Digital Content, Micropayments and Mobile Terminals aren't
Just Buzz Words Anymore
by Thomas Wright
Published on this site: February 22nd, 2006 - See
more articles from this month
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.
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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