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The SMS Top Five Olympic Moments

In Bill Dudley’s recent post he discussed how SMS usage increases during major events by looking at how the volume of SMS sent spiked during the opening ceremony of the 2012 Olympics.

So over the two weeks of the Olympics what were the events the caused the biggest increases in SMS traffic? Here’s our SMS Top 5…

SYBASE 365 SMS Olympics Infographic

SYBASE 365 SMS Olympics Infographic

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The Mobile Value Chain Challenge: How the Mobile Wallet is a Game Changer

Most blogs and articles about mobile wallets and payments focus primarily on the technology, and often omit the challenge of adoption of this technology.

Product marketing 101 is based on Moore’s classic technology adoption curve, which splits customers in to Innovators, Early Adopters, Early Majority, Late Majority and Laggards. And, to put it simply, is focused on the challenge of getting customers from “Innovators” to “Early Adopters” phase.

Adoption Curve

The Classic Adoption Curve

If we look at mobile commerce, we can see that we are very different stages on this adoption curve.

In developed markets, Mobile Banking is very close to crossing from “Early Majority” to “Late Majority” phase, and so could be consider a mainstream service.

When the first mobile banking services launched in the late 90’s, the technology was way ahead of consumers – both their needs and access to the technology. Internet banking was still being established and so banks and consumers were still building confidence in accessing their accounts remotely. More importantly, whilst it was technologically possible to create a WAP banking site, most consumers didn’t have a WAP capable phone, and even those who did, the user experience was very poor.

It was only in the last few years that mobile banking usage has really taken off. Whilst there are a number of reasons for this, one of the most important was how it moved from being a technology led proposition, to a service led one. To take two examples – let’s consider alerts and Apps.

SMS alerts have been hugely popular with consumers – the benefit is clear (get your account balance) and the technology (SMS) is one that is universally available on mobile phones and used by everyone. Once the ‘app stores’ arrived on the major phone platforms, we saw App based mobile banking finally take off. Again, the technology was proven, and the apps have clear benefits to the consumer.

In developed markets mobile payments is at a much earlier stage, whilst there are a few notable exceptions (Japan, South Korea and Austria) most deployments are still at the “Innovators” stage, and just a few have crossed over the chasm in to “Early Adopters”.

Given the first mobile payment services started in the late 90s, why is mobile payments so far behind mobile banking?

The issues are twofold. Firstly, this is still a technology led initiative, with each new service requiring consumers to adopt new technology from NFC stickers, NFC phone cases, NFC enabled memory cards, new SIM cards and even new mobile phones. In each case, the service needs to wait for consumers to catch up with technology, and so struggles to gain momentum.

However, there is another reason, and one that often gets overlooked. Not only does each new system need to bring consumers in, but also it needs to make (financial) sense for all players in the value chain.

If mobile payments is to succeed, the industry must consider the implications of adding a number of additional parties to the current transaction ‘pie’, which is already split between four parties: the merchant, issuer, acquirer and the card scheme. What does it mean for those currently at the table, when the invite to dinner is extended elsewhere? With the addition of the mobile operator, the phone manufacturer, the creator of the mobile wallet and potentially others, the value share becomes increasingly smaller for those involved.

Simply put, the (existing) mobile payments pie isn’t big enough for everyone who wants a seat at the table.

The key players in the market have adopted two different approaches. On the one hand, providers have adopted the model of only charging the issuing bank to host its cards on the mobile application and plan to make money from the extensive consumer data they will gather through their mobile wallets. On the other hand, providers have opted for a “flat fee” model, charging the card issuers a flat fee per account per year. The difference between these two approaches is stark, and it is too early to establish which is the smartest route to take.

When using a mobile wallet in place of the traditional methods, is there additional value for the customer? New value simply must be created, for the mobile wallet to succeed. This could be in the shape of convenience for the consumer, having all cards in the one electronic place, making anything but their smart phone redundant.

Equally, where is the value for merchants? They will need to deploy new terminals, and more importantly train their staff on this new payment mechanism. A service that creates no new value for the merchant will struggle to gain adoption.

For consumers this can come from convenience, but also related services such as loyalty schemes. For the merchant and the payment scheme, mobile payments will provide a great depth of customer insight and analytics.

Precisely how this will look and work is still up for debate. What each new mobile payment/wallet scheme does, is the next experiment in what will be the winning formula.

Beyond this, to move the mobile wallet landscape forward, the ecosystem must be as open as possible – a closed ecosystem won’t grow large enough to succeed. Just as interoperability was core to the growth of mobile messaging, so it will be for mobile payments.

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The Untapped Market: Corporate Mobile Banking

Banks have been so focused on building the mobile retail solutions for consumers that they could be missing out on a huge opportunity in commercial mobile banking. As with most trends of new innovations and technologies it starts with the consumer, but it’s only a matter of time until mobile transcends into the corporate treasuries of both SMEs and large enterprises. In fact, a report by Aite Group, found there is a high demand for corporate mobile banking services amongst treasures. Of the 300 treasury executives who were polled globally, approximately two-thirds said they’d use mobile corporate banking services to perform basic transactions such as checking balances or transferring funds.

However, to-date there has been a lack of corporate banking features that enable businesses to review and approve payments remotely. As the adoption of mobile banking and its convenience continue to drive consumer demand in personal banking, more and more businesses will require the same for their corporate banking services. Mobiles can provide treasurers and cash managers access to real-time information in their corporate environments. They’re also willing to pay for mobile services that will increase efficiency for their businesses. Tablets can further extend corporate mobile services as they’ve already found their place in the boardroom.

As with any product, it must be relevant and tailored to the end users. Simply masking the retail offering under a corporate banking banner won’t be enough.

Corporate banking is centered on roles and workflows. Take for example the wire/funds transfer between companies. An employee within the finance department might create the initial transfer instruction; but a few or even just one senior manager at a company will make the actual approval. The bottleneck in this process is the approver – as they need to be online to approve.

It is not an unusual circumstance to find these managers pulled over at the side of the road, firing up their laptop, hunting for mobile/WiFi coverage whilst trying to juggle a laptop and PIN token generator – just so they can approve a funds transfer.

Moving the approval process to a mobile device – phone or, better still, a tablet – has clear benefits. So much so, we now hear of users that even when they are in their office, sat in front of their PC, choose their iPad to action transfers.

The services these customers are looking move to the mobile channel go beyond approvals, for example the real-estate of a tablet is ideal for providing an instant snapshot of multiple accounts, opening and closing positions and more. In addition, the manufacture/distributor/merchant supply chain could have an alternative process for the fulfillment and payments of goods and services via the mobile channel to remove cash from the transaction process. This can improve cash flow, reduce fraud and losses in the system and reduce risk for merchants and delivery drivers. Clearly there is a viable untapped opportunity for these services and a desire by corporate customers to have additional convenience and flexibility, but only if their user experience address their needs.
RBS Citizens Financial Group was one of the first to offer a corporate mobile banking application. The solution, available for Citizens treasury management customers using iPhone, RIM and Android devices, is called accessMOBILE. It allows users to approve or release scheduled payments, transfer funds to different accounts, receive alerts about pending transactions and view account balances and recent transactions. Its success has been largely due to the early adoption, continual targeted updates of its mobile apps and design. By keeping the interface and user experience similar to the commercial online banking systems, but with added flexibility and freedom, the user experience has proved successful.

This year is shaping up to be the year of mobility. Connected devices are finding their way into every aspect of our personal lives, including shopping, paying and banking and it’s only a matter of time until it’s an everyday aspect of corporate life. That means first-movers have the advantage, if banks realise the full potential of this nascent mobile sector.

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Mobile World Congress 2012

Hola from the Mobile World Congress! I’ve lost track of the number of MWC I’ve attended. The first one was back in 1999 – I think! – and with one or two exceptions I’ve been to everyone since. Whilst the name has changed many time, many things stay constant.

In case you missed it, here’s a version of the advertorial I wrote for the MWC show daily, where I explore the constants of MWC, and make some predictions.

Mobile Commerce In The Quest to Monetize Customer Engagement: 2012 is the year of…

Every year at Mobile World Congress, there emerges a trend, service or product that either captures the imagination of attendees or there is theme that seems to be everywhere you go on the show floor. Some themes appear briefly, whilst others such as LBS (location based services) and Mobile NFC have become hardy perennials.

In 2012 we are going to see an ever-increasing number of technologies and services to help in the on-going quest to monetize customer engagement. Closely linked to this challenge, is the question “Who owns the customer”. This question has never been more poignant than in the mobile world, where operators, device manufacturers, the application, service providers, merchants and brands all want to be able to claim that ownership.

How will this direct relationship with consumers be created and then monitized? One of the key ways will be through Mobile Commerce. Today we are seeing an ever-widening range of companies launching mobile commerce services, all with the ambition of gaining that direct relationship with consumers, and thus claiming ‘customer ownership’.

Customer Engagement
Given that one of the main inspirations for the creation of SMS was to enable direct, timely communications with the Operator’s customers, it is not surprising mobile messaging has a long history for interacting with consumers of services. However it has historically been limited to one-way interactions that have been difficult to demonstrate measurable results.

Long gone are the conventional days where bricks and mortar stores are the high-touch point in a sales-cycle in building consumer loyalty. You only have to look at shift in Book retailing, as consumers have moved from the large anonymous retailers to stores that ‘know’ their customer – it is only the small special stores and the likes of Amazon continue to thrive. Consumers today have greater expectations for a personalised, enhanced shopping experience through multiple channels and value-added services. They not only require, but demand real-time, customised rewards at various stages of the sales lifecycle. This in turn creates an opportunity to directly engage with customers and build brand loyalty through mobile marketing.

The next generation of consumers increasingly live their life socially. Socially networks, not email are their main means of communication. As this use of social media grows and becomes more pervasive, your customers will see social media as a gateway, a virtual marketplace where the next generation wants to conduct all of its activities. Given the more personal nature of social media, it will enable businesses to build a community and connect with consumers in a more direct way.

The challenge of social media is two-fold. Firstly, whether you have a strategy or not, your customers are already talking about you on whatever social media service they prefer. Secondly how do you integrate with your business activities, such as customer care.

Loyalty & Couponing
Consumers are always connected, always reachable via their mobiles devices. For Retailers in particular have an immense opportunity to become drivers of mCRM and mobile marketing usage and adaption through couponing. The consumers’ mobile phone has emerged as a channel growth opportunity for engagement while increasing revenue options for retailers.

Mobile couponing creates value for both customers and retailers through its ease of use and management. Currently in the US, mobile couponing is a nascent business driver but it’s less popular in Europe. High Street retailers need to understand that location-based marketing and couponing is another mechanism in the marketing mix. There are many benefits but, none more strategic than the opportunity to deliver actionable offers and have the closed loop analytics to be able to measure behavior and success.

Mobile NFC
It was at this event lat year, where I heard the best description of the status of Mobile NFC, “NFC: 2011 will be the year of… transition”. Which is a very accurate description, as Mobile NFC finally broke free of the labs, transitioning from small-scale trials and moved on to Main Street USA with Google Wallet.

Even with the Google Wallet coming to the UK this year, just in time for the Summer Olympics, NFC remains tantalizingly close, but still years away from mainstream. Cross-operator initiatives such as Isis in the U.S. and the UK’s Project Oscar will do much to move NFC mobile payments closer to the potential of a mainstream service.

What is becoming clearer is that the real potential of Mobile NFC is how it can integrate coupons, loyalty and payment in a near frictionless manner.

Gamification
Gamification is the rather unwieldy term to describe using game mechanics to build loyalty and drive consumer behaviour. Or to be succinct, make an activity into a game, where consumers are rewarded with points and prizes, and compete against themselves, friends or the wider community. These incentives are used to drive behaviour.

Consider retail banking; traditionally your banking behaviour has been driven by punishments such as overdraft charges and late payment penalty fees. With gamification you are encouraged and rewarded for positive behaviour, such as making regular savings, or making a purchase from a partner retailer.

Location Based Services
Location Based Services has long been a solution looking for a problem to solve. Despite LBS services being offered since the late ‘90s, they never managed to achieve significant momentum. In retrospect, the problem with LBS was clear – price, permission and purpose.

The advent of Smartphones with A-GPS solved all these challenges in one fell swoop. Users pushed their location, which both changed the charging model – but also solved the permission issues, as users could choose service-by-service which they gave their location to. Finally the huge range of external services, such as Facebook Check-ins, Google Latitude and Foursquare finally gave a rationale to sharing your location, as LBS became integral to social networks, loyalty and information services. The challenge, and opportunity, is to now integrated LBS in to your mobile commerce services.

The Challenge
In 2012 we will see companies accelerating activities and experimenting with mobile in order to engage their customers. Whether anyone can completely own a customer is yet to be seen, but there is an opportunity to fully own a customer at a moment in time – for a specific transaction. Mobile Commerce, be it through couponing, loyalty, engagement or payment will be the catalyst for growth in helping the consumer make choices, while offering value in the form of saving money or improving convenience.

This opportunity brings a major challenge when identifying solutions and implementing mobile commerce services. If you look at mobile commerce 5 years ago mobile banking was offered by banks, mobile payments by operators. Today we have banks starting to offer mobile payment services, and Operators running mobile wallets with Bill Pay capability. These clear lines of demarcation have become increasingly arbitrary, and this will only continue in 2012 and beyond.

It is no longer possible to think of these services one dimensionally. What is a banking service today, will include payments tomorrow. And that payment service will include remittances or banking in the future. But beyond that, any comprehensive mobile commerce solution will need to extend to be a combination of mobile financial services and mobile CRM services.

Mobile commerce solutions will grow in complexity, as they will be formed of lead services such as payments or coupons, and enablers such as gamification, LBS and NFC. So for those launching mobile commerce services in 2012, they need to ensure the solutions that they create and deploy are built to stand the test of time. This means building a solution that supports not just your initial (potentially modest) requirements – but also one that has the capability to support rich mobile commerce services of the future.

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Not Everyone Has An iPhone

When reading about mobile commerce, you could be easily forgiven for thinking that everyone has an iPhone. And if recent news coverage is to be believed, no one has a Nokia anymore. But neither is true.

Recently I took delivery of my first Android device, after my trusty Nokia E71 finally gave up the ghost. Whilst the Nokia was a stalwart companion for many years, wear & tear had taken its toll. After tweeting about the change of devices, the very kind people at Nokia offered me a two-week loan of an E6, the latest ‘version’ of my old phone.

This has put me in the fortunate position to run a little experiment: how do Android and Nokia (Symbian) mobile devices compare when accessing mobile finance services?

For the experiment I used the following parameters
- Must be a UK service
- Must be a service I currently use
- Must be free
- Must be a mobile commerce service (no dissatisfied fowl based apps).

Finally, I’m going to be a wee bit circumspect here with a few of the services tested. Not because I want to avoid heaping praise (or scorn) about a particular service, but rather that I’m going not provide lots of information to those pesky ID thieves.

App#1: Personal Banking
At first glance, the homepage of my bank doesn’t appear to mention mobile banking services, which is a wee bit confusing, as I get SMS alerts from them at least once a week. After more careful inspection, the link to their iPhone app is spotted. Clicking on this, I am then presented with all the options: there is the (obligatory) iPhone app, information on SMS alerts and instructions requesting a cut-down app (balance, statement and top-up) for other devices.

Android: I follow the instructions for requesting the cut-down app, which involve sending an SMS. Nothing happens. So I resend. Nothing. I give up.

Next I try their website in the Android browser. I get presented with mobile web landing page, with offers me the choice of that iPhone app again or a mobile friendly version of the site. I go for the later. The web page fails to load. After a few retries, I spot the problem – it is trying to serve an iPhone friendly webpage which my Android device fails to load. Not sure where the problem really lies, but either way I can’t access the site.

So the only thing I can access as an Android user, are the SMS alerts.

Nokia: Unlike the Android, when I send the SMS requesting the cut-down app I get a response. But whilst the app downloads, it fails to install. The Nokia isn’t yet supported, but plenty of other models are.

Next I tried the website, which like the Android initially takes me the mobile landing page that offers the iPhone app. But, when I go the mobile website, unlike the Android device – the page loads, I can log in and I have full access to my bank account. The high resolution screen of the Nokia and the keyboard make this a much better experience than expected.

Winner: Even though neither device had a dedicated device, the Nokia did succeed in logging in, and (potentially) will have a cut-down app in the near future.

However, the SMS alerts meant I did get some service no matter what type of device I had.

App#2: Credit Card
Similar to my bank, the card issuer I use has an SMS alert service that sends out weekly balance alerts and payment reminders. On their home page mobile access is clearly highlighted, and unlike my bank their rich app is for more than just the iPhone, with Android and Blackberry supported.

Android: Using Google Goggles I scan the QR code on the website (and eventually) this is recognised, and the Android app is then installed.

Logging in I come across a problem that is common theme with the rest of the sites. I use a password manager to create unique credentials for every site I use. On my laptop this is handled very transparently, but when logging in to Apps on a mobile device, you really feel the pain of entering a 12-digit password, particularly on a touch screen.

However once in, the app is full featured; allowing me to check balances, statements, loyalty points and make payments.

Nokia: No dedicated app, so I try accessing the website. Rather than pixel-for-pixel replicating the fill site as my bank did, I get a mobile web version of the site, which loads quickly. Whilst the site is cut-down, functionality is the same as the full site.

Winner: Android. But with a caveat – the credit card app doesn’t provide an option to store the password, and so would require me to enter my (purposely) fiddly password every time. So the app doesn’t make access a great deal friendlier than the Nokia with the mobile web edition of the site.

App#3 Paypal
Like a lot of people I’m a regular user of PayPal. For their mobile App, PayPal have added a number of P2P payment features; including the ability to ‘bump’ two phones together to transfer funds.

Android: Initially the installation of the app fails. Not due to an issue with the App per se, but rather with a limitation with the Android OS. Whilst I have a large (and mostly empty) SD card in my phone, not all Apps support installing on to the card (and in fact you can’t decide were Apps installed, they go where they go).

After deleting a few Apps, PayPal is then installed.

Through the App I can not only view my PayPal account, but also access the P2P payment functionality. One nice feature is that this is integrated with the phone’s contacts.

Nokia: Whilst there is a PayPal App for Nokia, at the time of writing it isn’t compatible with the E6. I was able to access the full PayPal site through the browser, which does include the P2P functionality, but not the ‘bump’ method of making a proximity P2P payment.

Winner: At the moment the Android is the winner, but once the App is updated for the E6, then this could be a draw.

App#4 Amazon
Time for some retail therapy, there are huge number of online shopping sites, so for this experiment I go with the largest in the UK.

Android: Both US and UK versions of the Android App are available. Of the Apps tested, Amazon was one of the few that allowed new users to sign-up for the service on the device.

Once installed the App provided a mobile optimised view of the UK Amazon service. Even 1-Click purchasing is supported, although personally I’m not sure if I could trust myself to not accidently click on random items as I browser and end up with a lot of unintentional purchases.

Nokia: No app for Nokia, but when using the browser I as given the option of using a mobile optimised version of the service or the full site.

Winner: If you aren’t a big user of 1-click, then this was very close to a draw. Both devices enabled me to browse and shop on Amazon.

App#5 Pizza
So after all that hard work, time to reward myself with a Pizza. The nearest big chain pizza delivery service to me is Papa John (other pizza vendors are available). They have a mobile web service but no Apps for any device, so it is a straight draw. They also send out marketing messages via SMS, so again a draw here.

Final Scores
Overall the Android is just ahead in terms of mobile support. Once the PayPal and my Bank’s Apps are updated for the E6, then it could be said the Nokia would be actually just ahead as its browser seemed to be more robust when dealing with the websites I encountered.

Summary
It is a very interesting experience coming to familiar services through the lens of a new mobile device platform, as it gives you an insight in to how new users of a mobile service experience mobile services.

There was a great deal of inconsistency in terms of how companies promoted mobile services and the experience as an end-user.

Mobile is no-longer an optional channel, but just having an iPhone app is not going to fully address your customers mobile access needed.

When launching a mobile service you need to
- Ensure your mobile service is clearly promoted on your homepage
- If possible, enable sign-up from the mobile device/service as increasingly consumers are using mobile as their primary internet access channel
- Just having an iPhone app will only provide access to a subset of your customers
- Determine which platforms are used in your market, and have a strategy to address them
- Remember SMS is accessible to all, followed by USSD and mobile web
- Mobile web versions of your sites enable you to reach more customers, use device detection to ensure the best possible user experience
- Think about how you deal with password, particularly for devices with virtual keyboards

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Are you compliant?

A question I’m often asked “Is your solution compliant?” and this is a question to which there is no short answer.

The challenge when you are talking about mobile commerce solutions is that there is no single regulation that is going to cover your solution. At a minimum, you need to look to local telco, banking, payment and marketing regulations. Beyond these, if you store credit card details then additional regulations from Credit Card companies come in to play.

So you can see, that deceptively simple question “Is your solution compliant?” at the very least will elicit the response “Compliant to what?”

So what are some of these regulations you need to be mindful of when launching a mobile commerce solution?

The Big 3: SAS 70, ISO 27001 and PCI DSS
When looking at mobile commerce solutions, these three standards are regularly mentioned – SAS 70, ISO 27001 and PCI DSS.

SAS 70 (Statement on Auditing Standards No. 70) is an internationally recognized auditing standard developed by the American Institute of Certified Public Accountants. A SAS-70 Type II audit analyzes a hosting service organization’s control over the information technology and processes that serve its clients.

Companies in the financial services industry are being required to show adequate oversight of service providers, such as obtaining a SAS 70 review conducted to comply with Gramm-Leach-Bliley Act (GLBA) requirements.

To comply with Sarbanes-Oxley mandates, public companies require SAS-70 Type II certification from their hosting service providers. In addition to offering compliance with federal regulations, a SAS-70 provides assurance to all of a service organization’s clients that the controls, processes and procedures evaluated are operating effectively.
SAS 70 is a US standard, and is applied at the organisation level. SAS 70 only applies when we are offering a managed service. Where the managed service involves cardholder data, then PCI compliance is also required.

PCI DSS: The Payment Card Industry Data Security Standard is a worldwide information security standard and was created to help organizations that process card payments prevent credit card fraud through increased controls around data and its exposure to compromise. The standard applies to all organizations that hold, process, or pass cardholder information from any card branded with the logo of one of the card brands (Visa Card, MasterCard, American Express, Discover and JCB).

Simple put, any solution where we
• Store or transmit cardholder details
• Act as a PIN entry device for card payment (using the card PIN, and not a mPIN)
• Store, process or transmit cardholder data as part of authorization or settlement – and sell, distribute or licence product to a third party.

If a solution involves cardholder data, certification is compulsory. It should be noted that PCI applies at a product or implementation/deployment level, and so would require a certification per instance. You get compliance for a deployment, not for the software.

ISO/IEC 27001 formally specifies a management system that is intended to bring information security under explicit management control. It can be summarised as follows:
• Systematically examines the organization’s information security risks, taking account of the threats, vulnerabilities and impacts
• Designs and implements a coherent and comprehensive suite of information security controls and/or other forms of risk treatment (such as risk avoidance or risk transfer) to address those risks that it deems unacceptable
• Adopts an overarching management process to ensure that the information security controls continue to meet the organization’s information security needs on an ongoing basis

ISO 27001 is an international standard, and is based at the organisation level.

Country Specific Regulations
Detailing all the regulations that are applicable, in every country is beyond the scope of this mere blog post, so instead I’ll look at one country’s regulations to provide an insight in to what you can expect to encounter.

FSA compliance: BCOBS, the Banking Conduct of Business Sourcebook (From the FSA handbook)
BCOBS 1.1.1 applies to Companies that accepts deposits from banking customers. If the proposed solution was includes accepting deposits, then these regulations would apply.

There is a requirement that banks to ensure certain requirements are met when outsourcing operational functions that are ‘critical to the performance of regulated activities’ which is detailed in SYSC 8.

Key to SYSC 8 is ensuring that the systems and controls we have in place for the protection of customer data (sort codes & account numbers) are adequate. Any mobile commerce solution must not impair the ability of the FSA to monitor the bank’s compliance with all obligations under the regulatory system.

EU Directive on payment services (PSD): The aim of the PSD is to ensure that electronic payments within the EU and in particular credit transfer, direct debit and cared payments become as easy, efficient and secure as domestic payments within a member state.

Beyond the Financial regulations, additional regulations include
Equal Opportunities/DDA: Ensuring accessibility to products and services
Paperless-customers: Keeping customers informed of important notifications, if they start to use a mobile App as their main banking channel.

And of course the local mobile regulations from not just the operators, but also regulatory bodies such as PhonePayPlus.

Summary
For any solution, hosted or deployed, that involves a (credit/debit) cardholder’s details PCI compliance is mandatory. This requires certification on a per instance basis.
When identifying a vendor, if they are going to host the solution for you, you should be looking for SAS 70 or ISO27001 depending where in the world the solution is hosted.
Beyond these, you need to look at a wide variety of regulations financial, governmental and telco.

When looking at a mobile commerce solution, perhaps the better questions is “can it achieve compliance?” The answer to this is ultimately highly dependant on the flexibility of the solution, and the experience the vendor has of deploying products in a wide range of regulatory environments.

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The Economics of Open and Closed Mobile Payments Schemes

In a previous blog posting I discussed how mobile payments schemes could be viewed as either closed or open schemes. Whilst the schemes differ in complexity in set-up and running, perhaps more fundamental is the difference between the business models behind the schemes.

Two-Party Schemes
The simplest (mobile) payment scheme is a Two-Party scheme. These schemes are typically Merchant run. In world of credit cards, these are the store issued cards that can only be used at the store that issused them,
2 Part System
In this model the Merchant deals with all aspects of the service, from issuing the mobile payment app, authorizing payments and collecting of funds. In the mobile payment world, the US Starbuck mobile payment service is a great example of a two-party scheme.

However, unlike traditional store cards, the Starbucks scheme is debit-based, where consumers top-up their stored value account (SVA) prior to making a purchase. This greatly simplifies running the scheme as accounts are always in credit.

Three-Party Schemes
A Three-Party scheme is where an independent company issues cards that work at multiple merchants.
3 Party System
In this scheme independent company (the issuer) is responsible for the issuing of the payment instrument (card, mobile app,…), manages the (payment) network and approves payment. The issuer builds the network by acquiring customers (account holders) and merchants. This is the model that American Express started with, and any mobile payment scheme offered by say a single Mobile Operator, for example M-Pasa.

Like Starbucks mobile payment scheme, many three-party mobile payments schemes are based on debit rather than credit. Some schemes get their customers to preload credit into an SVA, whist others link to an external funding source such as bank account or credit card.

Four-Party Schemes
Finally there is the Four-Party system. In these systems multiple issuers are brought together to create the payment scheme.
4 party system
In this system we have issuers and acquirers. The issuers are responsible for attracting customers (account holders), and the acquirers bring merchants in to the system. This is the model that the credit card schemes such as Visa and MasterCard follow, and mobile payment services such as mpass or paybox follow.

Business Models
The business models of these three systems are very different, and in particular how each scheme funds itself.

Two party mobile payments systems are based on avoiding interchange fees. Take the example of the Starbucks card. As a user you top-up your eWallet via a linked credit card, for which Starbucks pays an interchange fee on the transaction. That one transaction, loads enough credit to fund perhaps 10 coffee purchases in the store. And if the customer had paid by credit card for those transactions, Starbucks would have paid 10 interchange fees, rather than one. So they are aggregating your transactions in advance. Of course there are additional benefits as customers may be more loyal when deciding where to purchase their next coffee, and may purchase additional items such a blueberry muffin as the ‘cost’ of the transaction is hidden compared to say handing over cash.

Three party (closed-loop) mobile payments systems are generally work on a fee-based model. Here the party running the scheme charges a fee for each transaction. For the merchant, the fee charged for the transaction balances out the inherent costs from running a scheme themselves. And for the consumer, they benefit from a payment instrument that is not tied to a single merchant and so can be used in a wide range of locations.

In a Four Party mobile payments you have issuers and acquirers. The role of the issuer is to attract customers, whilst the acquirer brings merchants in to the scheme. When consumer makes a purchase in store, an interchange fee is paid from the merchant’s acquirer, to the party that issued the service to the consumer. The aim of the fee to cover the costs that issuer incurs not just bring customers to the scheme but other costs such as collecting funds, billing and customer service.

Today we see mobile payments schemes adopting each of these models, and like traditional credit cards there is room for all of these models.

For merchants, launching a two-party scheme offers the fastest time to market. The real challenge here is whether your customers/business could sustain a dedicated payment scheme. Like store cards, consumers may be willing to hold a few store specific cards, but they won’t have a card for every store they use. However, as discussed in previous posts, mobile vouchers/loyalty is an option that is suitable for a much larger range or merchants.

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The Open and Closed Case for Mobile Payments

Mobile Payment Schemes
Mobile payments don’t exist in a vacuum. Just as a piece of paper doesn’t magically become a bank note, or a rectangle of plastic become a credit card, your phone can’t just suddenly start paying for goods and services. You need a payment scheme behind the scene to make this happpen. At a very minimum a scheme has to handle funds in, funds out and authenticating transactions.

In the mobile world there are a number of mobile payment schemes today. From the long-standing premium SMS services to the brave new world of NFC. Whilst the technicalities of these schemes vary greatly, all schemes fall in to two broad camps: open and closed payment schemes.

Approach 1: Closed
Perhaps the best know of these schemes is the Starbucks Mobile Payment scheme which is currently running in the USA.

This type of schemes work on a closed-loop, and are limited to either a single merchant, or occasionally a single locale. So in the case of Starbucks, you load funds in to your Starbucks wallet, and then you can draw against this when your purchase coffee. Starbucks have been running a card-based version of this scheme for some years now. The mobile version swaps the mag-stripe swipe for a 2D barcode scan.

So what are the benefits of this approach? Well for consumers moving from the card to the phone means one less bit of plastic to clutter their purse/wallets. But beyond that you can also instantly check your balance and recent transactions.

For Starbucks, there are two clear benefits. Firstly they save on interchange fees. Customers no longer swipe their credit card for single transactions, but instead they periodically load $20 or so on to the card. This means Starbucks pay 1 credit card processing fee rather than 5 or more if the customer had paid per beverage.

The second advantage is that enables Starbucks to build a profile of their customers purchasing habits, and the potentially offer bespoke offers and promotions.

Approach 2: Open
Open schemes are by far the most common, and the type that consumers are most familiar with. Open schemes are not tied to a single merchant or locale, and open to anyone joining the scheme. Cash is certainly the most established of these, but that Visa or Mastercard credit card in your wallet is also another example.

Open mobile payment schemes are a ‘relatively’ new in the scheme of things, but are increasing in number every year. Perhaps the longest established is paybox in Austria, but others such as mpass and MobileP@y have more recently launched.

These schemes work in a similar manner to existing credit card schemes, with merchants joining and accepting payments. Some schemes are run across mobile operator groups (for example paybox and mpass) or independently (for example Mobikash).

For merchants there are numerous advantages to joining the scheme, range from providing a better online purchasing experience (mpass) to enabling incremental purchases (paybox for car parking).

Open Vs. Closed
The end-user experience when making a purchase is very similar whether you are using a closed or open mobile payment scheme, so do consumers care about this technical difference?

The challenge here is that whilst the payment experience is much the same, the difference is that your coffee store scheme only works in that coffee store chain. So it requires consumers to have a payment scheme per merchant. Not only do they need to download/install an app per store, but also they then need to individually load funds in to each scheme. The big question is just how many brands can command that level of commitment from their customers?

Clearly Starbucks had a huge headstart from having an existing prepaid card scheme before moving to mobile. Also their customers tend to make frequent visits and are receptive to switching payment methods for a better experience at the point of sale. But how many other merchants match this profile?

For most merchants the logistics and costs of implementing a closed mobile payment scheme are not realistic. But this doesn’t mean they can’t exploit the mobile channel to create greater customer intimacy.

There is a whole range of mobile CRM tools and services that can be run in parallel to existing payment schemes. From on-pack coupons to drive loyalty schemes, to customer outreach via the mobile channel there are wide range mobile CRM services being launched.

Most retailers are not going to setup and run their own mobile payment schemes, but in the coming year expect to see some very innovative mobile CRM services to be launched that complement existing payment methods.

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NFC: The Devil is in the Detail

A Flurry of NFC Announcements
If you have been following the mobile payments news recently you will have been seen the flurry of news around NFC, and in particular the rumours regarding Google’s entry into this space.

“Google is poised to roll out Near Field Communications-based mobile payment trials at stores in the New York City and San Francisco markets, enabling shoppers to purchase products and services by bumping their smartphone against a point-of-sale digital reader.”
http://www.bloomberg.com/news/2011-03-15/google-is-said-to-ready-payment-test-in-new-york-san-francisco.html

Google isn’t the first company to have thrown its hat in the ring for NFC services. Perhaps the the largest venture has been the joint venture involving AT&T, T-Mobile and Verizon Wireless.

“Three major U.S. mobile operators have created a joint venture known as ISIS, which intends to build a mobile payment solution that will allow consumers to make purchases at retail stores with just a wave of a mobile phone at the checkout counter. The founding members of the JV include AT&T, T-Mobile and Verizon Wireless.”
http://blogs.forbes.com/velocity/2010/11/16/the-isis-mobile-wallet-are-visa-mastercard-and-paypal-under-siege/

What is NFC?
NFC or Near Field Communication is a relatively new form of ultra-short range wireless communications between devices. It is much like Bluetooth, but with a much shorter range, with much easier set-up, specifically designed for services such as payment or exchanging small bursts of information.

You may already be using NFC; if you have a Visa payWave credit card then you can consider yourself an early adopter of this technology. Every time you are tapping that card to pay, you are leading the way for the next generation of payment instruments.

NFC and Mobile Payments
Since the late 90s there have been numerous attempts to turn your phone in to a universal payment device. Even the original SIM cards were the same size as a credit card, albeit without the magnetic stripe.

Initial attempts at enabling purchases via mobile phone focused on sending simple barcodes to your phone; an approach that is still being used today, more than 15 years later. This was followed by PSMS (direct to bill charging) and more recently by payment commands issued by SMS, USSD, WAP and mobile apps.

The challenge, however, remains the same. In developed markets retailers are not eager to accept these approaches since they slow down the speed of processing at the checkout. And consumers have been largely resistant in the absence of any clearly compelling benefits over traditional payment methods (cash, cards, cheques, etc.).

NFC vs. NFC vs. NFC
What most of NFC mobile payment stories fail to address is that there are three NFC standards, and only one of which is actually suitable for payments. They also often fail to differentiate between integrated mobile NFC and a mobile device with NFC co-located.

NFC supports three methods for communication:
Peer-to-peer: intended to enable to devices to quickly connect/share information. For example bumping two devices together to swap a business card.
Read/Write: a non-secure mode for exchanging information. For example touching a smart poster with your phone to check-in to location for a FourSquare-like check-in.
Card Emulation: this is the mode that enables an NFC handset to act as a smartcard/credit card. Importantly, it is the only secure mode for NFC.

The 3 NFC Modes

Google Nexus S supports the Read/Write mode. So any trial will be limited to checking in to locations or grabbing simple vouchers or promotions – not a replacement for your contactless credit card.

Of course, at this early stage Google has plenty of time to upgrade to Card Emulation mode. But there is still another challenge to overcome before you have a true NFC mobile payment device.

What Makes a Credit Card a Credit Card?
This may sound like a Zen koan, but it isn’t. What makes a contactless credit card a credit card is not the wireless antenna, but its Secure Element (SE). Put simply, the SE is the combination of software and hardware that proves that the card is genuine, and links it to your debit orcredit account.

On a conventional card, the series of 1s and 0s encoded on the magnetic strip accomplish this. With NFC, the SE is a discrete component distinct from the radio component of NFC .

The Secure Element and NFC

So where does the SE exist on the phone? Well, this is the second challenge for NFC mobile payments – no one can agree on this today. Some banks favour creating a software version of the SE and putting on your phone’s SIM card. Whilst others, like the ISIS joint venture, favour integrating the SE into a mini-SD memory card. The appeal to banks of the latter approach is that it closely mirrors how the issue credit cards today. They manufacture a card, personalise it for a specific customer (i.e., add the SE element), then ship the card to the customer.

Ignoring the obvious problems with some devices (all those iPhones with no mini-SD slot, for starters), the question remains: what mix of components and design will mobile NFC payment ultimately comprise?

The Truth is Out There
NFC mobile payments are coming, there is no doubt. The huge success of services like the Starbucks barcode payment scheme show there is a huge appetite for mobile payment services.

However, at the present time the lack of agreement over key elements of NFC limits existing solutions to interim status. Of course, even a hodge-podge of schemes will accelerate demand, educate customers and help build mobile payment ecosystems. You just might not want to hold your breath!

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NFC: Fact or Fiction

Why NFC is still years away from being mainstream & what you should be doing to be prepared for mobile payments

Attendees polled at GSMA Mobile World Congress February 2011, 76 percent believe mobile proximity payments using NFC technology is still at least two years away

What is NFC?
NFC or Near Field Communication is a new form of ultra-short range wireless communications between devices. Just as your cell phone can connect you to the mobile network’s radio mast tens of miles away, its WiFi capability connects to hotpots hundreds of metres away, Bluetooth can connect up to 10 metres or so, and now you have NFC that connects to devices up to a few centimetres away.

NFC was designed with a number of applications in mind, and in particular as a means of triggering a payment.

One of the first examples of this has been Visa’s payWave credit cards. When using this card, you don’t need to swipe your card, or even remove it from your wallet/purse. Just tap it against a payWave pad in a store, and your payment is made. No signature, no PIN – just tap and go.

Now this might seem very familiar to you if you have used transport-ticketing system like London’s Oyster or have an electronic toll pass. However, whilst the user experience is similar, the technology and business processes behind this are very different.

Why does it matter for mobile?
Mobile payments can be traced back to the 90s, but it has always been limited in its application by the technology generally available.

One of the first mobile payments was bill pay in the early mobile Internet (née WAP) banking applications. This was followed by premium SMS (or direct-to-bill) services for ring tones and more recently schemes like paybox Austria which covers remote and proximity payments such as car parking and vending machines.

Whilst the numerous mobile payment schemes have been successful, and in particularly, with remote payment scenarios. In proximity scenarios for low-value/high-speed transactions mobile payments are not quite there. And so NFC has been seen as the solution for this particular scenario.

What is holding back NFC?
Anyone reading the mainstream press in the last few months might believe than mobile NFC is either here now, or just waiting for the new iPhone 5. However the reality of the situation is a little more complex than that.

For a phone to work in the same manner as that Visa payWave card, it needs at a minimum
(1) NFC wireless capability added
(2) A Secure Element to verify its identity (just as your credit card has either a mag-stripe or chip embedded in it)
(3) Retailers to have NFC readers/POS
(4) Your phone linked to a source of funds/line of credit
(5) Agreed business rules (Visa payWave has a maximum transaction limit, and process for verifying the customer is the transaction is suspicious)

So even if the next iPhone has an NFC chip that still doesn’t make it a true NFC payment instrument.

The biggest challenge today for NFC is not just the lack of NFC capable handsets, but industry agreement on the Secure Element (SE) and the standards/business rules that will define the payment schemes.

Take the Secure Element. Many European banks have looked at SE being software based, and installed on the SIM in the phone. But in America some banks have are experimenting with issuing mini-SD memory cards with an SE and sometimes even the NFC chipset. The problem here: your CDMA phone might not have a SIM slot or the SIM is non-removable, and if you have an iPhone then you don’t have a mini-SD slot.

Or look at the retail side. Most large retailers are on a 10-year replacement cycle for their point of sale (POS), so getting them to install new NFC terminals is not a straightforward proposition.

What Does the Industry Think?
At the GSMA’s Mobile World Congress (February 2011) we spoke to 251 mobile industry members, and asked them for their view on when mobile NFC will happen, and what is holding up its progress.

The main finding was that the (mobile) industry recognises for mobile payments to take off, a concerted effort is needed from all the players (operators, banks, handset manufacturers, and merchants).

However the big surprise was the gap between the industry’s expectations of when NFC will happen, when compared to a lot of the press coverage over the last few months. Most people interviewed saw NFC being at least two years out. Even the most enthusiastic region (the Americas) only 49% thought NFC mobile payments with in a year.

With the exception of the Americas, we got very consistent feedback from those interviewed at Mobile World Congress, and that was there was no single factor holding back NFC, but rather that lack of suitable handsets in consumers hands, limited number of NFC readers at point of sale, the incomplete standards and the need for improved coordination between stakeholders.

Respondents from Asia and EMEA saw all these reasons as approximately equal. Those we spoke to from the Americas focused on lack of coordination (51%) as the main barrier.

How do I get NFC ready?
The clear message from those we spoke to is that for NFC mobile proximity payments to be a success, there will need to be a much greater deal of cooperation and coordination across all stakeholders.

Merchants/retailers need to ensure they have a mobile strategy in place, and beyond that to start preparing for mobile payments. This can be as simple as pre-emptively collecting their customers’ cell number, to starting to use the mobile channel today to start building consumer confidence.

Are there alternatives I can use today?
What we’ve seen in the last few years is that developed and developing economies have had a marked difference in their approach to mobile payments. In developing economies the focus today is very much on remote mobile payments. In these economies there is a large proportion of unbanked, and so carry/sending money is a major challenge. So remote payments provides a huge benefit. As existing mobile technologies (SMS, USSD, WAP) can be used, rather than waiting new technology is a huge benefit.

In developed economies, it certainly clear that many countries are focusing proximity payments for their lead mobile payment services. But even here we see a split, with some markets waiting for NFC, whilst others launching interim solutions. The advantage of the latter approach is that they are creating momentum today; you need an eco-system of merchants and customers. That’s the final frontier.

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