Mobile Primer: What Does it All Mean?
Most everyone in financial services these days is talking about mobile banking, mobile commerce, mobile payments and mobile wallets. But, are they all the same thing? How do they differ? Lack of coherent and consistent definitions is creating a lot of confusion in the marketplace as the boundaries between the services blur. Because there is no accepted taxonomy of mobile services across the banking sector, telecom industry, software vendors, or even among analysts, the terms are often used interchangeably – and erroneously.
To help clear up the confusion, I’ve compiled the following categories and definitions drawing on documents from the European Union, Federal Reserve Bank of Boston, GSM Association, Mobile Marketing Association, Smart Card Alliance and the World Bank. I hope this can be of use to financial services professionals as they venture into this rapidly expanding space.
Mobile commerce (m-commerce), an extension of electronic commerce (e-commerce), is the use of a mobile hand-held device to communicate, inform, transact, and entertain. What does this mean? M-commerce goes beyond the buying and selling of goods and services to cover a wide scope of overlapping applications, including mobile financial services (see below) and mobile marketing such as digital content, coupons, rewards, etc.
Mobile financial services (also referred to as mobile money) encompass a broad array of financial services executed via the mobile phone including mobile payments, mobile banking, and mobile money transfers.
Mobile banking (m-banking) requires an underlying bank account. An extension of online banking, mobile banking refers to banking transactions using the mobile phone. These transaction services include balance inquiry, funds account transfer, transaction notices, bill payments and remote check deposits (a relatively new service). Although mobile banking is typically an additive service that provides a new delivery channel to existing banking customers, transformative models integrate unbanked populations into the formal financial sector. A small handful of banks are differentiating their mobile banking services from online banking to offer remote deposit capture capabilities, including USAA, JPMorgan Chase & Co. and Wells Fargo & Co. (for corporate and commercial customers only).
Mobile payments (m-payments), a form of mobile financial services, are payment transactions executed on a mobile device, whether remote or at a point-of-sale (POS), also known as proximity payments. M-payments can be categorized as low value, micropayments (valued at less than $25) or high value, macropayments.
There are different technologies and models driving mobile initiatives:
In proximity payments:
The global standard contactless technology, ISO/IEC 14443, supports Near Field Communication or NFC. NFC is a short range wireless RFID (radio frequency identification) technology that allows data to be exchanged between a contactless-enabled device and reader. Other types of contactless technology include the FeliCa chip supported by proprietary Sony technology in Japan. In the U.S. market, Google Wallet is currently the only NFC-enabled mobile payment device that can be used to pay both online and at retail stores.
Companies are now looking to leverage NFC beyond payments for other applications such as location-based apps, commonly known as “smart posters.” By tapping or waving at advertisements, users can access product information, obtain promotional items and subscribe to services, among other digital content.
Another form of mobile payments used to pay at participating merchants and opt-in store loyalty programs are QR (Quick Response) codes. QR codes are two-dimensional bar codes linked to a consumer credit or debit card. Popular QR code-based mobile payments include those used by Starbucks and the daily deals location-based service LevelUp. Like NFC, QR codes are being used beyond payment transactions on billboards and in paper ads to engage consumers and provide additional information on brands.
In remote payments:
SMS (short for Short Messaging System) or text messages are used to initiate funds transfer through the mobile networks from a registered account such as in peer-to-peer cross-border remittances (see below). As an example, mobile payment company Obopay is providing access to financial services to unbanked populations in developing countries in the Indian subcontinent and Africa. The technology allows consumers and small businesses to buy, pay, and transfer money through any mobile phone via a simple text message.
WAP (short for Wireless Application Protocol) payment mechanism works like any other web-based payment scheme —using the mobile phone’s web browser to access the internet to reach an internet banking application, or make purchases, such as ring tones and games.
Mobile client application (or m-app) is either a pre-loaded or a downloaded proprietary solution that resides on the mobile device to initiate payments such as with the iTunes app.
Another form of mobile payment transactions is at the card acceptance level provided by point-of-sale solutions. Smartphone credit card readers such as Square and Intuit are being used to accept card payments via mobile phone or tablet.
Mobile money transfers are Peer-to-Peer (P2P) payments enabled through the mobile phone. Mobile money transfers may be domestic P2P transactions, or international, cross-border remittances that extend financial services to the unbanked or underbanked, such as the P2P money transfer service M-Pesa in Africa. I would argue that mobile money transfers fall within the definition of mobile payments, and depending on whether there is an underlying bank account, mobile banking as well.
Mobile wallet (m-wallet) is a comprehensive digital solution designed to replace your physical wallet. M-wallet stores information from multiple credit, debit, loyalty rewards, and any other card-type transaction – all managed, accessed and delivered via your mobile phone. Information is typically protected by a PIN, code or token. Although the premise of the mobile wallet, such as ISIS, is to eliminate the need to carry cash, credit and debit cards, reward cards, coupons, tickets or transit passes, fundamentally changing the payments ecosystem, it is yet to be realized.
Are these the final definitions for mobile transactions? Probably not. In the mobile world, you can be sure there’s more to come.