Motorola Tests M-Commerce

Title: Message

October 13, 2004 
Motorola Tests M-Commerce 

By Susan Kuchinskas
 
http://www.internetnews.com/ec-news/article.php/3421531

 

Motorola and MasterCard want to prove that reducing 
the fumble factor can save merchants money. 

 

Phones equipped with PayPass, MasterCard's 
contactless payment service, are expected to go through rigorous testing in U.S. 
cities by the end of the year, the companies said. 

 

"In essence your phone will become your wallet, key 
chain and your ID," Ron Hamma, vice president and director of enterprise 
business development for Schaumburg, Ill.-based Motorola, said in a statement. 

 

PayPass, a contactless payment platform developed 
by MasterCard with VivoTech, lets users tap or wave a device in front of a 
special reader in order to process a transaction. With PayPass, MasterCard is 
targeting retail establishments that have low-value transactions that are mainly 
cash-based, such as quick-serve restaurants, movie rental shops, theaters and 
casual dining restaurants. 

 

"MasterCard's overriding goal is always to increase 
transaction volume," said Jupiter Research analyst Bruce Cundiff. (Jupiter 
Research and internetnews.com are owned by the same company.) "They're also 
going after merchants that benefit from quicker transactions. McDonalds is a 
perfect example." 

 

In August, McDonalds announced that some 
restaurants in Dallas and New York City would accept PayPass by the end of the 
year, with more locations participating in 2005. 

 

Purchase, N.Y.-based MasterCard, the second largest 
credit card company, needs to try harder, Cundiff said, and m-commerce is one 
way of differentiating itself. 

 

MasterCard has completed trials of credit cards 
with embedded chips in Orlando, Florida. It also worked with Nokia (Quote, 
Chart) on tests of PayPass-enabled phones in Dallas, Texas. For this test, chips 
embedded in special cover plates on phones were pre-programmed with users' 
MasterCard account information. 

 

Around 16,000 Orlando credit card holders and 500 
to 700 Nokia users in Dallas could use contactless payment at a variety of 
participating drugstores, gas stations, movie theaters and restaurants. 

 

MasterCard said it has rolled out these tests 
slowly and carefully. The PayPass offering was announced in December 2002, and 
the nine-month Dallas pilot began in May 2003. 

 

In those tests, the company found that retailers 
had the potential to increase revenues by decreasing checkout time. In 
drive-through establishments, PayPass shaved between 12 and 18 seconds off a 
purchase when compared to cash. In Dallas, the average PayPass payment made 
using a mobile phone was six seconds faster than using a card, because shoppers 
spent less time fumbling through their wallets. 

 

Proving PayPass saves merchants money could be the 
key to adoption of the technology, Cundiff said. 

 

"It hasn't made sense for the low-to-average-ticket 
merchant to accept credit card payments, because they lose a certain percentage 
of the transaction [due to fees]," he said. While the major credit card 
companies have tried to show that there are hidden costs to accepting cash, such 
as theft and physical management of the money, the decision remains with the 
merchant. "MasterCard sees [PayPass] as its way into those merchant types," 
Cundiff said. 

 

Getting mobile phone manufacturers involved can 
help MasterCard with some of the development costs. "MasterCard, up to this 
point, has been bearing most of the burden of the investment," he said. 
"Involving Motorola and making the case that it's beneficial to them may be a 
way of spreading the investment burden across a larger number of players." 

 

The successful implementations of contactless 
payment systems in Japan and Korea have been driven by telcos, Cundiff said. But 
phone-based mobile commerce has been slow to take off in the States, where 
mobile networks are slower and use inconsistent protocols. 

 

Svante Rodegard, an independent consultant to the mobile payments 
industry, said, "PayPass is the right way to do it. The problem has never really 
been the technology itself." He pointed out that SIM (define) cards in GSM 
phones, wireless access protocol (WAP) and RFID tags (define) also could provide 
mobile commerce, but these systems are all server based. 

 

"This is more of a direct transaction," Rodegard said, "because PayPass 
ties into merchants' existing POS system. It's not really changing the payment 
system; it simply transfers the information from the magnetic strip on the 
credit card to the phone." 

 

Involving handset manufacturers is something of a coup, according to 
Cundiff, because concerns over who owns the customer could stall m-commerce. 
Because in the U.S. most mobile phones are sold by network operators, the 
Motorola/PayPass system also brings telcos to the party. Those operators will 
need to agree to the form factor of the phone, while the banks issuing the 
credit cards will need to feel confident about the security and storage of their 
customers' financial information. 

 

"It's a multilateral relationship. Card issuers will have to build a 
consortium and give others a piece of control over the relationship with the 
consumer," Cundiff said. 

 

But struggles to control customers and their information in the m-commerce 
world are only beginning, according to Maria Christensen, a micro-payments 
consultant based in Sweden. 

 

"The question of who is the owner of the card, of the applications stored 
on the card and of the connection to the communication link must be sorted out," 
she said. "The operators don't have a business models for adding an extra 
application to the card, and the banks wants control over the business process." 

 

There's another thorny problem, according to Christensen: Each 
m-commerce-enabled phone will contain an "empty card" before it's sold and 
activated, in the form of a master key stored in the card. Who controls that 
key? 

 

Security of the stored information and the phone itself is another issue, 
one on which the announcement was vague. "One of the biggest problems using 
credit cards is fraud," Rodegard said. "Is this fraud prevention any better than 
credit cards?" Motorola and MasterCard executives were not available for 
comment. 

 

The Motorola phones will be able to run other applications besides payment 
and act as readers. They could be used for ticketing for mass transit or to 
receive promotions such as coupons. The companies expect trials of the 
m-commerce phones to take begin in several U.S. locations by the end of 2004. 

Ed Dodds 
 
<e-dodds.communications/> 
615. 429. 8744 cel | tel 
508 . 632 . 0370 fax 
ed1dodds aim 
49457096 
icq
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