Most successful services are logical extensions of our lifestyles, supporting the ways in which we live. It happened with mobile phones and continues with the gradual shift of PC applications like messaging and emails onto mobile platforms. Now internet banking, credit, debit, store cards and e-coupons are going mobile reports Priscilla Awde.

Buying anything from transport tickets to weekly groceries will soon be as easy as holding a phone to within 4cms of a Point-of-Sale (POS), reader. People will never be without the means to pay for purchases big or small; will not need cash or plastic or have to remember multiple PINs. Gone will be long queues since paying takes seconds.

Mobile payment applications offer convenience, security and practicality combining as they do a screen and keyboard plus internet access to bank accounts to monitor transactions and manage balances in real time.

Retailers can process more people faster at less cost per transaction and may eventually handle less cash; card issuing banks have another secure channel to market. All information is encrypted, and authorisation, authentication and verification codes are delivered in background mode between phones and POS readers.

Mobiles are more than just faster, convenient interfaces into existing payment systems; they create opportunities for operators to add revenue streams from new applications. Sticky and useful services marry Near Field Communications (NFC), enabled phones and radio frequency (RF), tags: handhelds could be used to allow access into buildings or, by placing them next to interactive advertisements, users could order and pay for goods or services displayed. They could also get information from ‘smart’ posters at stations and bus stops or be automatically connected to web sites.

Phones are already used for transport ticketing and parking using SMS codes to debit pre-loaded e-wallets. For Terence Trench, senior VP, commercial operations at Upaid, (www upaid.net), this satisfies current demand. He asks: “Why should people put bank cards on phones? What’s the benefit over a card in a pocket?” Many believe the answer is speed, convenience and security. Mobile payment goes beyond SMS and micro-payments into the world of plastic and mobile bank accounts although few expect it to replace cash or cards totally.

First many sectors must collaborate to solve the technical and interoperability challenges and ratify the global standards which make services consistently available anywhere. With the backing of the GSM Association (www.gsmworld.com), many of the steps are in place. The NFC Forum has defined the worldwide standard for this enabling technology; the hardware interface between chip set and SIM card is ETSI approved with the software layer to be finalised in January 2008.

In a recent report, Juniper Research (www.juniperresearch.com), estimates around 52 million will use mobile payment services resulting in a market worth $11.5 billion by 2011. Working together operators, card issuing banks, chip and phone manufacturers, service developers and retailers are involved in trials worldwide with commercial deployments already in Austria and Germany . In France the multi-lateral members of the Pegasus Consortium have defined what universal payment services will be available in a six month trial for Orange (www.orange.fr), customers starting in early 2008. British operator O2 (www.02.co.uk), recently launched a credit card, transport ticketing and smart poster reader trial in London .

Unsurprisingly Asia is in the vanguard. Launched in Japan in 2006, DoCoMo (www.nttdocomo.com), has around 20 million phones with embedded FeliCa chips: Tom Rebbeck, principal consultant at Analysys (www.analysys.com), estimates the current 3.7 million users will rise to five million by March 2008. “DoCoMo set up a joint venture to support the FeliCa chip, it has stakes in a credit card company and interests in Sony. NTT has 50% of a very big market and therefore has more clout than European operators. In South Korea , LG has five million users but also makes handsets and has a bank so owns the whole chain putting it in a very strong position. The European business model is more challenging and needs strong partnerships to make mobile payment happen.”

Ovum (www.ovum.com), predicts 2008 will be the first year of European availability, estimating there will be 364 million handsets shipped worldwide by 2012. Big players in the financial world are now seriously committed, are investing more and collaborating with operators: the recently launched Visa Mobile Platform is part of global trials. Vincent Poulbere, principal analyst at Ovum believes: “… within five years it will be commonplace to use phones to pay for goods/services. The challenge for operators is how they will be paid: while they may not get a share of the total volume of transactions, operators need revenue sharing in a business-to-business model with the banking sector in which they are paid a fee per year per user.”

Hanne Sjursen, group manager for electronic ID/Payment at Telenor (www.telenor.com), suggests operators should get a transaction fee for each payment plus income from air time. “Operators will get annual revenues for carrying card information and hosting cards but these must be negotiated - there will be discussions with banks about value sharing.

“Eventually banks won’t have to issue plastic cards since they will be renewed and replaced OTA. Mobile payments will ultimately eliminate cash as it is faster to pay electronically which further reduces the work for banks.”

Having more faith in mobile payment than entertainment services, Sandy Shen, research director, Gartner, says: “…there is potential for carriers to be platform managers for banks, helping them extend services to the mobile platform; manage the air interface and customer life cycle and to personalise, install and freeze SIM applications. Operators can also collect fees from application providers.

“Although almost all handset manufacturers have models available or are planning them – they are waiting to see how big the market is before pushing products.”

Making mobile payments fly depends on strong partnerships between all players, agreed responsibilities, revenue sharing and the creation of new Trusted Service Managers (TSMs). The question of which entity should be the TSM is divided among operators, banks, trusted third parties or a combination. Nav Bains, project director NFC and Pay-buy Mobile projects at GSMA explains: “The TSM is the intermediary interface between the card issuing bank and the operator and is responsible for Over-the-Air (OTA), provisioning of payment applications to phones. It also authenticates and validates users with banks and operators and disables lost or stolen phones. All applications residing in the Universal Integrated Circuit Card (UICC), or SIM card, can be remotely disabled or re-activated OTA.

“Liability issues will stay the same as for chip/PIN card transactions: for payments under £10 no PIN will be needed.”

Should things go wrong, the same liabilities and consumer protection as exists with credit cards apply.

Since convenience is a driver, David Turner, standards director for mobile communications business at Microsoft (www.microsoft.com), and NFC Forum (www.nfc-forum.org), representative says: “Putting personal credit card information onto devices must be done OTA: asking people to go into buildings will limit adoption and act as a barrier. This needs close co-ordination between players in a federated model in which all parties are linked.”

There is on-going debate about where to put the secure element which carries payment functions and protects financial data. Along with the GSMA, operators worldwide favour putting it on the UICC. SIM based secure elements make the operators’ business case more compelling since they can charge multiple service providers for card space. Gigabit capacity UICC cards can be partitioned into compartments each with its own encryption, separate security domain and application running inside it which is totally isolated from other services.

Using SIM cards may be more convenient than embedding secure elements in phones because they are easily transferred between devices, conform to standards, are globally deployed, secure and understood by consumers. “There is no way to kill payment applications embedded in phones which creates a security hole,” explains Mung-Ki Woo, VP payment and contactless applications at Orange . “The first reaction of banks to SIM based secure elements is very good. Consumers think mobiles provide high levels of security as they can be quickly and remotely wiped, blocked and re-provisioned OTA by calling either the operator or the service provider.

“This is a new type of service combining current card services with on-line banking: mixing the two in the mobile environment. Contactless mobile payment will follow existing internet banking models in which players don’t necessarily partner or work together. All services belong to the service provider, operators know nothing of the details nor have liability. In line with regulations, operators will have zero visibility of services but will ensure each application is stored in a fully separated part of the SIM card. As with existing payment systems, personal data resides on service providers’ servers.”

Success also depends on having a critical mass of POS readers the cost of which may be subsidised by banks. Gerban Mak, director of innovation for LogicaCMG, (www.logicacmg.com), which is participating in a Dutch trial, suggests rolling out NFC readers is made easier by new Single European Payment Area (SEPA), regulations. “POS terminals must be upgraded by end 2008 giving suppliers opportunities to integrate new technologies like NFC,” he explains. “Although it takes at least seven years for people to use new payment systems, huge numbers of consumers have adopted the mobile lifestyle and the market will increase as young people grow up and use phones for more than voice.”

The cost of installing readers will be off-set by lower transaction costs, faster payment; higher customer throughput and perhaps bigger spends. “Banking institutions and major retailers see NFC as a huge financial saving: removing cash which saves time and back office costs; reducing queues, giving customers a better experience and increasing throughput volumes,” says Jim McMullen, business development director, Motorola (www.motorola.com).

“There is an easy and natural merger between financial cards and phones. Card manufacturers and banks see value in eliminating printing and postage costs. The security on handsets is as good if not better than cards. If consumers trust the technology, and know banks do, it carries a huge amount of weight.”

Most people notice missing mobiles sooner than the loss of cards resulting faster reporting and potentially less financial exposure for banks.

There are around three billion mobile subscribers worldwide and 2.5 billion bank card subscribers – marrying the two will create a huge potential market believes Gerhard Romen, director for NFC market development at Nokia (www.nokia.com). “The capabilities, processing power and people are all coming together making the mobile platform very interesting. There is a synergy between operators, devices and banks. Enabling phones to be credit cards takes only a couple of clicks and, because phones can be switched off immediately in case of loss or theft, banks’ liabilities are reduced.

“For consumers the phone becomes a credit card with a screen, keyboard and constant internet connectivity. Mobile payment puts consumers in charge giving them more control.”