Mobile payment the next generation trading channel?

Toan Do Tan Tran Vinh Nguyen Since thousands year ago, people have been creating the method to exchange valued goods, from direct goods exchange to intermediate exchange and then invented the money. From using stone or shell even paper money to make transaction, now people can easily to use some kind of virtual money like a plastic card (called debit or credit card) or a computer to finish a trading transaction. From several years ago, a new term was strongly concerned by both technical side and business side about new way to make a payment, it is about mobile payment. Many predictions show that, mobile payment could quickly change the way we do business and the volume of payment transaction via this technology could touch hundred billions US dollar in next years. Even though this trend still has many things to proof how people expect from it.

The evolution
Because of struggling for existence, from primitive age, people tried to find the way for communication and made a good exchange. Used smoke as signal to inform other in hunting or in the war; exchanged directly between meat and rice are very clearly example about communication and payment in Stone Age. It was also a background idea for the evolution of payment technology in modern society. Along with human development, the demand of trading increased quickly. Directly goods exchange or event using some natural materials as intermediate goods exchange also had many limitation and barriers when making a big or complicate transaction. By discovering the metal, mining technique and foundry, people used small piece of metal (a coin) as intermediate media in trading, instead of deliver goods directly. By this age, some simplest models of bank were occurred as valued goods keeper. At that time, the ancient people knew to use bird or horse to transfer information. We cannot see the relationship between the communication and trading anymore. After that, at the end of Middle age, European started using trade bills in exchange; it meant the buyer promised to make payment at some specific future date. Because, the buyer was the reputable person or the bills were guaranteed by an issuer, so the seller can change those bills into money at some merchant banker. It was the first kind of credit, a new term of payment. But this kind of money was not prevalent much and was just accepted in closed area. In some local areas, people also used tally, made by wood, in which recorded some taxes that promised to pay in future.

In 16th and 17th century, banking had some important innovations, for example accepted deposits, lending, money changing fund transfer,.. In this time, world trading had began to explode along with growth of colonialism; the merchants and traders required a wider network of payment that support their business. To the end of 18th century, the Industrial Revolution boomed. From that time, the world had been developing rapidly in every aspect. The world population increased from 1 billion to 2 billion within over 100 years. This booming lead the reaction of human about finding the different way to make food, business, .. and trading transaction. Along with the explosion of information technology and telecommunication, the payment stepped forward into new generation, that converges almost ending technology.

The world population over the Industrial Revolution

State of the art

Even though the first mobile phone was introduced in 1973 in United States but until 1979, the first commercial mobile network was launched in Japan. This first generation mobile network was pure analog network so it can only transfer the voice only. In 1991, the first 2G mobile network was launched in Finland on GSM #standard. This 2G #network is digital network, so that, it can bring not only the voice but the data also, as text data and it can be widely known as SMS#. Ten years later, the 3G mobile network was firstly deployed in Japan again. This network allowed connected devices to exchange data together at a high speed. With the steady development of micro technology, broadband network and 3G #mobile network, now a mobile phone is not only the cell-phone, it is a mobile computer. According to the.... to total number of mobile subscribers in the world is .. This huge number of devices creates a new trend in the way people make business,

called mobile payment. The principle here is each people has at least one mobile phone and at least one bank account and the mission is connect these two properties together. This trend involved diverse type of business owner, from mobile network operators, handset manufacturers, transportation companies, utilities companies, retail stores and payment platform providers to banks, advertiser and third party content providers and so on. Nowadays, it is easily to see people using mobile to transfer text to another mobile owner, but with simpler text, people can also make a transaction via mobile like transfer money to other, pay electricity bill or even top-up the mobile account. This technology base on 2G mobile network only and does not require any add on application on the device so everyone can easily use it daily without the high-end mobile phone, just only the simplest one, compatible with 2G network. Of course, the disadvantages of this technique is user have to memorize the structured text message, for example, to transfer money from mobile owner to other, the syntax must be like this: FT [destination account] [amount] [passcode]. Ignore the security issue at some weakness points, this is quite inconvenience way to do the business, it is just an alternative option only. At a higher level, when smart-phone becomes prevalent, the business owner tries to apply more complex software on the devices to create convenience interface with customer. Some familiar mobile phones integrated many features like: camera, wi-fi connection, voice recognition, GPS,.. in a flexibility operating system like Nokia with Widows Mobile, Samsung with Android or iPhone with Apple iOS. These kinds of mobile phone pushed the business create advantage competitive by develop business application on those devices. One of the widest appliances on this field is mobile banking. The background idea is trying to bring the Internet Banking into mobile device so that customer can do the transaction anytime, anywhere with only a smart phone and a connection. Instead of going to branch of the bank, now customer can stay at home or workplace to make any transaction such as listing statistics, inquiry account, pay a bill, fund transfer and so on. Not only the bank, many intermediate payment companies have started jumping into this rich field. They create some virtual products like mobile-wallet which customer can use mobile to make payment when shopping on-line or offline also. The basic idea of this technique is create a virtual money and the more important thing is the bridge to connect the buyer and the seller. In mobile banking, the transaction requires the both partners have bank accounts on a same banks but with mobile-wallet, user just only transfer money from real bank account from any bank to the virtual wallet and then make the payment anytime, anywhere without concern about the sellers bank account. Along with the amazing development of micro technology, a small mobile device now can include a high resolution camera, and this is a strong point to put mobile into very interesting business filed. Normally, the smart-phone uses strong microchip so it can process image very well. That is the reason the developer integrated QR# technology in mobile device to support some vertical industries like

retail, media, advertisement. Unsurprisingly when seeing people go to super market with the mobile in hand and points to the goods in half of second, all information of the product display on the phone. That make customer decide properly. Or, when walking on the street, people see the poster advertise a new movie. On the poster has a mall piece looks like no meaning but when using mobile, people can point the camera to that piece and see the trailer of the move and even can book some seats on the cinema and pay the tickets as well. In some recent years, two giants of financial institutes, Visa and Master has been racing to reach a new market: Mobile credit card. Come back to the first idea of mobile payment is converging banking account and mobile device together, Visa and Master trying to integrate credit card reader into mobile device. This solution acts as mobile computer with the card reader combine together to become mobile POS. This solution has many disadvantages but it is a source of the breakthrough idea in mobile payment.

Whats next?
As mentioned above, integration between credit card and mobile is a new trend of business developer. According to In-Stat (www.in-stat.com), the global mobile payment volume will reach 45 billion US dollar in 2015. This is a huge market to push business developer to find the new channel of trading; it is credit mobile instead of current credit plastic card. One of the most interesting technologies is NFC: Near Field Communication. NFC is not a new technology. It was developed from RFID (Radio Frequency Identification) but allow to two-way communication between end points. In payment card industry, it is also called contactless card which allow one-way communication only. Nowadays, NFC is a set of standard for smart-phone to establish radio communication with each other in a distance of few centimeters. In some recent year ago, NFC occurred in payment card. A new type of plastic card includes a smart chip which could be programmed. This card has CPU, ROM and RAM, using NFC as communication method and can be use for multipurpose appliances. It is predict that, in near future, this card and the mobile could be integrated together to become a very powerful personal device.

The architecture of NFC integrated mobile The picture above is one of the examples to illustrate how NFC can be integrated with mobile to become payment mobile device. With the strength of mobile capacities such as CPU, camera included, Wi-fi and 3G communication or Wimax in future; an NFC-Mobile will become an indispensable device. The appliance of this technology could be applied in the following: Transportation: People can use mobile to buy bus or train ticket electronically and automatically when get on the vehicle by putting the mobile near the POS devices. It can be used to pay road fee when people travelling on the road or pay the taxi fee as well. Moreover, the mobile can be also an electronic airline ticket. Not only using in payment, NFC mobile could be used for check in and boarding card. Retailer: Obviously, with NFC mobile, people in future just needs to bring the mobile only, no cash, no wallet and no Visa or Master card when go shopping. With some other features of mobile, the buyer can easily and quickly accesses all information of the goods, such as the material, the manufacturer or even the vote of other buyer who bought and used it already. Media and Ads:

The poster of an advertisement will be more active because the audience can use NFC mobile to access the detail information of the advertising product. If it is the movies, the audience can watch the trailer and book the seat in cinema or pay that ticket. Kiosk POS: There is no more coin in future. All kiosks in the world will installed NFC reader so the buyer can buy everything that kiosk sell by the mobile only. Those are some pictures of future mobile payment with NFC. Beside the convenience of NFC, the most important that make NFC become the future technology is about eco-system. NFC is non-battery equipment. This is the reason why business developer invests on this technology.

The poster of Mobile payment

Risks and Challenges

Parallel with the development of mobile payment trend, the developer identified some key issues. Those are some major risks and challenges that will be affected to this trend such as security, regulation and suitability. Security First of all, security is the most important prerequisite for any type of monetary exchange. When applied to transactions over mobile networks security issues regarding device limitations and network immaturity have also to be addressed. With numerous developing mobile payments consortia, issues of standardization and interoperability also have to be addressed. The battle for establishment of

proprietary standards which led to a lack of secure and interoperable standards as well as incompatible operating systems and devices was a major reason for the failure of the first wave of mobile payments [Mobile Payment Forum, 2002]. Mpayment need stronger security mechanisms because of the large amount of money involved and the greater possibility of fraud. For m-payment, this is not as important as concerns regarding simplicity and speed. Ideally, the all mobile transactions should be secured with enforceable digital signature, for which technology is already available. As general rule, the more technology applied, the more risk will come. From 2.5G network, the mobile became the IP device, it means, when the mobile connected to the digital world, the new risks are emerging.

Regulatory Although m-payments may allow parties to make economic exchanges, it is not legal tender in the sense it lacks the status of other payment instruments such as cash, which is a medium of exchange that is authorized, adopted and guaranteed by the government. At best m-payments will have to be backed by the issuers promise to pay. To overcome this problem legislation has to be put in place that will make m-payments legal tender. The regulations for players in the financial industry are different from those governing the telecommunications industry, which means that each industry has its own particular standards body to comply with. Suitability Besides the transaction security, trading partners are also concerned about transaction convenience. Convenience is becoming an increasingly important issue in modern society. In fact, Every day, people are adopting new technologies that trade a small amount of their privacy for greater convenience. A major function of Internet business is to provide convenience in information gathering and order processing. Shopping convenience plays an important role in the success of Internet commerce. And m-payment is more suitable and convenience than all the other payment method. Payment methods have various levels of convenience. For example, m-payment is more convenient for for the buyer than a money order or a cashiers check or credit card. A credit card can be electronically processed, but money orders and cashiers checks first must be obtained from an issuer and then mailed. Over all, the biggest challenges facing mobile payments isnt going to be evolving technology or security, but changing the way people think about paying for purchases and services.

Conclusion
The next generation of mobile payment in particular and mobile phone in general is about convergence. The new mobile will be a mobile computer. Along with fast grow technology trends like Cloud computing, Social network, the Telecommunication (3G, Wifi, Wimax,..) and NFC, the mobile can be come a powerful personal device and indispensable equipment of the human. Mobile in future can be everything: the car key, house key, passport, ID card and of course, the payment device. There are many things should be studied more about the security but it is believe that, it will be a successful technique in future.

References:
http://www.wikipedia.com http://epaymentnews.blogspot.com/2011/04/annual-mobile-payment-transactionsto.html#axzz1fSlVeemw KPMG - Mobile Payment in Asia Pacific 2011