Credit where credit is due

E-commerce has only just begun and already everyone is talking about m-commerce. What is it exactly? And who can benefit?

The South African Department of Communications would like to see Johannesburg’s street-traders armed with a new weapon against theft: the mobile phone. Under a pilot scheme, tourists will be able to pay street-sellers for traditional African artifacts via a mobile handset. Either the trader will slot a customer’s smart credit card into a mobile phone-cum-smart-card reader, or the tourist will perform a money transfer to the trader’s bank account.

Doing away with the need to carry wads of cash in a city rife with crime is just one of the more practical sides of mobile commerce. Just like e-commerce, m-commerce is the buying and selling of goods across public telecommunications networks. Indeed m-commerce is likely to complement, rather than replace, e-commerce systems already in place. Businesses, for example, may provide secure mobile links to existing e-commerce sites.

There are, however, some key differences. Whereas e-commerce bridges distance and enables companies to display and sell wares cheaply to consumers and other businesses round the world, one of the selling points of m-commerce will be proximity.

The mobile industry is setting much store by location-based services, such as finding a restaurant, buying electronic train tickets and advertising shops as subscribers approach them.

Constant companion

Mobile phones travel most places with the subscriber and, thanks to the SIM card, they can easily become electronic wallets. The SIM card, or microchip, in the back of every phone serves to identify the operator, the location of the phone and often the subscriber.

By the end of 2010, “m-commerce will be the second biggest industry behind healthcare,” claims Risto Perttunen, head of McKinsey’s global wireless group in Helsinki. The remark underlines the enormous impact analysts expect m-commerce to have on consumer and business purchasing.

Even if the growth of m-commerce does not meet analysts’ forecasts, m-commerce is much better placed to impregnate the average consumer’s daily life than e-commerce.

Mobile phones are cheaper, easier to use and more prevalent than PCs. The Gartner Group, an IT and telecom research company, forecasts that mobile phone calls will account for 40% of the links to e-commerce systems by 2003 and estimates that mobile phone users already outnumber fixed Internet users by more than two to one.

In addition, for developing countries, building mobile networks is the cheapest and fastest way to provide people with a phone line. Also, mobile phones come with built-in payment systems, so there is no need for bank accounts to set up direct debits. Indeed pre-paid SIM cards already act as electronic purses, albeit with micro-purchases limited to minutes of telephone conversation.

It is therefore not much of a stretch to employ a pre-paid card as a debit card for small purchases. A phone turned debit card might be particularly useful in those countries where credit card uptake is comparatively low, but pre-paid mobile phone usage is high. This is the case not just for developing countries; Italy’s high growth in mobile phone usage owes much to the pre-paid system. In many countries, pre-paid services draw in customers who fail credit checks required to set up monthly mobile phone subscriptions.

Operators could also offer a credit system by adding online purchases to their customers’ monthly bills. Since the SIM card can identify the customer, it provides a degree of security which is not available for consumers performing e-commerce over a PC. It comes as little surprise that mobile operators around Europe are greeting m-commerce enthusiastically.

Half-man, half-phone?

As Telecom Italia Mobile (TIM) points out, a SIM card is fast becoming capable of storing not only phone credits or subscriber identity information, but also serving as a credit and debit card, a driving licence and a health card, all rolled into one.

The average mobile phone customer may feel queasy about storing so much data on a microchip controlled by a mobile operator, especially as dot.coms have already come under fire for gathering customer information to sell.

Yet TIM is one of many operators hoping to offset falling voice call revenues, with revenues from m-commerce. The Italian operator expects 15% of its revenues to come from mobile commerce between 2002-2004, compared to 5% between 2000 and 2001.

So far TIM has introduced a commerce application for buying and selling securities in Milan, New York, Paris and Frankfurt and hopes to see its customers using mobile phones to pay utility bills and transfer money. Other early mobile commerce applications under development around Europe include micro-payments for cinema tickets and newspapers, as well as online gambling.

M-commerce service providers hope to convince customers used to receiving free content over the fixed Internet to pay for information specific to their location.


Despite the promise, for most European and US consumers, m-commerce still resembles a glitzy-yet- deserted shopping mall linked to the rest of the world by a high-toll dirt road.

Few mobile operators outside Japan have yet built the packet-switched data networks necessary to provide high-speed access to the goods and content people might want to buy. Currently most European GSM customers are stuck with a maximum data speed of 9.6Kbps, about a third to a fifth the speed of standard phone line transmission, and per minute telephone charges that compare ill with prices paid to access the fixed Internet.

Only next year will the first data networks capable of providing high-speed data services that are billed on a flat rate basis, or according to volume or service, become available. There are other obstacles to m-commerce. For instance, just as in the fixed world, people are concerned about security of transactions. In addition, few subscribers have handsets or personal digital assistants (PDAs, hand-sized agenda-cum-notebooks capable of displaying e-mail) with keypads and screens suitable for extensive online shopping.

On the supply end, the poor take-up of limited WAP services has helped dampen the development of applications and services for mobile devices. Wireless application protocol services have been marketed as a way of accessing the mobile Internet, for browsing and downloading information, for example. But few mobile Internet sites in Europe and the United States have succeeded in tempting customers to part with their cash and certainly offer nothing that approaches the richness of the fixed Internet.

Even NTT DoCoMo’s iMode service in Japan, which is presented as the bellwether for the future of mobile and data services in Europe, earns little from m-commerce. Revenue from m-commerce in September 2000 represented less than 1% of NTT’s overall Internet commerce business, according to Kunihiko Adachi, President of the Tokai regional branch of NTT DoCoMo. Analysts note that much m-commerce in Japan is accounted for by a craze for downloading new ringing tones for customers’ mobile phones. But high-speed services are not far away and once the necessary infrastructure and services for m-commerce are in place, the effects will be felt not only in the mobile industry, but also in banks and credit card companies. Operators are well placed to offer attractive and easy-to-use debit and credit schemes, which could persuade their large subscriber bases to circumvent banks for certain transactions.

Or mobile service providers could undermine the bank’s brand and relationship with the customer by absorbing banking and credit card details in the SIM card. Banks are fighting back individually by investing millions of dollars in m-banking, and striking partnerships with mobile operators, some of whom are wondering if they should become banks.

Visa is developing with Nokia a mobile phone that has room for two microchips: the SIM plus a chip, issued by the user’s bank, for making authenticated Visa credit or debit payments.

There is a good chance banks and operators will find their respective niches, with operators focusing on debit payments, rather than getting involved with the tricky business of credit risk management.

For developing countries m-technology offers some measure of hope. In countries where credit and banking services are not available to most of the population, m-commerce payment schemes could fill the void. Already there are signs of a huge take-up of pre-paid mobile services in developing countries. And, according to Hamadoun Touré of the International Telecommunication Union, a successful scheme in Venezuela has enabled customers to add purchases to their monthly phone bill. Moreover, in Cambodia pre-paid subscriptions greatly outnumber monthly mobile accounts and are often the only way for those who cannot get a credit rating to acquire a phone service.

Unfortunately, while mobile phone take-up is sharp, more is needed if m-banking and m-commerce are to take hold in poorer countries. Commerce depends not only on the ability of buyers and sellers to connect; it also requires mechanisms of trust that guarantee payment and delivery of goods.

E-commerce, for example, has largely been the digitisation of trust relationships that already existed. Since people, particularly in rural areas of developing countries, do not have credit cards or bank accounts, trust processes like authentication and non-repudiation are generally not in place, Mr. Touré notes. Mobile operators may be unwilling to offer sophisticated payment facilities in such an environment. As a result, mobile commerce is unlikely to feature in a big way in these countries, says Neil Montefiore, CEO of Mobile One, a mobile operator in Singapore.

The message is that until sound regulatory environments governing finance and telecoms are in place, m-commerce’s benefits will remain the privilege of the developed world.


• Dunn, David E., “The Knowledge Divide, Where Some Angels Dare,” OECD Observer No 223, May 2000.

• Birch, David, Consult Hyperion, “Mobile Banking: Will Mobile Telecommunications Operators Offer Bank Functions?”, July 2000 (web site: magazine.htm).

©OECD Observer No 224, January 2001 

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