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Digital Content, Micropayments and Mobile Terminals Aren't Just Buzz Words Anymore
By Thomas Wright
Consumers around the world are abandoning fixed line phones in droves and replacing them with mobile phones. According to a study by research firm Mori, fixed-to-mobile substitution is occurring across the four major markets surveyed - the United Kingdom, United States, Germany and South Korea - with upwards of 45 million consumers estimated to now make all their voice calls from their mobile phone in these markets alone. This new generation of landline-less consumers has the potential to drive m-commerce to new heights in the years ahead. This wireless explosion also has implications for mobile merchants and their ability to process electronic transactions virtually anywhere at any time.
One person who keeps the pulse of m-Commerce and mobile payments in particular is Simon Pugh, president of the Mobile Payment Forum. The Mobile Payment Forum describes itself as a global, cross-industry alliance of leading organizations from the wireless and financial industries dedicated to realizing the full potential for mobile payments. Pugh explains that "there are two broad categories: remote transactions that are usually micropayment-based and local transactions that use RF (radio frequency) or NFC (near field communications), which can be used for any size transaction but are currently associated with quick-service retail."
Let It Ring
In terms of remote transactions, Pugh sees ringtones, MP3 files, movie theater tickets and other time-driven event ticketing as today's big movers. "It is a much better shopping experience to buy larger items over the Internet from your home or office PC," he says. As phones and personal digital assistants (PDA) sport larger screens, more memory, keypads, Internet protocol (IP) connectivity and faster download capabilities, it will make it easier to transact remotely. Yet Pugh concedes that it will take quite awhile for transactions to migrate from the micro level (under $5) to the macro level.
Bellevue, WA-based Infospace is a leading producer and publisher of personalized media, games and directory services for the mobile market. It offers the largest licensed catalog of monophonic (single tone) and polyphonic (16 to 24 notes using the Musical Instruments Digital Interface [MIDI] format) ringtones in North America. According to Consect, a consulting firm headquartered in New York, ringtones generated about $4 billion in sales around the world in 2004. America accounted for only $300 million of that, although Consect predicts the figure will double this year. Shane Dewing, vice president at Infospace, says "ringtones are all about personalization. Right now most are simple polyphonic snippets, but we see the future as entire MP3 song downloads and even video ringtones."
Infospace handles the complicated and onerous task of licensing music from record companies, publishers and artists, as well as formatting the ringtones for the myriad of handsets that are out on the market. According to Dewing, "40 percent to 50 percent of our music sales are from independent labels, so it is much easier for us to handle these thousands of licensing agreements than it is for our clients."
Most of the major telecom players handle their downloads on a "post paid" basis through their monthly billing statement, often relying on third parties such as Qpass and Qualcomm to provide the technology needed to handle authentication and entitlement. Sprint is the exception in that they have developed their billing and delivery system in-house and have successfully offered a subscription-based service, as opposed to the other carriers who have focused on single downloads. Consumers also can download ringtones, wallpapers, screensavers, games and quizzes from popular online sellers such as Zingy and Jamster.
While the post-paid model is a standard payment method right now, micropayment firms such as BitPass and Peppercoin are hoping their solutions can find traction in both the m-commerce and e-commerce markets. Matthew Graves, COO at BitPass, describes its target market as "any payment $10 or below, but we can also handle mid-sized payments from $10 to $25 and even larger payments up to hundreds of dollars." To purchase online content or services, BitPass "Spenders" first purchase a virtual prepaid debit card using traditional payment channels such as Visa, MasterCard, Discover, American Express or PayPal. They can then use these credits with BitPass "Earners" to anonymously and securely purchase music, photos, games, articles and other items. Graves asserts that the company's "good funds" model means that no merchant has ever been a victim of fraud.
Similar to eBay, BitPass makes its money from the seller, not the buyer. The company normally makes a 15 percent commission on items less than $5 and pay Earners via automated clearing house (ACH) or Pay Pal when their account accumulates $20. "We handle three critical items for our users: authentication, access control and payment processing," says Graves. "Our goal is to help sellers of all sizes monetize digital content."
Content and service providers can enable their offerings in as little as 30 minutes by simply uploading a single file to their site. Pixel]ump is one merchant that uses BitPass to sell ringtones, games and graphics, and delivers them via short message service (SMS).
Meanwhile Peppercoin recently announced its Peppercoin 3.0 Small Transaction Suite, which adds subscription and prepaid payment capability to the company's pay-as-you-go and post-paid processing service. Peppercoin is partnering with Sun Trust Merchant Services to deliver the small payment processing system to merchants. "Peppercoin's solution is the only one that supports our merchants' needs for digital, mobile and physical point-of-sale (POS) transactions," says Barbara Roeber, Sun Trust's general manager and senior vice president.
Mark Friedman, president of Peppercoin, is also excited about the possibilities: "Each year, more than 354 billion cash transactions occur in the U.S. for less than $5 at the physical point of sale, representing $1.32 trillion in aggregate revenue. We hope to tap into this market and move these consumers away from cash payments."
'Small' Markets
Leading markets include vending ($18 billion), parking ($10 billion), coin-op ($6 billion) and quick service restaurants ($110 billion). Peppercoin already has a foothold in the parking meter market with its signing of Reino Parking Systems, a global leader in on-street parking solutions. The new high-tech meters are equipped with card swipes, but users with cards on file also can pay by dialing a toll-free number and entering a meter number and payment amount. Additionally, users will receive SMS text messages when their parking time is close to expiring so that they can conveniently and remotely add more time to the meter. Users of the system can also purchase virtual parking passes with their debit or credit cards, thereby transforming these cards into virtual pre-paid cards-the next time they swipe the same debit or credit card, it will deduct the charge from their balance that is stored on the gateway.
Not wanting to be left out of the small payments market, Star Networks is reducing its fees for a wide range of merchants where low-ticket cash transactions predominate: commuter-transit agencies, parking lots, news dealers, laundromats, car washes and cinemas. The nation's largest electronic funds transfer network has even gone so far as to create a new merchant category, called small ticket, with fee pricing intended to encourage installation of PIN pads and conversion of typical cash payments to PIN debit.
While many merchants shun payment card transactions of $10 or less, small ticket sales increased nearly 50 percent from $23.7 billion between 2003 and 2004, according to CardData Diamond. Fast food sales with average ticket sales running $11 per transaction hit $22.5 billion in 2004, while credit/debit card sales of transactions of $5 or less grew from $10.8 billion to $13.5 billion last year.
On the Go
While remote m-commerce is often associated with micropayments, there is a whole other side to m-commerce: mobile acceptance of card payments. MacAllister Smith, CEO of Pipeline Data, an ISO and payment processor, says that "mobile wireless has opened up a large new market that has not had good card acceptance in the past." His firm has partnered with AIRCHARGE, a software and hardware developer specializing in the development of commercial payment applications across the Palm OS, Microsoft and J2ME platforms, to offer wireless mobile payments. Target markets for mobile POS units include transportation, service industries and delivery firms.
At Credit Card Processing Services, President Kevin Aniess is putting mobile terminals in some unique locations. "We have the usual clients like sales people at trade shows, but we also support souvenir stands at a Broadway play in Manhattan and at the Louis Armstrong Society in New Orleans," he notes.
His company also targets the construction trades: electricians, plumbers, heating and air conditioning, handymen, painters, etc. While CCPS offers numerous wireless POS options, Aniess is not completely enamored with the technology.
He emphasizes that "coverage and reception are not always the greatest, so we still recommend a good oldfashioned 'knucklebuster' to our merchants as a safe backup." He also recommends Touchtone Processing to small merchants because it allows them albeit at a higher rate - to authorize, capture and settle credit card transactions using a normal touchtone or using a cellular telephone.
For larger merchants that can justify the cost of a dedicated wireless POS solution there are a slew of vendors ready to help them: Lipman USA, Creditel, Way Systems, USA ePay and ExaDigm, to name a few. Randy Wheeler, executive vice president of sales at Lipman, is quick to point out that his company is currently on its fourth generation of wireless terminals. He explains that diners can pay right at the table, refreshments and souvenirs can be sold to fans in their seats, and taxi and limo riders will enjoy an easier, safer payment alternative since they can minimize the amount of cash they have to carry. "It is also great for seasonal businesses, such as fireworks stands and Christmas tree sellers," he adds.
Over at Creditel, Vice President of Sales and Marketing Gary Walker is focusing his efforts on the businessto-business market through its unique partnership with Nextel. "All merchants need are a compatible Nextel phone, a data plan with Nextel and our snap-on attachment, and they are in business," says Walker. Nextel's 'Push to Talk' capabilities and established base in the business market were big factors in Creditel's desire to partner with the carrier, which was recently purchased by Sprint. Creditel sells its hardware through the ISO channel, and also acts as a merchant processor to Nextel dealers.
Woburn, MA-based Way Systems is taking a different approach with its pocket-size mobile solution dubbed the Mobile Transaction Terminal (MTT). Its unit, which is slightly larger than a standard cell phone, includes a combo magstripe/smart card reader, PIN pad and an IR port for communicating with a receipt printer. In the United States, Way Systems has a partnership with AT&T Wireless to use its General Packet Radio Service (GPRS) network, but it also targets the nascent Chinese POS market (where there are approximately 480 million payment cards but only 3 percent of the 25 million Chinese merchants have a POS device), with its low-cost device.
Will Graylin, CEO at Way Systems, explains that "we started with the cell phone platform and then designed it so that it is ready to go right out of the box."
Prime Time Shuttle, a limousine company with a fleet of more than 3,000 vehicles, has chosen to go with USA ePay's wireless solution. USA ePay CEO Ben Goretsky says his company's systems can process transactions wirelessly with a merchant's existing Java-based phone over any provider's wireless network.
With the addition of a card swipe cradle and USA ePay's $49.95 Javabased software, merchants can quickly transform many Java/data-enabled cell phones and PDAs into POS terminals. Prime Time Shuttle experiences a high fraud and theft rate with cash transactions, says Goretsky, and mobile payment devices should help cut into that figure dramatically.
"A new breed of POS systems" is how ExaDigm's Mike Mulcahy describes his company's models; they are PC-based systems running the Linux operating system. Through a variety of attachments, ExaDigm's units support the entire gamut of connectivity options: IP, dial-up, Bluetooth, WiFi and every cellular network. Mulcahy adds that the systems are flexible: "Since we are virtually a PC and have USB ports, you can easily add a keyboard, Webcam, biometrics, ID verification, PIN pad, basically whatever you like."
POS device and PC convergence, ubiquitous high speed wireless networks, software improvements and consumers' increasing desires for digital content and convenient payment options all bode well for the near future of m-commerce. These ideas have been hot topics for some time, but their implementation, at last, seems imminent.
About the Author
Article by Thomas Wright, featured in Transaction Trends, April 2005.
Thomas Wright is a freelance writer based in St. Louis. He also publishes a technology newsletter called Credit Union Tech-Talk.
http://www.cmscreditcards.com/
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