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Mobile Micro-Payments - The End of Cash

Researchers, analysts and mobile industry experts generally believe that the number of low-cost items available for purchase via a mobile phone will increase significantly over the next few years. Examples of low-cost items include goods and services available via download over faster, lower-cost mobile broadband connections. Downloads such as MP3 songs, videos, screensavers, and thanks largely to Apple's marketing efforts - mobile applications that do everything from recommend restaurants to providing chord patterns for budding guitarists and working out how to share a bar bill amongst friends. Downloads are small-ticket items costing anything from 25p to a few pounds. Credit cards don't offer a sensible way to pay for these items, because of the user interface (imagine typing those card details each time) or because of the cost of processing for the merchant - could easily wipe out any profits on low cost items.

You could of course pay for these items via your mobile bill, but the interface is again a little clumsy requiring sending and receiving of multiple SMS messages which act as instruments of financial charging. Also, the delay in getting the bill is not good from a cash flow perspective, either for the operator or the individual who could be surprised, at the end of the month, by a large bill for multiple downloads.

What's required is a payment network that is simple to use, convenient and secure. It should also be future proof so that when merchants start to accept scanning a mobile as an viable alternative to scanning a bit of unintelligent plastic (and why wouldn't they!?) then a mobile based micro-payments system could be used to make a whole raft of purchases, both online and in the real world. Who needs a pocket over burdened with the weight of old-fashioned coins anymore?

Now add to the equation the latest figures from the World Trade Organisation who claims there are now over 4 billion mobile phone services (note this refers to contracts in some shape or form not just handsets) worldwide - that's 2/3rds of the world's population - and you have a compelling argument for mobile based micro-payments.

The business model for micro-payment systems have been proven in the online world and these could easily transfer to mobile devices, with added benefits from ubiquity and physical presence at the point of sale. Use your mobile to buy a Coke from a vending machine, buy a parking ticket or give back that £2 bus fare your mate lent you last week because you're mobile battery was dead!!!

In the online world, making micro-payments from a PC, PS3, XBox via a DSL powered Internet link etc, has its issues. For example, items have to be packaged and shipped which for smaller value items can often cost more than the item itself. You can't take your laptop with you to the high street so the online micro-payment model is limited in the fixed Internet world. With mobile however you can make micro-payments for goods and services other than those that can be downloaded down the wire - real physical items.

The attraction of micro-payments via a mobile device is clear. Next time I'll talk about some of the pitfalls and solutions for micro-payments...
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