[Dave Birch] More activity in the world of mobile financial services, and I’ve been in a few conversations with people recently about changing regulatory structures. I’ve been fairly consistent in arguing that there are sound reasons why mobile operators will want to provide some services themselves and not work in partnership with existing banks. Now this:

Rogers Communications, the largest mobile operator in Canada, has applied for a licence to offer banking services, according to a filing it has made with the country’s government. If successful, the operator would be “primarily focused on credit, payment and charge card services”, according to its application.

[From Canada’s Rogers wants to be a bank, Articles | Mobile Money Live]

Why would anyone want to be a bank, unless it’s to get some kind of government handout? I can see why an operator might want to run payment services, but they should leave the provision of credit to banks. Of course, I imagine this is what’s really behind their decision. You need to consider the regulatory context. Rogers have to apply for banking licence, even though they have no intention of taking deposits, because there’s no other construct for running payment systems. Perhaps a lawyer can inform us, but I imagine that in order run certain kinds of payment services in Canada, you have to be a bank because there’s no separate regulatory category that’s the equivalent of the European Payment Institution (PI).

The European telcos are not apply for banking licences, instead they are applying for Payment Institution (PI) licences. These allow them to offer the retail payment services that they want to and in a regulatory structure that is much “lighter” (and therefore less expensive) than for banking—which is why, as an aside, I expect banks to form subsidiaries with PI licences as well. In France and Germany, the operators are moving ahead with their own schemes.

Operator-backed Buyster will launch its payment service, which aims to make online transactions more secure using mobile phones, on Sept. 13… Buyster was born in February, when operators Bouygues Telecom, Orange, SFR and IT services company Atos formed it.

[From French Operators Launch Mobile Payment System Buyster | PCWorld Business Center]

The French multi-operator service is launching with a relatively simple security layer on top of card payments.

To use the service, mobile subscribers first need to register with Buyster, which enables a bank card to be linked to the user’s cell phone number in a secure way. To make an online payment, users first enter their mobile phone number and password. They then receive a message with a one-time password that is entered on the website to finalize the transaction

[From French Operators Launch Mobile Payment System Buyster | PCWorld Business Center]

I wonder if security is a good enough play for the mass market? I know the French market is different from the UK, and consumer attitudes to PINs, cards and risk are different, but I would have thought that the average consumer sees security as the banks’ problem, not theirs. A convenience-based play strikes me as being the way forward. Which isn’t to say, naturally, that Buyster isn’t convenient. Compared to messing about typing in card numbers, it’s much easier.

The German mobile operators have joined together to launch a more ambitious scheme because they are going after the physical point of service (POS). Remember that the French operators are already involved in a scheme with French banks to target the physical POS and I understand that several transactions have already been made in the Nice area, where 3000 people were given NFC phones, although it seems to me unlikely that the AFSCM (the French mobile proximity association) projection of a million handsets by the end of this year will be met.

The three operators – Vodafone, Telefónica and Deutsche Telekom – are planning to launch under Mpass brand in early 2012. Mpass is an existing SMS-based service which German consumers can use for Internet shopping and charge their purchases to a pre-registered bank account. Recognising the shortage of NFC phones, the new Mpass service will start with NFC stickers.

[From Celent Banking Blog » What Do The German Telcos Know That We Don’t?]

Stickers are the future!! So Mpass is similar to AFSCM except that Mpass uses stickers and AFSCM uses handsets and it’s similar to Buyster except that it uses bank accounts whereas Buyster uses cards. It makes sense: everyone in Germany has a bank account but card usage is lower than in France. In Deutsche Bank’s September research note on this, they say that

German customers are likely to be even more cautious when shopping by mobile than at a desk-bound PC when big-ticket items are involved and with certain processes that they already have reservations about (such as credit cards in Germany)

The German approach, then, is based more around bank accounts and the short-term expedient of stickers. But this makes for a major barrier

In contrast, the German operators clearly aim to introduce a new payment brand, mpass, and expect to sign-up enough merchants to create the necessary acceptance infrastructure. Instead of working with banks or existing card schemes, it plans to work with prepaid payment services providers, such as easycash.

[From Celent Banking Blog » What Do The German Telcos Know That We Don’t?]

They’re setting themselves a difficult problem – persuading merchants to sign up for the new payment scheme – but if they can crack it then their higher risk and reward curve looks pretty interesting. I’m sure that Mpass will be much cheaper than conventional card-based schemes and it will set them a useful competitive challenge.

All of this makes the situation in the UK really interesting. The operators here are forming a joint venture to make it easier for service providers to exploit the new proximity technology but they are clear that payments are only one part of the proposition: advertising, coupons, loyalty and so forth are all part of the mix. It’s an interaction as well as transaction play. I say “the operators”, incidentally, but this doesn’t include “3”, who are taking legal action

Mobile operator 3 is mounting a campaign to scupper a mobile payments joint venture between its bigger rivals, urging regulators in Brussels and London to block the plan on competition grounds.

[From Payments joint venture under attack by 3 – FT.com]

Therefore in the UK, France and Germany we have three entirely different examples of joint ventures involving the operators to try and exploit mobile proximity technology: NFC with a focus on card payments and ticketing in France, NFC stickers and bank payments in Germany, NFC value-added wallets with card payments in the UK. Great stuff: there will be lots to learn from these different approaches over coming months.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

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