When I lived in Japan in the years 2005 and 2006 many things were surprising to me. But one stood out among the others: How advanced their mobile phone networks were. When I arrived in September 2005 they could already use their phones to make flight reservations, lock the doors of their homes, read small cartoon-like stories, watch tv, store hundreds of songs on their devices and make payments, mainly when using the metro, at some department stores, at the cinema and at vending machines. Japan was two steps ahead of the rest of the world.
Hardware and software of cell phones in Japan has changed radically since the introduction of the iPhone and the Android smartphones, which are now dominating the Japanese market; however, they pre-served all the capacities (including the possibility to make payments) from the previous cell phone generation.
Years later and now on american and european soil, various initiatives emerged for payments with mobile devices. Maybe the most famous proposal among them was Google Wallet, which was presented in May 2011 and which was supposed to replace debit and credit cards in the mid-term. The truth is that – for a number of reasons – its progress has been very limited so far. One of them is the high cost of deploying thousands of terminals supporting NFC technology, a cost that banks are unwilling to assume for the moment.
Apple, the other giant with enough power to give an impulse to mobile payments and which in addition to that stores data of millions of credit cards in its iTunes Store, has not yet entered the battle but it looks as if it will do so with its upcoming iPhone 6 , even though it would not use NFC technology for transmission. Apple devices do not include this hardware and use iBeacon instead.
Image |Payments Council
The Payments Council has been working on the development of Paym since 2012 and it plans to present it officially in April in order to have it working by the end of spring. So far nine banks will participate in the development, among them the Bank of Scotland, Barclays, HSBC and Santander. More banks have committed themselves to join before the end of this year. Just before the launch, the participating banks will send an invitation to their clients to subscribe to the service on the bank’s website or through its app and link their mobile phone number with one of their bank accounts.
If this payment method prospers and consolidates in the United Kingdom it will be interesting to observe the reaction from the central banks, the banks and financial institutions in other countries. If the profits it could possibly generate are confirmed its adoption will be very tempting. And it has a great advantage to achieve that goal; it works with a (phone) number that is accompanying users throughout their lives and which because of that has great relevance.
On a global level we are barely in the early stages of mobile payments with electronic devices or smartphones. I mentioned earlier how the Japanese model, where mainly financial institutions and network carriers are involved in mobile payments, is working very well. In other countries the same path was taken, like for example the Transfer program of the mexican bank Banamex, which belongs to the Citi Group – even though this program did not involve interaction between devices (smartphones and payment terminals).
Still. this market is so big that Google and Apple are not willing to let it pass. Their efforts in this directions are proof for that. We can expect them to fight fiercely over the market of mobile payments and this may cause a polarization between banks and network carriers, which may cause progress to be delayed. This is why the appearance of Paym, which is a service where banks and network carriers work together while the technology giants are excluded, is very welcome especially as it is using an already existing channel (mobile electronic money order) in a new way by using the mobile phone number.
And the Japanese will keep their lead in mobile payments based on hardware instead of software, with two electronic devices communicating over a short distance. This type of payment is precisely the most used and the one who really is apt to replace coin money and credit and debit cards. After all, you can not buy a metro ticket or refreshments from a vending machine by placing an electronic money order.