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Subject: Motorola Tests M-Commerce
- From: "Ed Dodds" <dodds@e-dodds.com>
- To: "Ihc@Lists.Oasis-Open.Org" <ihc@lists.oasis-open.org>
- Date: Wed, 13 Oct 2004 22:02:56 -0500
Title: Message
Motorola and MasterCard want to prove that reducing
the fumble factor can save merchants money.
Phones equipped with PayPass, MasterCard's
contactless payment service, are expected to go through rigorous testing in U.S.
cities by the end of the year, the companies said.
"In essence your phone will become your wallet, key
chain and your ID," Ron Hamma, vice president and director of enterprise
business development for Schaumburg, Ill.-based Motorola, said in a statement.
PayPass, a contactless payment platform developed
by MasterCard with VivoTech, lets users tap or wave a device in front of a
special reader in order to process a transaction. With PayPass, MasterCard is
targeting retail establishments that have low-value transactions that are mainly
cash-based, such as quick-serve restaurants, movie rental shops, theaters and
casual dining restaurants.
"MasterCard's overriding goal is always to increase
transaction volume," said Jupiter Research analyst Bruce Cundiff. (Jupiter
Research and internetnews.com are owned by the same company.) "They're also
going after merchants that benefit from quicker transactions. McDonalds is a
perfect example."
In August, McDonalds announced that some
restaurants in Dallas and New York City would accept PayPass by the end of the
year, with more locations participating in 2005.
Purchase, N.Y.-based MasterCard, the second largest
credit card company, needs to try harder, Cundiff said, and m-commerce is one
way of differentiating itself.
MasterCard has completed trials of credit cards
with embedded chips in Orlando, Florida. It also worked with Nokia (Quote,
Chart) on tests of PayPass-enabled phones in Dallas, Texas. For this test, chips
embedded in special cover plates on phones were pre-programmed with users'
MasterCard account information.
Around 16,000 Orlando credit card holders and 500
to 700 Nokia users in Dallas could use contactless payment at a variety of
participating drugstores, gas stations, movie theaters and restaurants.
MasterCard said it has rolled out these tests
slowly and carefully. The PayPass offering was announced in December 2002, and
the nine-month Dallas pilot began in May 2003.
In those tests, the company found that retailers
had the potential to increase revenues by decreasing checkout time. In
drive-through establishments, PayPass shaved between 12 and 18 seconds off a
purchase when compared to cash. In Dallas, the average PayPass payment made
using a mobile phone was six seconds faster than using a card, because shoppers
spent less time fumbling through their wallets.
Proving PayPass saves merchants money could be the
key to adoption of the technology, Cundiff said.
"It hasn't made sense for the low-to-average-ticket
merchant to accept credit card payments, because they lose a certain percentage
of the transaction [due to fees]," he said. While the major credit card
companies have tried to show that there are hidden costs to accepting cash, such
as theft and physical management of the money, the decision remains with the
merchant. "MasterCard sees [PayPass] as its way into those merchant types,"
Cundiff said.
Getting mobile phone manufacturers involved can
help MasterCard with some of the development costs. "MasterCard, up to this
point, has been bearing most of the burden of the investment," he said.
"Involving Motorola and making the case that it's beneficial to them may be a
way of spreading the investment burden across a larger number of players."
The successful implementations of contactless
payment systems in Japan and Korea have been driven by telcos, Cundiff said. But
phone-based mobile commerce has been slow to take off in the States, where
mobile networks are slower and use inconsistent protocols.
Svante Rodegard, an independent consultant to the mobile payments
industry, said, "PayPass is the right way to do it. The problem has never really
been the technology itself." He pointed out that SIM (define) cards in GSM
phones, wireless access protocol (WAP) and RFID tags (define) also could provide
mobile commerce, but these systems are all server based.
"This is more of a direct transaction," Rodegard said, "because PayPass
ties into merchants' existing POS system. It's not really changing the payment
system; it simply transfers the information from the magnetic strip on the
credit card to the phone."
Involving handset manufacturers is something of a coup, according to
Cundiff, because concerns over who owns the customer could stall m-commerce.
Because in the U.S. most mobile phones are sold by network operators, the
Motorola/PayPass system also brings telcos to the party. Those operators will
need to agree to the form factor of the phone, while the banks issuing the
credit cards will need to feel confident about the security and storage of their
customers' financial information.
"It's a multilateral relationship. Card issuers will have to build a
consortium and give others a piece of control over the relationship with the
consumer," Cundiff said.
But struggles to control customers and their information in the m-commerce
world are only beginning, according to Maria Christensen, a micro-payments
consultant based in Sweden.
"The question of who is the owner of the card, of the applications stored
on the card and of the connection to the communication link must be sorted out,"
she said. "The operators don't have a business models for adding an extra
application to the card, and the banks wants control over the business process."
There's another thorny problem, according to Christensen: Each
m-commerce-enabled phone will contain an "empty card" before it's sold and
activated, in the form of a master key stored in the card. Who controls that
key?
Security of the stored information and the phone itself is another issue,
one on which the announcement was vague. "One of the biggest problems using
credit cards is fraud," Rodegard said. "Is this fraud prevention any better than
credit cards?" Motorola and MasterCard executives were not available for
comment.
The Motorola phones will be able to run other applications besides payment
and act as readers. They could be used for ticketing for mass transit or to
receive promotions such as coupons. The companies expect trials of the
m-commerce phones to take begin in several U.S. locations by the end of 2004.
Ed Dodds
dodds@e-dodds.com
<e-dodds.communications/>
615. 429. 8744 cel | tel
508 . 632 . 0370 fax
ed1dodds aim
49457096
icq
Read <Conmergence/>
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