eBay’s PayPal launched its PayPal Mobile service in May 2006, enabling PayPal users in Canada, the UK and the USA to send money, receive payment notifications and access account details on their mobiles via SMS. PayPal has agreements with more than 20 operators, including 3, Alltel, O2, Orange, Sprint, T-Mobile, Tesco, Verizon, Virgin and Vodafone. If extended globally, the service would have an addressable market of approximately 100 million PayPal accounts.
In the same month, MasterCard completed its transition from a for-profit association (governed by bank representatives) to a publicly quoted company on the New York Stock Exchange. MasterCard’s corporate reorganisation, although it may have garnered less consumer attention than the PayPal Mobile launch, has the potential to influence the developing m-payment market on a scale that PayPal will struggle to match in the short term. (PayPal’s total payment volume in 2005 was less than USD28 billion, compared with more than USD4 trillion for Visa, USD1.7 trillion for MasterCard and USD485 billion for American Express.)
Mobile operators have reason to be wary of major credit card companies’ long-term involvement in the mobile value chain.
While credit card companies see m-payment as a potential growth area, it is still relatively a niche service in terms of overall volume.
Credit card companies have tended to be pre-occupied with regulation (e.g. Sarbanes-Oxley), organisational change (e.g. MasterCard’s IPO) and upgrades of their installed base (e.g. chip-and-pin technologies and next-generation smart/contactless cards), and are only now starting to focus on m-payment.
Unshackled from the cumbersome for-profit association structure and now able to raise capital (such as for investment in new payment technologies) more effectively, MasterCard has explicitly targeted m-payment and e-cash as strategic areas for future revenue growth. MasterCard is betting that its new-found organisational nimbleness will enable it to outstrip market leader Visa (which is still governed as a for-profit association) in developing new mobile and contactless technologies that can deliver its core brands (Maestro, MasterCard and Cirrus) in ways that respond to consumers’ evolving demands for flexible payment and money transfer methods. MasterCard trialled nearly 5 million PayPass contactless cards in the USA in 2005 and has extended their deployment to Canada and the Asia–Pacific region, while also experimenting with mobile operator partnerships, such as the T-Mobile branded credit card launched in Germany with Postbank in November 2005.
While credit card companies no doubt covet the penetration rates of mobile devices compared with credit cards, it is the credit card companies, not mobile operators (nor payment service providers like PayPal), who still control the purse strings of many embryonic m-payment structures (including person-to-person transfers, prepaid and pay later) due to their existing settlement networks. For example, because PayPal must rely on banks or payment processors to process transactions, person-to-person m-payments such as PayPal Mobile are in fact an overlay on existing credit card structures. Indeed, eBay’s annual report warns of the risk to PayPal’s business posed by credit card association operating rules.
Furthermore, operator-led e-payment in general, and m-payment systems in particular, have a patchy history. The Mobile Payment Forum, which includes the four major credit card issuers (American Express, JCB, MasterCard and Visa) and several large international operators (including NTT DoCoMo, Sprint Nextel, T-Mobile and Vodafone), has yet to deploy a common standard for m-payment across its membership base. The SimPay consortium of European mobile operators, which attempted to offer an m-payment system similar to eBay’s PayPal, folded in 2005. M-payment services from operators in South Korea (SK Telecom’s Moneta and KTF’s K-merce) and in Japan (NTT DoCoMo’s Edy, based on Sony’s FeliCa contactless technology) have had only limited adoption to date and, in the case of Japan, must compete with offerings from credit card issuers (JCB’s QUICpay) and public transportation services (JR East’s SuiCa).
Mobile operators have reason to be wary of major credit card companies’ long-term involvement in the mobile value chain. As well as extensive experience in running high-volume, international networks reliably and securely, the major credit card companies arguably have better corporate reputations in:
- customer relationship management (e.g. accurate billing, flexible settlement, loyalty and reward programs, and management of ARPU and churn)
- partner relationship management (e.g. intermediating complex settlements between multiple parties, such as merchants, acquirers and issuers).
Mobile operators may desire American Express, MasterCard and Visa as powerful partners in developing an m-payment ecosystem – such as the one PayPal Mobile is attempting to forge – but, in the larger battle for the customer’s wallet, operators could yet find credit card companies to be formidable competitors as MVNOs.
