Understanding the Primary Mobile Payment Models
The future of consumer IT is in mobile technology. Mobile technology gives companies the opportunity to become more accessible to consumers because consumers are always carrying their mobile devices everywhere. Mobile devices, especially smart phones, are becoming more powerful and versatile in providing financial services to users. Currently there are four primary models for mobile payments.
In the premium SMS or premium MMS model is the earliest form of mobile payments. In this model the consumer sends a payment request via an SMS text message to a short code and a premium charge is applied to their phone bill or their online wallet. Products that are usually sold using this model are digital products like music, ringtones and wallpapers. The products are delivered to the consumer’s phone using an MMS.
The direct mobile billing lets a consumer choose a mobile billing option during checkout at an e-commerce site to make a payment. After two-factor authentication involving a PIN and One-Time-Password, the consumer's mobile account is charged for the purchase. It is a true alternative payment method that does not require the use of a credit card, debit card or pre-registration at an online payment solution such as PayPal, thus bypassing banks and credit card companies altogether. This type of mobile payment method, is widely used and popular in Asia
The mobile web payments model uses WAP (Wireless Application Protocol) as its underlying technology. The consumer uses web pages displayed or additional applications installed on the mobile phone to make a payment.
What Is The Near Field Communication (NFC)?
Contactless Near Field Communication model is the latest form of mobile payment. Near Field Communication (NFC) is used mostly in paying for purchases made in physical stores or transportation services. A consumer using a special mobile phone equipped with a smartcard waves his or her phone near a reader device and a payment is made. Most transactions do not require authentication, but some require authentication using PIN, before transaction is completed. The payment could be deducted from a pre-paid account or charged to a mobile or bank account directly.
Mobile payments are popular and more widely used in third world countries. This is because of the huge adoption of mobile phones by the populace. The lack of affordable financial services from traditional banks has also made mobile financial services far much more attractive as they are cheap and more accessible. The mobile payments industry in third world countries is being driven by telecoms companies, like Safaricom’s Mpesa in Kenya, using the Wireless Application Protocol model.
First world nations such as North America and Japan are the leaders in NFC mobile payments. In Japan NFC is widely used to pay for transit tickets. The difficulty in moving consumers into mobile payments, in the first world, is that they have no real incentive to do so. The traditional credit card companies have over the years built a formidable network of access points that new players, such as mobile payment companies, are having a hard time to replicate.
It is rare to find any mobile payment company that uses only one model to service its customers. For example PayPal and Google Pay use NFC technology along with the WAP model. A hybrid model allows mobile payment companies to service more customers across more financial transaction situations.
Traditional banks have also realised the potential of mobile payments and are heavily investing in the technology. Laggards have been punished because mobile payments are a fast growing financial sector.