Is it necessary? -- Mobile payment in the U.S

General speaking, mobile payment is still in the initial stage in the U.S. The m-payment system in the U.S. is not only lags far behind than in Japan and Korea, but even lacks the universal solutions of Kenya and Afghanistan, where peer-to-peer programs like M-Pesa allow money exchanges via text message. The mobile phone penetration and usage rate in the U.S. is one of the highest of the world, and it’s not that the our country doesn't have the technology; majorities of customers just aren’t convinced that paying though mobile phones is actually necessary.

In contrary to the mobile payment system, the banking system in the U.S. works perfectly well for the majority of customers. According to a report, 90% of the 115 million households in America have bank accounts in 2012. And American household’s total saving and checking accounts is around $8 trillion.

The recent launching programs on mobile payment like PayPal and Google Wallet, are not very successful in the market. Report

shows that this “lack of reaction” is due to users are more willing to use their cards and cash which are more familiar to use. And the NFC technology, which allows money to transfer from different devices through WIFI or Bluetooth, is still underdevelopment in the U.S. And other new mobile payment companies, such as Clinkle, Bitcoin and Lemon, are lack of the credibility to convince customer to give up cash and cards.

It is hard for U.S. to replace the traditional credit card system to mobile payment, because the transferring cost for building the new infrastructure and convincing users is very high. Many developing countries lack a stable financial infrastructure, making mobile payments a better choice. Their digital platforms create pathways for money that evade possible corruption issues and bureaucratic slowdowns. Therefore the people in developing countries trust their cell phone more. However, in the U.S, people are concerned about the security issue regards the mobile payment system. According to a survey by the Federal Reserve, there are 42% of respondents expressed their concerns on the security of m-payment.

"Like printed books, another technology that’s centuries old but still very effective, cash is holding on to its dominance as a medium for exchanging value because it’s convenient, consistent, and its users believe in it—at least here in the United States. It doesn't need a total replacement quite yet", said by the technology reporter from New York Times.

However, most mobile payment provider still remain optimist about the future of mobile payment in the United States, they believe that the this is an evolution of modern payments, which is “an inevitability and a necessity”. According to Richard Crone, CEO of Crone Consulting LLC, converting from traditional payment method to digital payment seems costly and unnecessary in a short term, however it will provide a long term benefit to both mobile users and merchants. And just like the U.S took 10 years for smart phones to be available for every households, mobile payment technologies will eventually become one of the mainly payment method in the future.

Do we really need mobile payment?

By David Marcus – President of PayPal

Japan, the leader in m-payment system

Driven by the innovations on new mobile technologies and the rapid growth of the e-commerce, mobile payment is becoming more attracting throughout the world. According to Gartner , worldwide mobile payment transaction values will reach $235.4 billion in 2013, a 44 percent increase from 2012 values of $163.1 billion. The number of mobile payment users worldwide will reach 245.2 million in 2013, up from 200.8 million in 2012.

This rapid growth in mobile payment is attributed to the fact that it can bring added values to all its participants. For the mobile phone users, it improves the easiness and efficiency of traditional credit card payment process. The mobile phone, as an electronic wallet, can integrate multiple cards, tickets, certificates, and coupons all together, and reducing the trouble of carrying all of them. For the operators, mobile payment can bring new revenue sources by entering e-commerce and other financial services. And for merchants, mobile payment can digitalized customer’s behavior, and make it easier to keep records of customer’s information.   

Japan is definitely the country that has the largest mobile phones usage rate. Mobile phone is considered as a living necessity in Japan. Japanese network operators makes huge investments on new technologies and innovations every year, which leads Japan one of the world’s most lively and profitable mobile e-commerce market. Due to its pervasive mobile culture, the country has been the leader of mobile phone commerce for some years. Its first mobile network went live in 1979 and it was one of the first countries to launch 3G services. Mobile internet access is the norm, with the majority of Japanese citizens using phones and other portable devices to connect to the web. A study shows the mobile transactions amount is more than USD 42bn in Japan, and has a 71% increasing rate every year.

NTT DoCoMo, a mobile network operator in Japan, has a dominant position in Japanese mobile payment market. It launched the Osaifu Keitai (Wallet Mobile), which is  based on Sony’s FeliCa card,  in July 2004.  It supports 2 type of payments. One is WAP payment, which means paying online with the phone. The other is NFC payment, which means make a payment by waving the phone to a FeliCa chip reader.

The reason why NTT DoCoMo is so successful in mobile payment market is that it has support from the bank and merchants. The operator invest huge money into banks and merchants to enhance the control over the mobile payment value chain. In 2005, it invest 100 billion yen and required 34% stake in Sumitomo Mitsui Card Company, and 10 billion yen and required 18% stake in UC card company in 2006. And for the merchants, NTT DoCoMo gives them a quite fancy return if they implement its mobile payment receiver (NFC Times).

What is Mobile Payment

Have you ever been frustrated in a restaurant waiting to get your check, while it seems takes forever for the waitress to come to your desk? And when you finally get the check, divide up the payment with your friends, the waitress come and take the credit cards, and there is another endless waiting for getting the bill back. Sometimes this doesn't bother much since you can enjoy sitting and chatting for longer, but for those who has schedules after the dinner, the long waiting time is definitely unpleasant. So is there any way to make the payment easier?

With a dramatic increase in cell phone usage, large companies are looking for ways to utilize the mobile space to replace the traditional manual process in order to save time and money. For consumers, making payments on a mobile device can help them get rid of the burden of carrying credit/debit cards. Just by simply holding the phone to the payment terminal, or sending a text message, you payment is done. The cell phone works the same as the credit card, but the mobile platform just gives them a more convenient way of doing it.

This is a ad by AirPlus (NFC payment)

M-payment is a point-of-sale payment made through a mobile device, such as a cellular telephone, a smart phone, or a personal digital assistant (PDA). There are 3 major types of M-payment method today, which are SMS, WAP and NFC payment.

SMS Payment
SMS payment means paying for goods, services or products via a text message sent from a mobile phone. This is the most popular payment method worldwide. The customer simply sending a text message to a mobile payment provider, and the provider will clear the transaction between customer and the vendor. The cost will add to the customer’s phone bill, which will be paid monthly to the phone operator. This method is very quick and easy, with no need of memorizing the password or entering bank account information. Many business people choose SMS payment provider when they travel abroad, such as Zaypay and Boku, which are 2 large international SMS providers. And interestingly, this method is widely used in charities to get donations.

This is the SMS payment screen on the smartphone:

WAP Payment
WAP Payments simply means using the phone to connect to the internet and then make a online payment via PayPal, Google Wallet, credit card or other online payment method. In order to make a WAP payment, the vendor has to have a website or a smart phone app that allow customer to make a payment online. Different from directly paying through credit card or cash, WAP payment can made without interacting with any staff member. So, for example, if a person wants to pay quickly and the restaurant, instead of waiting for a server to bring the check, he can paid directly from the table by simply connect to the cash register with a wireless device. This method allows payment to be made more flexible and efficient.  

NFC payment

Near Field Communication (NFC) payment is a growth area in the field of m-payments. It is a contactless communication which means the user can conncet their smart phones to the devices without touching it. For example, people can make a payment by waving the phone over a display at a concert entrance, swiping the phone at the checkout in lane in a grocery store, or making two phone close to each other to make a money transaction. Currently, NFC is widely used in Asia: in China NFC is used on all public transport, and in Japan it is used in most of the convenience store such a 7-11. And in the U.S, Google has launched a Google Wallet app in android phones to offer money transfers between smart phones this year.

This is a video about how NFC works