Using Your Phone to Make Payments for Transactions

Posted April 14th, 2009 by Kathryn in Society, Mobile Technology, Industry News

Mobile phones have so many uses these days that we can often replace other gadgets (cameras, music players, laptops) with a single mobile phone device. Something else that we may soon be able to replace with the mobile phone is our debit cards and credit cards. That’s because we are seeing an increasing interest in the ability to use the mobile phone to make contactless payments for transactions on-site. This technology hasn’t quite hit the mainstream yet but the development of new handsets that allow for these transactions along with successful trials of mobile payments throughout the world seem to indicate that this could be the way of the future.

Four Methods of Mobile Payment

There are four basic methods that allow a mobile phone to be used as a tool for making payments. SMS messages can be used to request that the transaction be billed to the mobile phone. Direct mobile billing and mobile web payments similarly charge your phone at the time of transaction but are primarily used on ecommerce sites. Finally, there is the option of using mobile phone handsets that are enabled with Near Field Communications to actually pay on-site using your mobile phone. It is this final area of mobile payment that is currently being developed and could change the face of payments in the years to come.

SMS Messages, Direct Mobile Billing and Mobile Web Payments

These three types of mobile payment have all been explored to some extent by different companies. Each one is a progressive development of the one that came before it. Let’s take a closer look at these three mobile payment methods:

1. SMS Message Payments. In this system, you sign up with an SMS message payment provider such as Paymo or Zong Mobile Payments and create an account with them. When you want to make a payment for a transaction, you send a text message to your provider requesting the completion of the transaction. The provider returns a confirmation and the seller can then complete the transaction. Often this is done by sending an MMS message with a barcode to your phone which can then be scanned to complete the sale. Your phone bill is charged for the transaction.

2. Direct Mobile Billing. This is a similar system to SMS Message Payments in the sense that you set up an account with a provider through which the billing will take place. The difference is that instead of using an SMS message to request payment authorization, you use a system of selecting “mobile billing” at checkout. This service is typically only offered on ecommerce sites. Your mobile account is then charged for the transaction.

3. Mobile Web Payments. This is when you actually access the mobile web from your phone and make payments through the mobile web using your PayPal account or credit card. This is basically the same as doing any type of online shopping except that you are doing it through your phone.

Each of these three methods of mobile payment is an outgrowth of the one that came before it. They all rely on setting up an account with a provider, usually through a desktop computer, which is linked with your mobile account to allow you to charge your phone or credit card for your transactions rather than having to make the payment at the time of purchase.

Each of these method of mobile payment has drawbacks and areas of concern. SMS messaging tends to have security / privacy issues and is slower than the other methods of payment. Direct Mobile Billing is limited in use because many sites don’t offer this billing option. Mobile web payments are great in the sense that they are generally secure and can be used at many different online stores but they still serve the purpose of paying for online transactions rather than point-of-sale transactions. This is where the new area of Near Field Communication could make a real difference in mobile payment methods.

Mobile Payments Using Near Field Communication

Mobile payments are being taken to the next level now using technology called Near Field Communication (NFC). This technology allows mobile phone handsets to be capable of completing transactions when the phone is waved in front of a reader. For example, you might get on a bus that is equipped with a reader, wave your phone in front of the reader and then be billed later for the transaction instead of having to locate and use change to get on the bus. This is done by creating NFC-enabled handsets using smartcards that work with these readers. This is something that is starting to gain serious attention from interested users around the world.

Thus far, adoption of the system has been minimal due primarily to hesitation among both handset makers and banks to move forward into a market that has an unclear base of supporters. Nobody wants to be the first to take a risk on this new technology. However, a few leaders, particularly Nokia and Visa, have started working together to make this type of mobile payment a reality in today’s world.

NFC-Enabled Handsets Including Nokia 6212

One of the major reasons that adoption of this interesting new form of mobile payment has been slow is because of the fact that there just aren’t that many handsets out there yet that are NFC-enabled. However, there are a few including 2 Samsung models (SGH-X700 NFC and D500E), the Motorola L7 (SLVR), the LG 600V contactless, the Benq T80 and the SAGEM my700X Contactless. There are also three Nokia models which are NFC-enabled (Nokia 6212, Nokia 6131 and Nokia 3220 + NFC Shell). These Nokia phones, particularly the Nokia 6212 which was released last yeaer, are the ones that are really seeing some traction in terms of interest and sales.

Visa Recently Moved from Pilot Testing to Rollouts

Visa is the company that has seriously partnered with Nokia to make these new handsets useful. After successful pilot testing, they have started an initial launch of the product in Malaysia. NFC-enabled Nokia phones can now be used in Malaysia at over 1800 stores, parking garages and toll booths. If this launch is successful, it is highly likely that Visa will move forward with rollout in Asia and Europe and will eventually bring this type of mobile payment technology to the United States.

Additional Mobile Banking Services Encourage the Market

In addition to mobile payment options, there are many different types of financial transactions that mobile phones are capable of completing. Both Visa and Mastercard are working to promote all aspects of mobile banking for different phones (especially the Android, iPhone and BlackBerry smartphones). As mobile banking grows in popularity, there is likely to be a corresponding demand for further development of contactless payments using the mobile phone.