Amid the hype over the
potential of mobile phones to transform the payments industry, the
details of how the technology will work have been overlooked. Liisa
Kanniainen, vice-president of mobile banking at Nordea, tells
Victoria Conroy and Farah Halime about the focus of the latest
Mobey Forum White Paper.

 

Liisa Kanniainen, NordeaWhen the issue of mobile payments comes up, the most common
model is that of physical mobile payments, where a mobile phone is
used to make a purchase at a merchant or another physical
location.

But a new industry White Paper from the Mobey
Forum, whose membership encompasses financial institutions, mobile
operators, handset manufacturers and other stakeholders, shines the
spotlight on remote mobile payments – where payments can be made
irrespective of the location of the payer and payee. The types of
payments occurring under this model include remittances,
account-to-account transfers and bill payments.

The White Paper identifies guidelines for
developing a payment ecosystem, stressing the need for
interoperability across different payment systems and stakeholders
across the globe.

It suggests that the mobile phone number, and
not any other specific code or identifier, should be used to
identify the payer and payee in a mobile remote payment
transaction. According to Mobey, using the mobile phone number will
provide user convenience, ensure privacy and the security of
payment information, and facilitate interoperability across
stakeholders.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

Liisa Kanniainen, vice-president of mobile
banking at Nordea and executive director of the Mobey Forum told
RBI: “The majority of people in this world do not have a
traditional bank connection. But 4bn  people do have a mobile
phone.

“From this perspective, m-payments are very
interesting in the emerging markets and many people are looking
into them as a way to engage the unbanked people and provide some
financial services and financial inclusion.”

 

Changing the system

Mobey proposes an overhaul of the usage
of payment identifiers, such as bank account or credit card account
number that is commonplace.

This system requires, for example in a
bank account-to-bank account payment, the payer to provide the
details of the recipient – account number and routing information –
to their bank.

But in mobile communications, voice and data
messaging are routed using a unique identifier – the mobile
identifier, or MID – to identify the mobile subscriber. In such
communications, the mobile phone number is used as the mobile
identifier or MID.

To develop a framework for facilitating mobile
remote payments that are efficient and convenient, the paper
strongly suggests that the mobile phone number is used as the MID
and not any other identifier for identifying, sending and receiving
payments between transacting parties.

In other words, when someone wants to initiate
a mobile payment, they need to know only the phone number of the
recipient and not the details of their bank account.

Kanniainen disregarded the risks of using a
mobile phone number as a proxy for transferring payments.

She said: “There are security implications for
using the mobile phone number but those are very much positive. I
don’t have to reveal my account number to you if you were sending
me money… You can safely transmit money.”

“It is possible to trace, on a bank level, the
customer [and] it can be a prepaid phone, it doesn’t have to be a
post-paid phone because that’s the phone number which you have
disclosed with your bank through a secure connection like an
internet bank.”

At the very minimum, according to the Mobey
White Paper, there are three key reasons for using the mobile phone
number as the MID – the primary identifier for mobile remote
payments:

  • Convenience: A new payment instrument, method
    or channel must offer a compelling consumer experience based on
    added customer convenience to attract users. People already
    communicate using phone numbers.
  • Privacy and security: People are reluctant to
    share their financial details with others unless they trust them.
    Using a payment mechanism that only requires a MID while keeping
    the payment details confidential ensures the integrity of a remote
    payment system and keeps financial information private.
  • Interoperability: Not all payment systems are
    interoperable. The systems and protocols leveraged by Visa and
    MasterCard are to a large extent similar, as they follow common
    technical standards but they are not interoperable with each other.
    Mobile phone numbers, on the other hand, follow standardised
    topologies and are based on global routing and roaming
    standards.

The White Paper lays out a road map for
financial institutions to offer a quick and pragmatic route to
mass-market acceptance of mobile remote payments.

 

Benefits are significant

For Kanniainen, the transition for mass
adoption of contactless is about motivating card-holders to use a
mobile instead of cards.

“I think most organisations are trying to
motivate people to use mobile payments instead of cash because it
makes sense for banks and merchants,” she said.

There are costly implications for banks
accepting cash, whereas card payments are an efficient payment
mechanism for them, according to Kanniainen, although she admits
changing a consumer habit requires considerable motivation on
behalf of both parties.

In terms of target segment, different
approaches on implementing a mobile payment ecosystem emerge in
developing and developed markets, with the former focused on the
so-called ‘unbanked’, or those without access to a financial
institution or simple financial services like a bank account.

Whereas in emerging markets, the m-payment
approach that Mobey is proposing will likely be the first point of
entry into financial inclusion, in developed markets the payment
system will be linked into existing bank accounts.

“This would provide an obvious convenience
benefit for consumers, since they would not have to move money in
advance to a separate account but can just use the funds that they
have on their standard account,” Kanniainen said.

 

Ecosystem requirements

But there are certain key requirements
that are integral to a mobile remote payment ecosystem irrespective
of the marketplace or geographic region of activity.

For the development of an open mobile remote
payment environment, it is important for stakeholders to review
different available interoperability options, of which three are
envisaged, depending on what approach best suits each market:

  • Level 1 – Existing: This model proposes the
    development of shared or common infrastructure that allows the
    routing of payment transactions based on the MID. The advantages of
    this model include minimum upfront investment in terms of
    infrastructure development, quicker time to market and speed of
    transaction due to the centralised infrastructure – a single
    database will complete transactions and deal with exception items
    quicker than one that is distributed and maintained by several
    entities.
  • Level 2 – Intermediate: An expanded level of
    interoperability that provides additional services to bridge the
    interoperability gap across different closed-loop systems and
    across open systems that are currently not interoperable. This
    model does not propose new transaction formats or make any
    standardisation recommendations. To keep the model simple without
    the need for developing new technology standards or infrastructure,
    one possible avenue is for the CIM to open and maintain accounts in
    each of the three-party systems it aims to bridge.
  • Level 3 – Direct or extended: A level of
    interoperability where mobile remote payments are undertaken in
    agreed transaction formats and in compliance with open and shared
    standards. Whether a payment between a payer and payee is completed
    directly or facilitated by one or more entities, under this
    interoperability option, a payment transaction is generated,
    received, processed and completed using common standards that are
    universally accepted irrespective of technology or underlying
    processes.

 

The growth of m-banking

The m-payment industry has ballooned in
the last few years in both the developed and developing markets,
but Kanniainen is cautious about its growing prevalence.

“That is often a question that is brought up in
the industry. If I had a crystal ball…!” she said.

Kanniainen, who has been working in the
m-payments industry for 15 years and led the first mobile payments
system with the Nokea communicator handset, said the industry
development has been slower than expected.

“When I see the reasons that are prohibiting
the growth go away, then I’m really positive because there seems to
be a demand,” she said.

The main challenges that the industry has
faced, including the requirement of authenticating transactions,
has set the agenda for the White Paper.

But with positive feedback pushing the market
forward, the potential for m-payment technology to take precedence
is becoming more likely.

No specific examples were drawn attention to in
the White Paper, although it is known that many of the Forum’s
members, including Royal Bank of Scotland, BBVA and DnB Nor, have
already or plan to implement m-payment technology.

Kanniainen would not be drawn on whether Nordea
will be launching products and services based on the
recommendations but said the bank was “actively looking into the
space”.

“I know that many of [our members] are
obviously interested in this area. For the payment processors this
is certainly an area where they can make a difference,” she
added.