How the future of mobile payments is shaping up

Banks and mobile network operators are working towards a time when people will purchase pints of milk, Sunday newspapers and even train tickets with a 'wave' of a mobile phone.

Banks and mobile network operators are working towards a time when people will purchase pints of milk, Sunday newspapers and even train tickets with a 'wave' of a mobile phone.

This is the future of a cashless society envisaged by mobile operators and industry pundits. "Today you pay for things by cash or on your credit card. Tomorrow, you'll use your mobile to buy the things you want," says Tom Alexander, CEO of Orange UK.

Some forms of mobile payments already exist. Phone applications like PayPal Mobile support person-to-person (P2P) payments. SMS-based transactions are used for car parking tickets and mobile commerce allows online shopping through mobile phone browsers.

Contactless cards are also in circulation for credit cards, transport tickets and are used in some food stores. The industry is looking next at near-field communication (NFC) mobile handsets. NFC allows 'tap-and-go' style payments using mobile phones at in-store terminals by incorporating contactless card technology into handsets. Alternatively, micro-SD cards with NFC-enabled chips can be inserted into mobile phones.

The Global System for Mobile Association (GSMA) has launched a Pay-Buy-Mobile project to enable consumers to pay for goods and services via their mobile phones. "By storing a consumer's credit or debit card within the SIM card and employing NFC technology, the mobile phone can be passed near a contactless Point Of Sale (POS) terminal to complete transactions," said Nav Bains, GSMA's senior director of mobile money.

mobile payments


GSMA has been collaborating with standardisation bodies; the European Payments Council, EMVCo, which manages card specifications and smartcard infrastructure standards body, Global Platform. The consortium is developing the Trusted Service Manager requirements document and a certification process to accelerate the commercialisation of mobile NFC services. But some experts believe NFC is a long way from a mass market roll-out in the UK.

Chicken and egg situation

The biggest breakthrough in the mobile payment market have been in developing countries, providing bank services via mobile phones for people who have traditionally not had bank accounts. Visa Europe recently launched Europe's first micro-SD based mobile payment systems in Turkey. But it is unclear when such a system will be introduced in the UK. says Juniper Research senior analyst, Howard Wilcox.

According Wilcox, coordinating a business model involving so many parties is complicated. "We're in a bit of a 'chicken and egg' situation," he says, "On the one hand the business model isn't ready and on the other you can't get NFC handsets."

While retailers, like Co-op and Spar, are introducing contactless payment terminals that use NFC, Wilcox says some stores have only just installed non-NFC point-of-sale (POS) technology who will have to overhaul the systems once again to support contactless payments.

Once NFC technology is ready, Wilcox believes mobile phones will be used for low-value transactions, similar to Transport for London's (TfL) contactless 'Oyster' cards.

Transport trials

Alongside the roll-out of Oyster cards, TfL successfully piloted NFC handsets with O2, concluding in 2008. A TfL spokesman said TfL had no immediate plans for a NFC roll-out but continue to investigate the potential for NFC technology.

The Integrated Transport Smartcard Organisation (ITSO) was established to provide a standardised specification for smart ticketing across the UK. This will allow the ITSO card to be used anywhere in the country. The Department for Transport (DfT) has made £10m available for the roll-out for ITSO smart ticketing for the nine largest urban areas outside London.

"NFC is increasingly an option," says ITSO CEO, Michael Leach. "We're realistically 12-18 months away from phones hitting the market in suitable numbers and being used in areas where ITSO is operating," he adds.

UK infrastructure

Financial services company, Barclaycard and mobile network operator, Orange, have formed a

partnership to develop a range of mobile, financial and payment services including the delivery of NFC payments. "We're replacing the wallet with a mobile phone; loyalty cards, receipts, everything you have in your wallet," says Barclaycard's head of mobile, Colin Swain.

The number of contactless terminals in the UK is approximately 26,500 and the UK Card Association predict 14 million contactless cards will have been issued with contactless functionality by the end of 2010. "We're not expecting to give a launch date any time soon," continues Swain. "Globally, there's a lot of discussion but the UK is one of the only areas where we already have the infrastructure that would accept contactless mobile payments," he adds.

UK-based mobile banking firm, Monitise, has also recently launched a joint venture with Visa in India to accelerate the delivery of mobile financial services such as banking, bill payments, mass transit ticketing and mobile top-up to Indian customers. More than infrastructure, Monitise group strategy director, Richard Johnson, believes banks and mobile network operators need to work together. "Banks are where most people keep their money. It's about mobilising bank accounts rather than creating new accounts with network operators. Tap-and-go really requires collaboration," he says.

Industry expert consortium, Mobey Forum, hopes to bring banks, mobile network operators, acquirers and merchants together to build the relationships needed to progress the mobile payments industry.

Gerhard Romen, Mobey Forum marketing chair and director of mobile financial services at Nokia, believes the NFC trials have proved the consumer demand and, by 2011, all of Nokia's new smartphones will be NFC-enabled. "Once people work together, it'll provide simplicity for the user" he says. "A phone with NFC can do more than just behave like a card - it has a display, keyboard and internet connection - and becomes more interactive," he adds.

Today we have credit, debit and, perhaps, contactless cards. Tomorrow banks and mobile network operators hope to provide a mobile wallet. The next step will be introducing tap-and-go into the mainstream market and, despite slow progress, industry experts are increasingly certain it will happen "soon".


Definitions of technologies driving mobile payments

Mobile payment technology


Near-field communication (NFC) allows data to be exchanged between devices via short-range, high frequency wireless communication technology by combining the interface of a smartcard and reader into a single device. NFC devices are also compatible with existing contactless infrastructure. See Nokia's 'NFC explained'.


Contactless cards, like TfL's Oyster card, used a RFID system. Radio-frequency identification (RFID) tags use radio waves over a wireless dedicated short-range communication (DSRC) to transfer information. By embedding RFID tags into mobile handsets, With RFID, consumers could associate mobile phones with bank accounts and pay by placing their phone in front of a wireless reader.

Mobile payment software

Companies like SecurePay and Verifone offer software that enables people to use their phone's key pad to enter a unique code for authenticating payments.


Europay, MasterCard and VISA (EMV) are the three companies who originally developed the standard "chip cards" for authenticating credit and debit card transactions. At the end of July EMV released a Contactless Specifications for Payment Systems, which could lead to the Chip & PIN Architecture being deployed on mobile devices.

Mobile payments are more secure than credit cards, says e-security expert

As the mobile payment industry continues to bring new products and technologies to market, electronic payments expert, David Dix, believes the use of NFC mobile handsets will increase security for contactless payments currently made using cards.

The security risk of contactless payments is lowered by the limited value of the transaction, which has recently been raised to £15 from £10. "You're only allowed to do so many low transactions [using a mobile phone] before you have to go online to authenticate yourself, which acts as a full EMV transaction," says David Dix, electronic payments experts at e-security firm, Cryptomathic.

If lost or stolen, credit cards can still be used in an offline environment even if it's cancelled on the bank's system. Dix believes a mobile phone is more secure in this instance. "The cancellation of payment applications should become easier and slightly more secure," he says. "As long as the mobile phone is switched on and can be communicated with, you can cancel and lock the phone."

Credit cards and NFC mobile handsets are operationally similar and use the same security, such as Visa-verified, 3D Secure. Using two-factor authentication - something you have and something you know - a PIN number is only needed for a higher value transaction.

Mobile phone applications are all Java-based and contain a piece of basic computer code that runs on a small chip with processing power and memory. "When a card is personalised, the data is loaded into an application with the operating system and application layer. When this is place into a [point-of-sale] terminal, the device gives power to the chip, allowing the application to run in the background," says Dix.

Risk checking then takes place and the terminal responds to the issuer to validate the encrypted card, he explains.

The UK Payments Association has yet to get involved with contactless mobile payments while products are being trialled in the competitive space. For now, security measures will be dictated by banks and issuers. Mobile network operators need to continue to build relationships with banks to provide secure transactions and ensure all parties are aware of payment applications on NFC handsets.

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