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Article published in Issue Number: 070202

The mobile card: Mixing money with talk

As payment devices, mobile phones have it all over bankcards: Whereas a card is merely a receptacle for the consumer's data, a phone can initiate a payment.

That's the view of Bob Egan, Research Director for Emerging Technologies at TowerGroup, a MasterCard Worldwide-owned research and consulting firm. Mobile payments "will do for debit and credit card transactions what the iPod did for music," he predicted.

But turning a phone into a payment device poses big hurdles. Bankcards come already provisioned, or loaded with consumers' account data. This won't be the case with handsets.

"It's unlikely your bank will send you a mobile phone," Simon Pugh, President of the Mobile Payment Forum (MPF), said in a recent webinar on the topic. "Mobile devices have remote connectivity, which cards don't have, and users will want payments [capability] added to their existing device." Pugh is MasterCard's Vice President, Standards and Infrastructure.

The MPF is developing a framework for mobile-phone based payments (m-payments). "We strongly felt we need a secure over-the-air [OTA] provisioning process," Pugh said.

This must support the full life cycle of any payment application, including installation and personalization; updates such as account expiry; deletion of the application from the phone; and moving the payment application to a new mobile phone.

Full steam ahead

Not waiting for such issues to be settled, the card brands are moving ahead now. Visa U.S.A., MasterCard and Discover Financial Services LLC have teamed with banks and device makers to launch trials.

But mobile payments won't be ready for widespread commercialization until late 2008, Egan predicted.

Visa is encouraging banks and telecoms to start trials by debuting a mobile payment platform created just for launching pilots. The platform is a set of mobile services and enabling technologies that allows issuers and telecom operators to put handsets to use, said Pam Zuercher, Visa's Vice President of Product Innovation.

Consumers want a single device "that can get them through their day," she noted. Clearly, the choice is the mobile phone, which users prefer for accessing e-mail, text messaging, listening to music, surfing the Internet and making payments.

"When we think about mobile, we think about the promise it holds for proximity payments," or contactless, Zuercher said. But a cell phone enabled with near field communication (NFC) technology will have the capability for complementary uses, like card account management, coupon delivery, authentication and ticketing.

The Visa platform delivers the building blocks and mobile services that will allow all the players in the value chain to quickly test their model, she added.

Recently, Visa partnered with JPMorgan Chase & Co., Cingular (AT&T), Philips and ViVOtech for a trial at Philips Arena in Atlanta.

Coming to a phone near you

Approximately 40 million NFC-enabled mobile phones are expected to be shipped in 2007, according to Dennis Moroney, Analyst with TowerGroup.

"People are looking for convergence," he added. But convergence of payment cards with cellular technology creates its own difficulties.

"The big problem is figuring out who owns the customer, who owns the relationship." Banks and card Associations recognize they could lose power to the carriers and have been uncomfortable with that, he said.

So far, the announced pilots pair a card brand with a bank and/or a handset manufacturer. Telecom carriers generally have not participated as sponsors.

In late January, HSBC Credit Card Services, MasterCard and ViVOtech announced a six-month pilot. Equipped with Nokia NFC-enabled phones, HSBC employees are making PayPass contactless credit card purchases.

"Two things are very unique in that trial," said ViVOtech President and founder Mohammad Khan. It is the first NFC pilot conducted in several cities, and the participants themselves provision the phones using an OTA automated system.

ViVOtech provided the enabling infrastructure. Users requesting to download their card information automatically connect to the HSBC server.

A critical objective of this trial is to test user interactions with the automated provisioning process. For any NFC application to obtain critical mass, "you have to make things simple and straightforward," Khan said.

Protecting turf

Both telecoms and issuing banks want to protect their turfs, Khan said. The architecture of the ViVOnfc Suite 2.0 platform for NFC-enabled phones puts a server at the card issuer premises and a control server at the carrier's premises.

The latter allows the carrier to download merchant promotions to its customers' phones.

When the user begins a credit card transaction, the control server passes that request to the issuer's server, which takes over the communications, he said.

The issuer's server and the phone's wallet establish an encryption key before sharing information. "Carriers would not be able to see the credit card data at all," he added.

ViVOnfc allows carriers to control advertising and special offers passed by NFC to their phones, giving the telecoms a revenue stream.

"We could move to commercial rollout [of multiparty mobile applications] by the end of this year," Khan said.

One of the most recent pilots was launched by Discover and Motorola Inc.

The payment and account-management trial lets its 1,000 participants make purchases and check their Discover Card balances using their handsets, for which a mobile network operator was contracted for cell service, according to Kathy Wiesner, a Motorola spokeswoman.

Motorola supplied the phones and M-Wallet software. The pilot tests the NFC technology and the system infrastructure associated with accessing account information over the air.

Beyond trials

Once the model is proven, security and flexibility adjustments will be needed, Egan said. "We need to look at the nimble-footed ways thieves ... find to steal.

"When you start talking about putting these technologies on phones, we need to ratchet up the intelligence of unusual payment patterns."

Card brands and issuers can facilitate mobile debit transactions by applying $50 liability caps and unusual-pattern recognition software for debit, as well as credit, transactions, Egan added.

And as people start to use their handsets for payments, Moroney said, they will push for an increase in the $25 no-signature-required limit.

"The convenience around smaller transactions and the benefits of ticket lift are all motivators to encourage that," he added.

Article published in issue number 070202

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