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Are banks and carriers finally starting to collaborate on mobile payments?

Financial institutions and wireless carriers are finally starting to realize that they need each other to take the mobile payments ecosystem to the next level, according to an IDC Financial Insights analyst.

The new IDC report “Best Practices: Mobile Payments in Action – Five Case Studies from Around the World” examines five mobile payment schemes already in production with millions of active customers, with varying degrees of bank-carrier cooperation.

“One of the main points is that you really need to have both banking and telecommunications assets in general—that’s a common thread through all of the successful mobile payments schemes,” said Aaron McPherson, practice director of financial services at IDC, Framingham, MA. “That doesn’t mean it has to be partnership—a telco can buy a bank or a bank can buy a telco to get that going.

“There seems to be much more willingness between banks and telcos to work together and much more recognition that they need each other,” he said. “[Until recently] they had been still stuck in this idea that it’s a competition.

“The two sides need each other, and it’s not going to work without having both parties involved.”

IDG’s International Data Corp. (IDC) provides independent research, custom consulting and multi-client studies on the technology issues and challenges facing the financial services industry.

Its clients include corporate and retail banks, insurance carriers and asset management, securities and brokerage firms.

Mobile payments nascent but growing
According to the report, mobile payments are still an embryonic technology, with dozens of alternative methods in use.

IDC Financial Insights believes that there is no one best model toward which all mobile payment systems will converge, rather different models will be favored depending on the concentration of telecommunications and financial assets in each country.

Mr. McPherson said that the topic of mobile payments is a controversial one, with dozens of competing technologies, strategies and business models.

In IDC’s view, too many analyses have focused on the technology, rather than the organizational structure.

In this report, IDC examines five case studies of successful mobile payments systems from around the world to identify best practices and their dependency on social, political, technological and economic factors.

Each case study was chosen to typify one of the following basic organizational structures:

• Multi-bank: MasterCard MoneySend (see story)

• Bank–carrier partnership: Jibun Bank in Japan

• Multi-carrier: Zoompass

• Single carrier: SK Telecom in South Korea

• Third-party proprietary: PayPal Mobile (see story)

The case studies are supplemented with the results of an October 2009 survey of 1,008 U.S. consumers, which highlights the need for a viable mobile payments solution to support multiple technologies and platforms.

The most successful mobile payment schemes are those in which the scheme operator controls both the banking and the telecommunications assets. This has been achieved either by a company in one field acquiring a company in the other or via a joint venture.

One recent example of such a joint venture is the partnership between AT&T, Verizon, T-Mobile, Barclaycard and Discover.

“Zoompass is just telcos and no banks, and at the time we were writing it hadn’t gotten much adoption,” Mr. McPherson said. “Operators find it hard to do it alone because they don’t have the funds, whereas banks have sources of funds.

“Mobile billing ultimately has to come from a bank account, so it’s ultimately best for the funds to link directly to an electronic bank account, which is essentially what PayPal Mobile does,” he said.

“That’s promising about the AT&T-Verizon-T-Mobile joint venture, because they have Barclaycard and Discover on board.”

Several economic and cultural factors determine which organizational model is best for a specific country. Thus, there is no one “best” model worldwide; variations are to be expected from country to country.

No one technology will dominate the mobile payments field. Instead, multiple technologies will coexist, serving different user groups and device types.

IDC noted the four stages of mobile payments: SMS, the mobile Web, applications and point-of-sale, which includes NFC/RFID/contactless, Bluetooth and 2D bar codes.

“It’s very hard to make any kinds of general statements about mobile payments globally, because it’s so different from country to country,” Mr. McPherson said.

“In Japan and Korea it’s ubiquitous, in the U.S. it’s still embryonic, while in some countries in Africa it’s quite widespread due to lack of other options—it’s replacing cash,” he said.

Final Take
Dan Butcher, associate editor, Mobile Commerce Daily