In a report released today, IDC Financial Insights looks at five mobile payment initiatives: MasterCard MoneySend in the U.S., India and the Philippines; Jibun Bank in Japan; Zoompass in Canada; SK Telecom in South Korea; and PayPal Mobile in the U.S. and shares why these projects have been successful.
The IDC report suggests that for a mobile payment scheme to work, the mobile device manufacturer, mobile network operator, banks and money transfer agents must be willing to work together. The authors suggest that there are two ways to accomplish this: one is to create a closed network where one company sets the standards and operates the scheme; the other is to establish open standards.
In countries where there are only a few dominant telecom operators, they tend to acquire a bank to gain access to the payment system, as SK Telecom did in South Korea. Where there are a small number of mobile network operators and a small number of banks, a joint venture makes sense; this is what Jibun Bank did in Japan.
Where there are many mobile network operators and many banks, as in the U.S., there will be many competing schemes, the authors say. "As a result, we see in the United States a chaotic environment with multiple mobile network operator-based schemes, multiple bank–based schemes, and a wide assortment of independent schemes, such as PayPal, Obopay, Amazon, Apple, and Google," the report observes.
The report notes that in the past, U.S. banks have been reluctant to enable interbank funds transfers out of fear that consumers would concentrate deposits in high interest-bearing accounts; lack of a business case, since consumers have been generally unwilling to pay for such transfers; the fact that consumers could more easily switch banks; concern that merchants could pose as consumers to bypass credit and debit card interchange; and worry that criminals might use the system to launder funds or commit fraud.
"Banks were specifically wary of PayPal, seeing it as a potential competitor, or at the least as disintermediator," the report notes. "However, we have seen the level of concern decline over the years, and banks may now feel that the risk of not having the mobile or online transfer capability is higher than the other risks." PayPal has also accommodated banks' concerns with a special funding model, card-like pricing and anti–money laundering checks and know your customer authentication procedures.
The report concludes that each country will come up with its own mobile payment model based on economic and cultural factors and that multiple technologies will coexist to serve different user groups and device types.