Â Cell Phone as an Electronic Wallet Term Paper
Cell Phone as an Electronic Wallet
Rapid advances in technology in recent decades have brought about a dramatic change in the way people work, transact and communicate. Yet, it is widely believed that there is still ample scope for technology to make life even more convenient and efficient. For instance, the cell phone is already showing the promise of functioning as an electronic wallet. It is the purpose of this paper to demonstrate that using the cell phone, as an electronic wallet, will in fact add a great deal to convenience and safety, especially in the area of replacing plastic credit, debit and smart cards.
paid card; convenience; efficiency; safety; security; electronic; identification; business; bank; credit card company; consumer; transaction; identity theft; fraud; charge back; commissions.
Advances in Information Technology and Communication in recent decades have brought about a dramatic change in the way people live, work and play. Consider, for instance, the manner in which the Internet and the mobile phone have significantly changed the communication landscape or the way that ATMs and plastic cards have replaced bank tellers and the need for cash. In fact, it is now hard to imagine a world where one is unable to stay connected with family, friends, and business associates round the clock, irrespective of geographical location. Similarly, long queues to pay bills or withdraw cash are now pretty much inconceivable in a day and age when shopping, banking, and even tax returns can all be done online.
Indeed, the impact of modern technology on human society and life is reflected in the fact that 64% of all Internet users say that their daily routines and activities would be affected if they could no longer use the Internet (IT Facts, 2004, para 2). In a similar vein, it can be inferred that the 175 million U.S. adults who currently use the convenience of a debit card to pay for their purchases or the 180 million (62% of the population) who use cell phones (Mobatech, 2003, para 6) would express a similar sentiment about the convenience of card payment or mobile communication.
Still, it is widely believed that there is ample scope for technology to make life even more convenient, efficient, and secure through better integration of voice and data devices. For instance, the cell phone is already showing the promise of functioning as an electronic wallet. It is the purpose of this paper to demonstrate that using the cell phone, as an electronic wallet, will in fact add a great deal to convenience and safety, especially in the area of replacing plastic credit, debit and smart cards.
Current trends in consumer usage of Information Technology
The conveniences afforded by modern technology have naturally benefited both businesses and consumers alike, since the use of such technology results in greater efficiencies. Indeed, the benefits offered by the wired and wireless world has resulted in 79.5% of the U.S. adult population accessing the Internet at work, home or from other locations (IT Facts, 2004, para 9).
The widespread penetration and usage of the Internet has also naturally led to the growth of e-commerce. For example, a study done by Internet Retailer found that $70 billion worth of merchandise was sold online in the U.S. In 2003 (Love, 2004, para 1). This astronomical figure is not surprising given findings that 55% of Internet users buy tickets for movies, plays, and sporting events online; 44% say that they do banking and bill paying through the Internet; and 33% claim to use the Internet to purchase everyday items (IT Facts, 2004, para 5).
The figures cited above are, in fact, expected to continue to grow with increasing penetration and usage of the Internet, accessed through PCs and various types of wireless devices, including the cell phone. One indication that this expectation of further growth will materialize is the more than tenfold expansion of online banking between 1996 and 2003; a trend that still continues. This is evident in a recent study by TowerGroup Research, which found that 22 million customers logged onto their bank accounts in March 2004, representing a nearly 30% increase from 2003. Further, the same study estimates that the use of online banking will continue to grow with 42.5 million customers or 37% of all U.S. households registering to bank online by 2007 (IT Facts, 2004, para 10).
If Information Technology has changed the way the average citizen lives, works, and plays, it has also resulted in enabling business processes to grow increasingly more efficient. This is certainly true of the financial services industry, which has benefited vastly from the manner in which Information Technology has enabled almost instantaneous processing of financial data and transactions. Indeed, this fact is reflected in the growth of online banking as well as the use of certain financial instruments such as plastic credit and debit cards: “Debit and credit cards overtook cash and checks last year as America’s retail payment of choice. Consumers employed plastic in 52% of in-store transactions last year as debit card use surged and cash faded.” (Weston, 2004, para 2)
In fact, the growing use of credit and debit cards by consumers has led to the market for credit cards in America being rated as one of the most important and dynamic segments in the financial services industry, with an already $1.5 trillion worth of transactions in 2002 projected to increase to $2.8 trillion by 2006 (Deloitte, 2004, para 1).
America is not isolated in seeing the impact of technology on business and human lives. Not only are similar trends occurring world over, technology is also contributing to creating a borderless, global economy. Thus, the penetration and use of the Internet, accessed through either the PC or various wireless devices, is a global phenomenon that is increasingly creating a highly networked world.
The role of the cell phone
Another technology device that has also clearly made significant contributions to the creation of a highly networked world is the “handy” cellular phone. Indeed, the convenience derived from the cell phone has resulted in the instrument being seen in almost every hand, with global mobile users currently estimated at 1.52 billion (CellularOnline, 2004); a figure that is further increasing almost every day.
Interestingly, although the cell phone began as a basic wireless voice device, it has quickly developed into an instrument with both voice and data capability with most handsets now Internet enabled as well. It is this versatility, which has led several telecom companies such as NTT DoCoMo in Japan, to develop plans that will transform the cell phone into a kind of remote control for an average citizen’s entire life:
Like a regular cell phone, it will make and receive telephone calls. Like a regular i-mode device, it will let you send and receive email, play online games, and access any one of the 78,000 I-mode compatible websites around the world. And like other DoCoMo phones, it will take photographs, read bar codes, and play downloaded music over headphones…. But it will also contain a special chip made by Sony that lets it pay for groceries, serve as personal identification, unlock doors, operate appliances, buy movie and subway tickets, and perform dozens of other tasks.” (Mann, 2004, p. 44)
Besides NTT DoCoMo, several other telecom, consumer electronic, information technology, and credit card companies are currently aggressively developing and testing devices that will deliver a similar concept, especially in the area of cell-phone-based payment systems. Such cell phone-based systems are tipped to experience a phenomenal growth since it is envisaged that they could succeed in bringing about better integration of voice and data functions, thereby negating the need for a consumer to use multiple devices. “As better devices and lower prices combine with other factors to fuel growth…smartphone shipments are set to rise dramatically over the next five years, reports In-Stat/MDR…will experience a 44% Compound Annual Growth Rate (CAGR) over the next five years.” (IT Facts Biz, 2004, para 8)
No doubt, the growth of smartphones will be further fuelled with the development of cellular technology, which enables cell phones to carry out a whole range of electronic tasks. In fact, it is anticipated that cell phones or smartphones will replace the consumer’s wallet and the need for current forms of plastic debit, credit, and smart cards; identification cards; all kinds of tickets; and even key cards.
Thus, it is obvious that the cell phones of the future will be in a position to deliver even greater convenience by offering a single window or remote control to virtually all aspects of life. In addition, there is ground to believe that such cell phone systems will also afford greater safety as compared to the existing plastic card payment systems, besides accelerating the growth of m-commerce and benefiting businesses, merchants, and consumers alike.
Cell Phones as electronic wallets: a glimpse into the future
As observed earlier, NTT DoCoMo in Japan is already well on the way to developing a cell phone, which it believes will function as a remote control to an average citizen’s entire life. In fact, DoCoMo’s plans are seen as perhaps becoming the first step towards a low rent version of one of computer science’s biggest dreams: ubiquitous computing or the promised “third wave” in which networked computers merge seamlessly into the human environment.
Of course, the ultimate dream for ubiquitous computing is a scenario where office worker’s refrigerators scan themselves every afternoon to see whether they have any milk, and when workers get into their cars, their phones automatically call their houses, which respond with “buy milk” reminders. Although DoCoMo’s current plans are nowhere near that ultimate dream, their new cell phone system is seen as a first step because it aims to replace the consumer’s wallet: “All the credit cards, loyalty cards, keys, money – all that stuff in a woman’s purse or man’s wallet – should go into the phone…you shouldn’t need anything else but your clothes.” (Mann, 2004, p. 44)
While DoCoMo may have just introduced a line of four mobile phones that can be used as an electronic wallet at 9,000 locations (Lindenberg, 2004, para 2), South Korea’s three telecom giants, major credit card companies and several banks have already been working together for almost two years to enable Koreans to pay for everything from groceries to gasoline by cell phone. In fact, Korea probably currently leads the world in the development and deployment of such technology, which enables Kim Won-jung to walk up to a vending machine and buy an orange drink with just the press of a cell phone button (Joshi, 2003, para 1).
Korea and Japan’s being at the forefront of such cell phone technology is not surprising since the cell phone is already used in these countries for a lot more than just a tool for talking: “Kids surf the Internet. Parents transfer money. Some play the lottery, others book movie tickets and millions snap pictures. So why not make the phone a full-fledged wallet.” (Joshi, 2003, para 8-9) Indeed, it is the wide spread popularity and use of the cell phone for far more than just making and receiving phone calls, in countries like Japan and Korea, that has led to the development of cell phone-based payment systems by storing the data for credit and debit cards in the hand sets: “Credit cards are just a physical variant of identity, so anyway you can identify someone can be a way to pay for things.” (Maney, cited Gage, 2003, para 1)
Thus, the writing is on the wall for a future world where instead of handing over credit or debit cards that get swiped, cell phone users will be able to simply type their passcode on their phone keypad, point the device at a special receiver on a checkout counter and press a key: “It’s as simple as operating a TV remote. The phone shoots the card data in an infrared beam or radio waves. No signature is necessary. For small payments at vending machines, the passcode isn’t even required.” (Joshi, 2003, para 11-12)
Cell phone-based payment systems are also likely to benefit consumers by offering the convenience of paying for daily, small value financial transactions such as the use of mass transit systems or even car parking facilities. In fact, such systems have already been implemented in several parts of the world such as Japan and Estonia. Though there are several, different versions of cell phone-based payments for the use of transit systems and parking, for consumers any well-designed payment option via the cell phone, will mean relief from coins or coupons: “…To Juri and others from Estonia and many other cities in Central and Eastern Europe, the parking systems in the United States…with payment terminals, easily counterfeited tokens and tickets, barriers, parking guards collecting cash – seem hopelessly old-fashioned.” (Dyson, 2001, para 7)
As compared to such old-fashioned, multi-tiered payment systems, parking in Estonia is simply a matter of sending an SMS (Short Message Service) to the city’s parking service. Based on the cell phone number, the license number, and the location entered, the parking service’s database just registers the car as parked, with a rate tied to the location and time (Dyson, 2001, para 3).
In a similar vein, cell phone-based payments are expected to increase user convenience, besides resolving many of the present problems that are inherent in smart card payment systems that are currently used in many mass transit operations:
the cards do have disadvantages. Because users can’t see how much money remains on their cards, they often discover they have run out, or don’t have enough to pay their fares, only when the doors slam shut on them as they try to walk through the turnstile. Exacerbating the humiliation…cards are inconvenient to recharge: a card owner must back out of the turnstile…find the nearest…machine, and put the card and money into it. If a card is stolen, its owner may be out of luck: unlike credit cards…can’t be canceled…some Tokyo customers report that…chips go bad after a year or so in sweaty wallets…. When the cards die, their owners lose whatever money is still on them.” (Mann, 2004, p. 48)
Connecting the smart card to a cell phone with a sophisticated display will eliminate the problems described in the above scenario in one stroke. For instance, instead of recharging the cards, cell phone users will simply call up their bank Web sites and add funds to their accounts by direct deposit, then read their balances on the phone’s screen. Further, since the carapace of the phone handset will protect the “smart” chips, the chips are less likely to go bad. Even if they do break down, the bank records all transactions, preventing monetary losses. And if thieves snatch the phone, a simple phone call to the telecom company cancels the thief’s access to the phone and the money through it (Mann, 2004, p. 48).
One key to the world
Besides storing debit, credit, and smart card information in cell phones, telecom companies are also developing the cellular hand set to work as a remote control and identification device. In Estonia, such services already exist, which allow, for example, mobile phone subscribers to use their phone to switch on their car heater remotely (Dyson, 2001, para 21).
Korea, as expected, is even further ahead and has developed technology that allows the cell phone to be used as an identification device. This has been made possible by various entities such as Harex Infotech and the country’s second largest mobile phone company KTF, collaborating with institutions such as Sookmyung Women’s University to let students use their phones as identification cards. “The phone’s ‘hot key’ can open doors and parking lot gates on campus, register for courses, borrow books at the library or post notices on the campus Web site.” (Joshi, 2003, para 18-19)
And that’s not all. In Japan, NTT DoCoMo is seeing a future where the cell phone will ultimately become the main interface between networked devices in homes and offices. An office worker, for example, might go into an empty office and identify himself to a computer using his phone, which would then allow him to access only his files (Mann, 2004, p. 48). Such developments imply that the cell phone may well replace the currently used smart cards or tokens (often in the form of key fob devices), which fit into computer USB ports as security devices, to authenticate users on computer networks: “These cards and tokens have microprocessor chips that are capable of encrypting information while being difficult to hack or duplicate. IT security experts predict the next application may be in homes…in order to make secure purchases on the Internet.” (Weston, 2004, para 8)
One other application that has a huge potential in the development of the cellular phone as an electronic wallet, is the concept of maintaining bank account balances on a standard cell phone:
Fewer and fewer consumers are carrying around bulky checkbooks and check registers to record account transactions and the use of check cards and debit cards are on the rise…. The result is a situation where an individual is often unaware of their current account balance and, in some cases, will overdraw their account. Many of these same consumers are already carrying a cell phone and ‘The Mobile Checkbook’ will make it convenient for them to maintain their checking account while standing in line at the store, on the way to their car, or virtually anywhere.” (Mobatech, 2003, para 5)
Thus, it is obvious that the telecom majors, financial companies and their business partners are seriously working on developing the cell phone as an ubiquitous instrument that will fulfill virtually every conceivable data, interface, transaction, and communication need.
Besides the almost exhaustive list of possibilities, which have already been described, it is also important to note that the cell phone is likely to become the instrument of choice for a whole range of other electronic purchases and processes. For instance, the future could well see the cell phone replace all airline travel documents as well: “When traveling, a cell phone-based system could let you store your itinerary, boarding passes and identification inside your phone, changing the way passengers check in for flights and go through security.” (Maney, 2003, para 10)
DoCoMo and Sony also see interesting possibilities in the new phones for digital rights management: “The TV would know what programs you had paid for…. The PlayStation would know what games you can play. You would touch the screen with your phone, and it would be ready with your content.” (Mann, cited Morita, 2004, p. 48)
With DoCoMo’s phones positioned to replace cash, credit and debit cards, identification cards, electronic plane or train tickets, and cameras, it is little wonder that the company says that it plans to transform itself into what it calls a “life infrastructure” company (Lindenberg, 2004, para 3-4).
The glimpse taken into the future potential uses of the cell phone makes it evident that it truly holds the promise of functioning as an electronic wallet, thereby making the life of the average citizen even more convenient than current technology. In addition, the use of cell phone-based payment systems holds the promise of greatly benefiting businesses and retailers as well, besides possibly being more secure than current forms of electronic transactions.
Cell phone-based services and payment systems: benefits to businesses
There are several benefits that can accrue to businesses from cell phone-based services and payment systems such as an expansion of customer bases, increased customer satisfaction and improved profitability. In fact, some positive feedback already exists from businesses that have begun to use cell phone systems to service their customers better.
Cell phone users in a hurry can phone in their Starbucks coffee orders and have them piping hot and ready when they walk in the door. The nation’s biggest specialty coffee maker started the service last week in 60 Denver-area locations. For 25 cents extra, waiting for them will be their freshly prepared drink with their name printed on the cup. Cell phone payment company Cellbucks is testing a similar system that allows cell phone users to get their beer at the ball game without leaving their seats.” (Beaudette, 2002, para 5)
Businesses that see a significant volume of transactions on-the-road will also stand to benefit vastly from cell phone systems. With wireless transaction processing, businesses will be able to process credit or debit card transactions within seconds at trade shows, seminars, or house calls. In addition, such wireless processing will also benefit businesses through improved cash flows; secure debit and credit authorizations within a matter of seconds; reduced instances of credit card fraud and chargebacks; and an ability to conduct business where phone line connections do not exist (m-commerce, 2000-2003).
Compare the above scenario to a time when collecting funds for orders procured on-the-road required people to either pay by cash, check, or write down their credit card information so that the transaction could be processed later at the office. Besides the inevitable time lag involved in actually receiving the payment, such payment modes were also less secure: “The fact is, cash and checks can get lost and credit card information, if not put in a secure place, can get into the wrong hands…m-commerce solutions have taken a lot of the hassles out of doing business on-the-run.” (MerchantSeek, 2000-2003)
In addition to the above gains, it is felt that cell phone-based payment systems will possibly fuel the further growth of e-commerce or m-commerce: “Consumers might eventually use the technology to pay for concert tickets, flowers or groceries when they are at the shops or even if they are in the back of a taxi, surfing a shop’s WAP-based Internet site on their mobile phone.” They will be able to do so because their phones will store credit or debit card details in a password-protected area of the mobile phone’s memory, which will then process the payment directly. All a consumer will have to do is select the purchase he wants and indicate which of the credit or debit card accounts he wishes to use for payment (Dawson, 2002, para 3-4).
Speedier transactions are another anticipated benefit of cell phone-based payment systems, especially for retailers. Stores such as The Gap are already excited about the time that cell phone-based payments will save: “Anything that streamlines the checkout process is what is desirable to us…. If this could cut back checkout time and paperwork and give us more time to actually sell the product, it would be great.” (Ross, 2003, para 12)
Besides speedier transactions, expanded services, and greater customer satisfaction, another benefit that businesses, especially retailers, can look forward to from cell phone-based payment systems is the likelihood of greater consumer acceptance and usage of their own credit or stored value cards. Currently, many consumers resist such offers since they do not want the hassle of storing and keeping track of more cards than necessary: “But if a Gap card were virtual…an extra card would be just another item on an electronic wallet.” (Maney, 2003, para 42-43)
Such virtual cards can even be branded since cell phones have the advantage of a screen. As Sue Gordon-Lathrop, Vice President of emerging consumer environments at Visa, points out, the Visa symbol or the image from an affinity card could be displayed on the cell phone screen: “It would be more analogous to pulling a Visa card out of your wallet.” (Maney, 2003, para 24) cost-effective channel of payment
Although there are many hoped-for benefits from cell phone-based payments, perhaps the one area where they may really prove to be highly attractive is the potential they hold to be more cost-effective than current payment channels.
Banking and other financial services, particularly, may gain significant mileage. In fact, Asia’s technologically more advanced countries such as Korea, Singapore, Hong Kong, and Japan are already recognizing the mobile phone as a cost-effective channel to deliver banking and trading services.
According to the Bank of Korea, the subscriber base of Koreans using mobile banking services has tripled in the past 15 months, having now reached almost one million. Millions of mobile phone transactions are carried out very day throughout Asia, opening huge direct marketing opportunities for banks. Moreover, it can be expected that e-commerce, both B2B and B2C, will grow exponentially as mobile banking takes over in Asian nations. Soon more users will be accessing the Internet from cell phones and PDAs than from PCs. Mobile Internet services should therefore definitely be on the agenda of all financial institutions. ” (Tae-gyu, 2004, para 2-4)
For banks and credit card companies, the cost-effectiveness of mobile banking may, in fact, prove to be the answer to the currently growing challenge of profitability slowing down. This is particularly true of the credit card market, which is seeing a decline in the growth rate of new cards in issue.
Further, although transaction volumes and outstandings have continued to rise, banks have found it increasingly difficult to translate that trend into profits due to rising costs such as charge-off expenses, which rose by more than 15% in 2002 to more than $35 billion industry-wide.
At a tactical level, credit card firms have to focus on running a tight ship. They need…a disciplined approach to cost control while finding innovative approaches…to further transform the expense base of the organization. They also need to maintain a steady focus on risk management and fraud reduction…. The leading players…also need to look carefully for strategic opportunities to offset the declining economics of the business. Prevailing wisdom over the past decade has led to a ‘bigger is better’ mentality…seven large players now control more than 75% of the general-purpose card market in America. However, consolidation to gain economies of scale is a strategy that can only go so far.” (Deloitte, 2004, para 2-4)
It is in the light of the above scenario that mobile banking and payment systems are expected to prove advantageous, as it is envisaged that the biggest growth opportunities may lie in new products whose convenience appeals to consumers, but which also have attractive economics for both the issuer and increasingly demanding merchants (Deloitte, 2004, para 6).
Mobile commerce solution systems will also vastly benefit businesses that operate small value but high volume financial transactions such as car parking facilities or vending machine operations: “Micropayments technology is designed to overcome the problem of the relatively high cost of processing small e-commerce payments. The operator holds the bank details of users and lets payments accrue so that they can be processed in one lump.” (Cushing, 2002, para 5)
In fact, such businesses have the option of either allowing telecom operators to add such small charges to the user’s monthly bill or deploying stored value, smart card technology for branding their own virtual cards in cell phones. Of course, these businesses may also simply benefit through consumer use of general smart cards that are imbedded in their cell phones. For instance, in the United Kingdom, Barclaycard and Cellnet participated in a test where specially modified Motorola StarTAC phones can “write cash” into a smart card on-demand, which can then be used for miscellaneous purchases (Future Shock, 1997-2004, para 5).
But perhaps the biggest benefit of cell phone-based payment systems will be enhanced security and safety, which will surely benefit financial institutions, businesses, merchants, and consumers alike. For, currently, merchants too are increasingly suffering from bearing the costs of fraud as credit card issuers “charge back” retailers for Internet or phone transactions where a signature isn’t required. Similarly, consumers who are victims of identity theft and fraud pay with their time as they try to straighten out trashed credit reports and get stolen money returned to their accounts (Weston, 2004, para 21).
Cell phone-based payments: a more secure mechanism?
It is a well-known fact that the current forms of plastic-based transactions are incredibly vulnerable to fraud. Cards can be stolen; information on the magnetic stripe can be duplicated without the owner’s knowledge; and purchases can be made over the phone or Internet with stolen account numbers and expiration dates, obtained from either lost or robbed cards, or information printed on merchant receipts that are often just thrown away (Weston, 2004, para 3).
Indeed, it is the degree to which plastic-based transactions are vulnerable to identity theft and fraud, which has perhaps motivated financial institutions to search for new technologies that are more secure, making it harder to steal information: “That could save issuers billions of dollars a year that are now lost to fraud.” (Maney, 2003, para 40)
The concern and urgency over developing new payment mechanisms, which assure more safety, assumes even more significance in the light of Federal Trade Commission estimates that identity theft victimized 10 million Americans last year, and Gartner’s studies that show 2 million bank accounts were raided (Weston, 2004, para 20).
As compared to the above described problems with plastic-based financial transactions, the design of cell phone-based payment systems appears to be a far more secure mechanism. For one, transmissions are encrypted and secure, and subscribers who lose their phones can get them disabled within seconds by informing the telecom or credit card company (Joshi, 2003, para 13).
Secondly, the use of a password or passcode further ensures protection against fraudulent activity. A third level of security is the fact that the credit or debit card number, expiration date or card verification value remains hidden, allowing only the computer system to see them. Using a cell phone, therefore, eliminates the worry over someone copying down the information visible on a plastic card and later using it. A fourth benefit lies in the fact that disabling a lost or stolen cell phone is preferable to losing a plastic card since it is likely that the loss will be immediately noticed (Ross, 2003, para 7-9).
Debit, credit, smart, and stored value cards are also far more secure when embedded in cell phones since such a system eliminates the worry of identity theft, which is known to occur through pre-approval notices: “…want your business and are willing to do anything to get it. So, they send out millions of pre-approval notices every year with our information posted all over it. Thieves are then able to rifle through your mail, set up an account and steal your identity.” (Howard, 2004, para 1).
With cell phones, on the other hand, chances are that fraud through identity theft will become more difficult since major transactions are likely to take place with a passcode, which the user can install and change at will. It must be noted, however, that fraud can still take place by using stolen identities and card information if a user chooses to simultaneously maintain corresponding plastic cards. Of course, while there may be many advantages to using a cell phone for financial transactions, there are some security issues with this technology as well.
Security issues that remain a question mark
As wireless transactions develop, inevitably it is likely that criminals will find ways to break into systems and steal data. Indeed, the big concern with wireless transactions is over thieves accessing all that data and information just zipping through the air. However, as Richard Isaacs, senior Vice President of the LUBRINCO Group, an international vulnerability management firm that specializes in protecting intellectual assets points out, “The real issue is do you have anything important (worth stealing) and do you have a firewall?” The good news is that Isaacs rates the risk of data theft in wireless environments as very low for properly protected devices. The bigger problem, he says, is theft of the devices themselves. In addition, it is critical that the networks themselves are protected and secure, which is possible through virtual private networks (Conlon, 2004, para 4-8).
While it can be logically assumed that banks and credit card companies will do their utmost to secure their wireless networks from the risk of data theft, it is important to note that there have been problems of this nature, which have been experienced in the past. For example, in 2002, retail store “Best Buy” was forced to remove its wireless scanners because customers’ credit card numbers were found to be exposed (Batista, 2002, para 15). Of course, wireless networks and “contactless” cards were still in their infancy in 2002. But the fact remains that the system is not fool proof.
Another possible issue with cell phone-based payment systems that use RFID (Radio Frequency Identification) chip technology is that the technology allows its issuers and users to store too much information about a consumer (Bhatnagar, 2004, para 23). This concern will possibly get exacerbated with cell phone payments since the telecom companies will become one more player in the processing loop.
In fact, it is largely these concerns that have perhaps led to the development of competing technologies that may be more secure than cell phone payments using RFID chips.
A look at new payment technologies
Besides cell phone-based payment systems that use RFID technology, new ways of paying that have been developed and are being tested include fingerprint and retina scans. In addition, RFID technology is also being deployed in “contactless” cards and other gadgets. A brief discussion of each of these versions follows.
RFID (Radio Technology Identification) Technology
RFID technology can be deployed in several devices besides cell phones since the underlying idea is simply a computer chip, which contains a code that identifies the user. This means that the RFID chip can work in any gadget and with any system that either uses a small radio antenna, an infra-red port, or any other kind of short-range wireless connector, which allows the transmission of a signal to a credit card company, a bank for a debit card transaction or even a stored value account.
In fact, several businesses have already been using RFID payment systems for a while. For instance, Mobil introduced its “Speedpass” as way back as 1997, the success of which even led Timex to unveil a Speedpass-enabled watch (Maney, 2003, para 14-17).
Similarly, MasterCard is testing an RFID system, which it calls “PayPass” in Orlando: “…embedded in what looks like any other MasterCard. The only difference: Instead of swiping the card…you wave it near a receiver…. As PayPass evolves, it could take on other forms…like key fobs…a pen or a pair of earrings. Ultimately it could be embedded in anything…even under the skin.” Other companies such as Visa, Philips, and Dallas Semiconductor are also working on similar technology (Maney, 2003, para 18-21).
Besides concern over data vulnerability and exposure, RFID technology used in cards or other gadgets runs the risk (like current plastic-based transactions) of someone else easily running up charges if these devices are misplaced. In contrast, RFID chips in cell phones are far safer since not only will any loss be instantly noticed, a simple call to the telecom or credit card company can get the phone disabled within seconds.
Thus, within RFID payment systems, it is apparent that the cell phone is likely to be, by far the safest, besides affording greater convenience due to the presence of other features that allow the device to function as a complete electronic wallet. Further, the possibility exists of making RFID systems even more secure by pairing it with some other method of identification such as a voice print or retinal scan (Maney, 2003, para 22).
Biometrics technology is based on the concept that identification via an individual’s retina or fingerprints will resolve the problem of misplaced or stolen cards, identity theft and fraud. The technology has already been introduced and is currently being test marketed in several parts of the world, including America:
Thousands of Americans now pay for groceries with their fingerprints using special pads at checkout counters. One of the first markets to introduce the technology, the upscale Thriftway in Seattle, has signed up 4,000 customers in the past two years…. Stores in Texas, Kansas, and Missouri have adopted fingerprint payment systems, and Piggy Wiggly recently said four of its stores in South Carolina had installed the technology.” (Weston, 2004, para 10)
Companies developing biometrics identification systems include “Pay By Touch.” To use the “Pay By Touch” system, a user simply stores her or his fingerprints in a device that looks like a key pad: “Once the system has your print, you swipe in any cards – credit, ATM, etc. – you want to add to your finger-based wallet and punch in a seven-digit PIN. All that information gets stored in Pay By Touch’s computers.” (Maney, 2003, para 28-30)
Thus, biometrics systems allow users to make purchases at any store that has their technology since all that is really needed is a fingerprint. Interestingly, it appears that the scope exists, as observed earlier, to use biometrics technology to make cell phone-based payments even more secure. For instance, Pay By Touch believes that fingerprint readers can be installed on cell phones with Internet access so that users can shop remotely and still pay with their fingers (Maney, 2003, para 37).
Biometrics may seem safer than RFID technologies, but using body parts as identification brings other concerns into the picture such as the possibility of the government accessing vast new databases of fingerprints (Weston, 2004, para 18). It is also not inconceivable that such identification methods may give rise to more horrifying forms of identity theft involving physical assault, especially if biometrics allows consumers to conduct remote transactions or is used as a means of securing entry into offices and homes. In fact, such scenarios have already been visualized in popular fiction such as Dan Brown’s best selling novel “Angels and Demons.”
In conclusion, it appears that there is no current or developing technology that can completely resolve all existing concerns of identity theft, fraud, or privacy. In the light of this, it can be argued that cell phone-based payment systems are as safe and certainly far more secure than existing forms of plastic-based payments. In addition, it must be remembered that pairing RFID technology with biometrics can in any case, lend more protection to wireless transactions.
All considered, however, the important point is that using the cell phone as an electronic wallet is likely to continue to score over other options due to the versatility of the device in performing many other functions such as making phone calls, serving as a form of entertainment, storing personal information and accessing the Internet. There are, however, some possible obstacles that may come in the way of the cell phone being used as an electronic wallet globally.
Possible hurdles in the way of global use of the cell phone as an electronic wallet
Transforming the cell phone into an electronic wallet may potentially be the next force in personal finance since the introduction of the credit card in 1950 (Maney, 2003, para 5), but the jury looks like it is still out on who will end up controlling the m-commerce market place and cell phone customers. “Four of the world’s largest credit card firms have formed a consortium to jointly develop secure mobile payment standards…the credit card rivals want to present a united front against cell carriers, which want to control the mobile payment process.” (Brewin, 2001)
Indeed, it is precisely this perceived conflict of interest that made credit card companies initially reluctant to cooperate closely with telecoms because such cooperation would entail sharing valuable customer information and transaction commissions. The cellular companies, on the other hand, have a high stake, since they need new revenue streams in a market that is intensely competitive and rapidly becoming saturated.
However, world over all three major providers i.e. telecoms, banks, and credit card companies are now coming together given the inevitable march of technology (Joshi, 2003, para 22-23), and because clearly, there is a need to develop a cost-effective channel that also offers consumers far more safety and convenience than plastic-based payment transactions.
Though the players involved are now cooperating in the development of cell phone-based systems, issues of sharing customer data and commissions may continue to be a problem as markets grow, at least till such time that universal standards emerge. In fact, efforts to resolve this issue have already begun with four of Europe’s biggest wireless carriers forming a clearinghouse to boost mobile payments: “Dubbed the Mobile Payment Services Association, the service will be launched in Europe, but with an eye towards markets in the United States and Asia next year. Tim Jones, the association’s chief executive, said the service can push mobile commerce forward by creating a single brand for processing payments.” (CNN, 2003, para 1-4)
The question, however, is whether the cell phone or credit card companies will control the ownership of the single brand that emerges. For, as observed earlier, four of the world’s largest credit card companies are also engaged in a similar effort through the formation of a consortium called the Mobile Payments Forum.
Based in Wakefield, Mass., this forum plans to develop standard deliverables to serve as building blocks for security and cardholder verification for use by banks, phone manufacturers and mobile carriers. The forum envisages that the standards developed could lead to a system that lets people use mobile phones to make purchases at stores, with authorization and payment data flowing securely through the cellular phone network to wired networks operated by the forum partners and then to member banks (Brewin, 2001, para 1-5).
Ultimately, the universal standards, systems, and processing brands that emerge will, no doubt, be determined by user friendly features, security issues, consolidation and cooperation among key players, and marketing. But till such time that cell phone-based payment systems gain acceptance and popularity in the market, the fragmented nature of the operation could well prove to be an obstacle.
Another hurdle that may come in the way of the cell phone being transformed into an electronic wallet, which can be used globally, is the presence of competing technologies such as CDMA, GSM, and I-mode, lack of uniform standards and undeveloped wireless infrastructure in several parts of the world. The lack of uniformity will, in particular affect mobile banking services: “Although mobile banking clearly has a bright future, there remains some barriers like security worries and disputes on a standard, unified chip…. Usability, interoperability, and security are major considerations…versatile chips are a must, which can interconnect several banks and carriers….” (Tae-gyu, 2004, para 37-38)
The obstacles described are, however, easily overcome especially since converting the cell phone into an electronic wallet is seen as the key to developing a huge m-commerce market, besides making the life of an average citizen more convenient and safe.
The potential market for cell phones as an electronic wallet
The preceding discussion has hopefully served to establish the widespread popularity and usage of the cell phone in several Asian and European countries, which already have advanced wireless infrastructure and services. Indeed, consumers are already using their cell phones in these parts of the world as a method of paying for their purchases and banking.
True that even in the more mobile-happy and savvy Asian countries, the market for cell phone-based payment for serious transactions is still in its infancy, but already there are indications of just how huge the market could be:
Naqi Jeffrey, president of Telecom Trends International, a research firm in Falls Church, Va., says that so-called ‘mobile commerce’ generated more than $6.8 billion in revenues worldwide last year. And a clear majority of the purchases were for ‘digital content’ – special ring tones, games and images that can be ordered and installed on cell phones…as people are becoming comfortable with the technology and concepts of buying and ordering items over their cell phone, the next step is [to get subscribers] using it for serious transactions.” (Eng, 2004, para 3-4)
Of course, it is obvious that much of that revenue is currently emanating from Asian countries such as Korea, Japan, and Singapore, whereas the United States, in comparison, is a market that has yet to take to the use of the cell phone for more than just making or receiving phone calls: “The April 2004…study from Telecom Trends International pegged 2003 m-commerce revenues in North America at $176 million, compared to $6.8 billion globally. The report also forecasted a revenue increase in North America to $33.77 billion in 2008, compared to $554.37 billion worldwide.” (Kaye, 2004, para 10)
The United States may currently be lagging behind Asia and Europe in the use of mobile technology. However, this is more due to the way the market has developed rather than a lack of potential. For instance, factors such as the lack of technology standards and cross-carrier network capabilities have clearly affected the growth of m-commerce in the United States. In addition, “while the wireless industry has successfully targeted the consumer market overseas, most U.S. firms have focused their efforts on providing enterprise service for customer relationship management and salesforce-related functions.” (Kaye, 2004, para 11-12)
From the above analysis, one clear inference that can be drawn is that the United States will soon catch up with the rest of the world since the problem does not lie in a lack of market potential. If anything, chances are that the financial institutions and telecom carriers will soon engage in an aggressive push to implement uniform standards and the infrastructure required for wireless transactions. Once this is in place, it is likely that the same players will invest in a marketing campaign aimed at realizing the potential for transforming the cell phone into an electronic wallet, thereby developing both the cellular and the m-commerce market.
In fact, analysts like Jeffrey of Telecom Trends International predict exactly such a scenario: “…much of the mobile commerce market in the United States will really take off as faster wireless networks really become available everywhere. And companies will have to prove that the networks are secure against electronic fraud…. Mobile phones have become so ubiquitous…they’re always with you – one day, you will go to a store, take it out and make a payment for something. They will become that ubiquitous some day.” (Eng, 2004, para 17, 21)
The ubiquitous, versatile nature and convenient mobility of the “handy” cell phone is, in fact, what makes the device an attractive substitute for the consumer’s wallet. Therefore, as Americans adapt to the idea that their cell phone can perform a multitude of tasks with a simple push of a key, it is likely that the market for cell phone-based systems and services will simply explode.
There can be little doubt that human beings world over have got highly accustomed to the convenience and efficiency that technological advances have made to all aspects of life. In the light of this, the current practice of using multiple devices to fulfill communication, electronic interfaces, and transaction needs seems somewhat an anachronism. Similarly, it is surprising that people are living with the inconvenience of maintaining a multitude of PIN codes, passwords, and identification cards. Of course, if and when computer science realizes the ultimate dream of ubiquitous computing, chances are that all such inconveniences will disappear.
In the interim, it appears that cellular technology can succeed in taking the first step towards integrating several technological and electronic functions, thereby replacing the need for an individual to carry a wallet or, for that matter, a PDA. More important, as this paper has demonstrated, the cell phone as a payment instrument is likely to prove to be far more convenient and safe than the multiple debit, credit, smart or stored value cards, which are found stuffed in a consumer’s wallet, always providing that the industry is able to address the issues of universal standards, security, and infrastructure.
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