mobile payments with the launch of slot phones: mobile phones with an additional smart card slot on the side so that you could insert a chip payment card when you wanted to make an online. I always liked that idea — the telco does the phone, the bank does the card, put them together and party — but no-one else did. SKT put out 300,000 of the phones and a partner bank issued a million Visa cards. The initiative had a “very low return on investment” for the mobile operator but the bank did OK and many of the new credit card customers it gained are still active.
In 2003 they tried again, this time by adding a bank-issued payment card in a SIM form factor to their handsets. In other words, the bank (there were a few in this scheme) send a “SIM” containing the payment application to the consumer and the consumer opened up the phone and inserted the “SIM”. SInce this was in the days before contactless interfaces, the phones used infra-red to communicate with POS terminals and the mobile operator subsidised the installation of some 400,000 infra-red “pods” that were added to retail POS terminals. This was an approximately 20% penetration of the the retail POS estate, which it turned was just not enough to get a critical mass. Personally, I think that the infra-red solution never stood a chance because it simply required too many actions to execute a transaction and the only customers who could participate were customers who had payment cards anyway and those payment cards already worked perfectly well at POS. SKT, however, attribute the failure to a combination of factors: the “low consumer benefit” was one but another major factor was the long and “tedious negotiation process between banks and operators”, which is something that Consult Hyperion has certainly observed at first hand and we have all heard the same complaint repeated around the world.
The emphasis shifted away from mobile payments in 2004 with the launch of mobile banking and mobile ATM services. This time, the banks’ approach was “more reasonable” and the mobile operator was able to conclude a multi-bank deal so that customers could use secure mobile banking services from the handset (including stock purchases and that kind of thing) as well as withdraw cash from ATMs.
While the POS efforts (based on infra-red) remained moribund until the arrival of the first contacless interfaces in 2006, on the mobile banking side the scheme continued to evolve and in 2007 they launched the Mobile Certificate Storage Service whereby any service provider could use the secure chip in the mobile phone to store digital certificates for access to online services. Currently, about 750,000 people use this service to log in to Internet banking (the phone is used in a 2FA process with the key in the certificate signing a log in).
Which brings us to this year and the contactless boom. SKT now have 5.5m contactless phones out there and the newest service, the “T-Money” transit card, already has 200,000 users and they are very happy with the way that is developing. So clearly they have been learning from their pioneering work, some of which wasn’t commercially successful, and so should we.
The three main reasons put forward for the failure of previous mobile payment schemes were conflicts of business models, lack of standards and limited customer benefits.
Business models. In this world, “conflicts of business models” is code for “we couldn’t get along with banks”. It’s a problem that, in many (if not the majority) of projects that we have worked on still remains the most unresolved issue and the one that looks most difficult to fix. Payments by themselves are not particularly profitable, so they need to leverage some other element of the business model (eg, churn for the operator, credit for the bank) to make the numbers add up. I’m pretty sure that there are a variety of value-added services waiting to burst through here, but none of them have a business case until the bank-operator business models are settled.
Standards. We all understand that it can be frustrating waiting for standards to evolve, but the development of a national set of standards really didn’t work because it was being connected to international payment schemes. It’s taken time for get mobile proximity to where it is now and I think that the standards (eg, EMV) need still more evolution, but at least we can pilot, prototype and experiment in confidence.
Customer benefits. In the early mobile payment schemes, and Korea’s was no different, the payment process was actually more complicated and more painful for the consumer than using a card and, since you had to have a bank account in order to use them, pointless. While consumers have always wanted mobile payments, they’ve never been offered anything compelling until now. Organisations that understand the customer inteerface and experience are moving into the space: not just “traditional” payment players such as banks and PayPal a variety of new entrants from specialists such as Obopay, operator plays such as M-PESA and other heavy hitters.
With Amazon TextPayMe, you can send money to any text-enabled mobile number using text messaging or e-mail address right from your mobile phone using text messaging.[From Amazon Payments Account Management]
Initiatives like Amazon’s serve to legitimise the mobile phone as a payment platform in the eyes of the general consumer and when they are energised by the coming together of contactless and mobile, they should serve to drive the market on to produce innovative new services, not simply move existing payment products to the new platform and interface.
In summary, in all three of these areas, we can see the tectonic plates shifting. NFC delivers the standard interface, the GSMA and others are working out more collaborative business models and the contactless experience is quick and easy for customers. OK, so there’s no handsets yet, but one step at a time, right?
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]