Saturday, May 7, 2005

m-Payments Through Cell Phones

I recently got into a discussion on JavaRanch about mobile payments (m-payments). It started with a simple question.

Are there m-payment systems which are done in J2ME? Would be really grateful to know about any company which is using that kind of a technology, case studies and thesis? What about the trend of M-Payment systems.

Several others expressed interest in the topic so I added my thoughts and I'm going to rehash them here. Basically, I think that you already can use your phone in place of a credit card or a check in certain circumstances, but for whatever reason, consumers don't do it and merchants don't encourage it.

My vision of a m-payment is nothing but using a phone as a credit card, you pay through the phone, and that amount is added to your phone bill.

If that's your vision of m-payment, I'll go out on a limb here and say you'll never get charges added to a subscriber's phone bill. That would require the cooperation with the carrier. OK, they'll bill you for buying their games and ringtones, but not for buying pizza at Domino's. Big carriers won't give you the time of day. It's not really important to get charges added to a phone bill, is it? Why not add charges to an existing credit card?

What does it mean to use a "phone as a credit card"? Can you provide a example scenario? Obviously, I can't swipe my phone through a credit card machine at Target's checkout counter.

When I buy socks from the website, I type in my credit card number and some other information. I never actually get my card out. I have the number in my PC so I just cut-n-paste my number onto the website.

Likewise, when ordering something from 1-800-FLOWERS, I don't always use my card. I pull out my PDA and read my credit card number to an operator.

So why does a Target cashier require you to swipe anything? Shouldn't I just be able to tell them my credit card number? Ever had a problem with the card reader? I've had cards with worn out magnetic strips that can't be read. The cashier takes my card and manually punches in the numbers. So they don't really need my card either. I could tell them my number and they could punch it in manually.

All this brings me back to using the phone. If you stored your credit card number on your phone someplace, you could use your phone in place of your card when placing orders on line, over the phone, or with a cooperative cashier.

I know that credit card companies charge different merchant fees for card present and card absent orders. That's probably why the cashier wants to physically see your card. Until you change that policy, you may never eliminate the need to carry a physical card.

Forget credit cards. What about PayPal? I can use to send payments to e-mail addresses using my phone. If the receiver was a PayPal subscriber, they could verify that payment was received from their phone.

That means you and I could have a financial transaction using two phones. I can meet you, offer to sell you something, and provide a PayPal address. You could whip out your phone and send me a payment. My phone could verify the payment before I hand you the item. It might only take a couple minutes. Isn't that the dream of m-payments?

PayPal says sending/receiving money is free for personal accounts. It's 1.9% + $0.30 USD to 2.9% + $0.30 USD to receive money for a Premier/Business Account. Sounds like I can trade money with friends for free but that doesn't jive with my experience. I've received donations through PayPal before and I know they take a cut. When somebody sends me $5.00, I get $4.55 and PayPal keeps 45 cents. That sounds like 1.9% + $0.30 but I never signed up for a Premier/Business Account. Does anybody know how to perform a transaction without a fee?

The nice part is that PayPal doesn't have any physical card requirements. The transaction is processed in real-time from users who log-in with a username/password. That's the kind of transaction you need to enable m-comerce.

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