What is it I’m getting at here, you ask? The fact of the matter is that cell phones have overtaken wallets as the one item people simply can’t do without. And the research backs it up: according to an IDC report earlier this year, 38% of workers would choose their cell phone over their wallet, keys, laptop or digital music player if they had to leave the house for 24 hours and could take only one item with them (only 30% chose their wallets). Cell phones are our communication devices, cameras, watches, music players, browsers, notepads, alarm clocks and gaming devices. Apple saw this coming and knew they had to get in the game, with the iPhone the grand result. So, doesn’t it make sense to use your cell phone for making payments as well?

This idea has occurred to several entrepreneurs and companies all over the world (Obopay in the US and M-PESA in Kenya being notable examples). In South Africa, Wizzit has been on the scene for a while, although their target market has been the ‘unbanked’ demographic, which is why you probably haven’t heard of it. Most of the big banks have WAP sites you can point your cell phone browser to, WIG applications that can be installed directly on your cell phone menu, or on-deck options for accessing your bank accounts via one of the cell phone operator gateways. In addition, collaborative agreements between operators and banks, like MTN and Standard Bank with its MTN Banking product, are also available. But these are all clunky, unintuitive affairs with lots of information needing to be entered before anything can be done.

Enter new players similar to wiWallet, promising ease of use and convenience – mobile payment nirvana. wiWallet offers a Java application that enables your cell phone to become a ‘mobile wallet’. You can link credit cards and bank accounts on the service – information which is encrypted and not stored on the cell phone. To make and receive payments, a PIN is entered, ensuring that cell phone thieves are limited to using your cell phone for overseas calls. The service promises to work on any operator and with any of the major banks. wiWallet primarily targets customer-retailer transactions.  A service such as wiWallet differs from bank and operator offerings in that it aims to simplify the process of making and receiving payments.

But will these mobile payment services work? Is this a sign of disruptive technology ready to break banks’ stranglehold over consumers’ money (and on bad service!), or just placeholder services waiting for the banks and operators to wake up and smell the mobile money? As Roberto reported earlier on the SWAT Blog, USSD is another great potential enabling technology for mobile banking and payments, especially when it comes to the unbanked. The text-based simplicity makes it relatively easy to use and understand, especially in the emerging markets where the majority of phones are unsophisticated and people are accustomed to SMS. But an iPhone user is unlikely to embrace this ‘sooo 90’s’ UI, as is most tech-savvy teenagers and early adopters. A mobile payment system therefore needs to adapt to its specific target demographic, and not the other way around. The potential for mobile payments, especially in emerging markets where many people are unbanked and few other payment options exist, is obvious. In developed countries, on the other hand, these types of services will likely appeal more as a matter of convenience and extension of the other payment options available, rather than as a replacement bank.

According to Gartner research director Sandy Shen, SMS text messages will continue to be the dominant channel for mobile payments, although take-up of WAP, USSD and near field communications (NFC) contactless services will also grow. NFC technology, as well as the rival FeliCa technology developed by Sony and DoCoMo, is proving popular as a means of making small payments (usually less than $10) and accessing transport networks by simply waving the chip-enabled cell phone within a few centimetres of a reader. The obvious limitation is that this is not a software implementation and therefore hardware, in the form of a NFC/FeliCa-capable cell phone, is needed.

A recent study by Unisys reveals that the different mobile payment system providers will have their work cut out to convert consumers and convince them that the cell phone is a safe and secure payment channel. The findings reveal that:
• 71% of all consumers surveyed in 14 countries will not consider using a mobile device to bank or shop online
• 59% do not trust their mobile devices to provide a secure transaction
• Only 9% currently use these devices to conduct transactions involving credit-card payments, money transfers and deposits
• Most consumers generally perceive banks as having the best security for mobile transactions when compared to operators and online retailers

Which technology will win out? The one that makes it the easiest, cheapest and most secure to make and receive payments on your cell phone? Probably. You will decide, in the end. Rest assured, though: forgetting your cell phone at home will only lead to worse heart palpitations in future…

You may wonder? Telnet? My phone has Telnet ability? Yes. It is a powerful technology with many applications, and it is particularly useful for mobile banking and mobile payment. USSD opens a secure session that leaves no message trail and requires no local storage in the phone.

USSD response times are faster than SMS, and there is a session between the application and the mobile phone, just like a remote, old style, mainframe terminal. This means that if a carrier includes a USSD gateway into their network you can easily build all kinds of applications for a mass user base (yes, even old GSM phones can use USSD). USSD is part of the standard GMS stack, and all that is required to implement it is the USSD gateway.

Other than its use for banking and terminal initiated sessions, USSD also has server initiated messages that can be used, for example, for local oriented marketing. We can send a service message to all the users near a particulare base station indicating that a nearby store is running a sale.

Unfortunately most carriers and Value Added Service companies have never heard of USSD. Why? Well this can be explained when you understand the culture prevailing in mobile carriers, particularly in the developing world. I have had the opportunity to meet and I know lots of people from a number of different carriers. I have even had the opportunity to watch some of these carrier owners talk, and can confirm first hand that the culture prohibits the exploration of technologies such as USSD.

I also believe that in most companies, the owners or the founders are responsible for setting the tune of the company or the corporate culture. Once this is in place, it is very difficult to change. Therefore – if you know the origin of the company, you can take an educated guess as to what to expect when you try to do business with them.

Everybody knows that the cell phone carrier business is a good business to be in, particularly in the developing world, because people in these markets have very few alternative communication options. And since everybody needs to communicate, no matter how poor they are, the market is captive.

Every country has its upper class, wealthy and successful people. Again, no matter how poor the country is, there is always someone rich enough. It can be a land owner, coffee salesman, a politically influential oil company owner … there is always someone wealthy enough to buy or build his own carrier. It is no surprise that most countries have GSM coverage.

Contrary to popular belief, you don’t need to know a thing about technology or networking to build your own carrier. You can always call Sony Ericsson or Nokia-Siemens and tell them “I have purchased a spectrum from my country’s government, and now I want you to build a GSM carrier network for me”. They will be glad to do it.

After your business is up and running, thanks to the GSM standard you can try to make your operational costs lower by using other network providers and playing them against each other. Then you can start doing what you are good at. These guys are good into buying cheap and selling high, understanding their customers’ needs and how things work in their country.

As a technology provider we have to understand how these companies operate to enable us to work with them. If you want to sell a great technical project to them you have to understand that they don’t care about technology, and can barely understand how great or innovative your idea is. They want to increase their profit and they know that their user base is very different from their European or Japanese counterparts. They probably understand their user base a lot better than you do. Be prepared to learn from them, be patient in explaining the good points of your product and be ready to adapt to whatever they have in mind. Keep in mind that you will have a more difficult sell and probably a lower margin than you can could get from European carriers. You will probably have to shoulder all the risk for yourself and try to negotiate a kind of revenue sharing that does not require investments from them.

As a user I just want to have more payment options. As a technical guy I know that USSD can enable people that cannot have a bank account today to have access to banking services. Thus, I have to say that USSD technology may be old but it’s very new and useful in many places.