The e-commerce revolutionized the way business is carried out. It transformed the traditional physical place of business with virtual location. This leads to various new digital payment concepts to evolve. “The recent advancement in mobile and wireless technology has freed consumers from the spatial and temporal constraints of traditional commerce.” (Balasubramanian et al., 2002)
Now there are many technologies available to customers to transact from anywhere at any time. The recent addition is the mobile payment, where mobile devices are used to make payment. The acceptances of mobile commerce are depends on the availability, global acceptance, easy-to-use, and secure methods of payment.
Mobile payments refer to alternative payment system where mobile devices are used to make payment. Mobile payment can be classified as Cellular mobile payment and Contactless mobile payment.
Cellular Mobile payment:
In cellular mobile payment, payments are carried out using cellular based mobile devices which can be used at point of sale or in online transactions. According to the white paper, “Your mobile is your wallet: enabling secure m-payments using PaymentWorks Mobil” (Encorus Technologies).
Contactless Mobile Payment:
In the contactless mobile payment system, like name suggests, there is no contact between a payment device and a reader (Datamonitor, 2004). The transmission technologies behind contactless mobile payment system include RF and NFC (Near Field Communication) technologies, among which, Radio Frequency Identification (RFID) is gaining increasing popularity. Contactless mobile payment is generally used for point-of-sale transactions.
There are number of stakeholders in mobile payment system (refer to Figure. 1). Depending on the scenario, stakeholders will change and new stakeholders may also involve. Below are the main stakeholders and their advantages of implementing mobile payment system.
The Deloitte & Touche report states that, there will be a significant business advantage for mobile operators who offer mobile payments. The advantages include new customers, reduced customer turn over, and income from new, value added, payment-related data services. The benefits will be more to operator, who first introduce the service in the market before other mobile operators, follows the trend.
For mobile operators retaining the subscriber is one of the top challenges. Mobile operators are looking for, new long-term services for customers, which will help to retain the subscriber base. Creating an infrastructure where customers can use a mobile phone to make payment, will be a competitive advantage for the operators to attract new and retain existing subscribers.
Mobile operators can offer mobile payment services with or without a financial partner. Like offering a web based shopping portal, where subscribers can purchase and the amount payable by the subscriber will be added to their monthly statement, which will reduce the customers need to use credit or debit card. They even can tie-up with a financial companies and charge them for using operator’s subscriber identity module (SIM) card to load credit or debit card information.
The Mobile payment system will make financial companies to introduce new and innovative payment services to its customers. This may increase the institution’s payment transaction turnovers, and help in brand positioning. This will be possible by partnering with mobile manufacturers and suppliers.
By adding the contactless infrastructure to their existing network, the financial institutions can provide their cardholders with the same trusted payment services which currently used by them.
This contactless payment facility will allow customers to make a faster and more convenient to pay and increase their loyalty towards the institution. Mobile payments will help the financial institutions to further penetrate cash heavy merchant segments and open new acceptance channels.
The Financial institutions may also offer its customers more purchase linked services like account management and tracking facilities as well as loyalty program, where instant savings and rewards are offered to its customers.
Merchants will also enjoy immediate positive effects when contactless mobile payment implemented. There has been a good feedback from merchants’ throughout the world, who were already implemented contactless mobile payment facility. The immediate benefits include faster payment transactions and improved customer convenience. Mobile payment can also help merchants, to establish stronger customer relationships and customer loyalty.
The Merchants have many advantages in introducing the contactless mobile payment like fewer requirements to handle cash, thus reducing the costs and enhancing customer convenience. Merchants can also introduce loyalty program like financial institutions, such as paperless receipts, gift card, etc., The customers can always have their “loyalty card” in their mobile phones, merchant’s contactless point of sale (POS) systems can then interact with customer’s loyalty card wherever customer shops.
Merchants can also have advantage from branding possibilities, market segregations, and an opportunity to increase their customer base. Contactless payment systems that reduce infrastructure costs can improve return-on-investment for merchants. Add-on applications such as loyalty programs, e-coupons, and rewards can also enhance the value proposition.
The Figure 2, illustrates the contactless mobile payment acceptance in U.S. market.
Mobile Handset Manufacturers
The mobile payment feature creates an opportunity for mobile manufacturers to market their products and to increase their business partnerships. This will give a cutting edge advantage to the manufacturers in competing with other players. Like early camera phones captured consumer market share, mobile phones which support new innovative applications can capture new customers and offer new partnership opportunities.
Limitations of the Mobile Payment System:
Even though there are many advantages in mobile payment system, there are some limitations also prevails. Most of the non-traditional transaction based industries (like tolls, transit, venues, etc.) have limited infrastructure support to use the existing card networks for alterative payments. Besides their high clearing costs for merchants, traditional card payment methods are slow and inconvenient for consumers. “Merchants only accept credit/debit cards where high-density transaction volumes make economic sense or under the pressure of the market.” (Dewan and Oswald, 2004)
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