Digital Content, Micropayments and Mobile Terminals Aren't Just Buzz
Words Anymore
Thomas Wright
iMAX Business Solutions
http://www.cmscreditcards.com/



Consumers around the world are abandoning fixed line phones in
droves and replacing them with mobile phones. According to a
study by research firm Mori, fixed-to-mobile substitution is
occurring across the four major markets surveyed - the United
Kingdom, United States, Germany and South Korea - with upwards
of 45 million consumers estimated to now make all their voice
calls from their mobile phone in these markets alone. This new
generation of landline-less consumers has the potential to drive
m-commerce to new heights in the years ahead. This wireless
explosion also has implications for mobile merchants and their
ability to process electronic transactions virtually anywhere at
any time.

One person who keeps the pulse of m-Commerce and mobile payments
in particular is Simon Pugh, president of the Mobile Payment
Forum. The Mobile Payment Forum describes itself as a global,
cross-industry alliance of leading organizations from the
wireless and financial industries dedicated to realizing the full
potential for mobile payments. Pugh explains that "there are
two broad categories: remote transactions that are usually
micropayment-based and local transactions that use RF (radio
frequency) or NFC (near field communications), which can be used
for any size transaction but are currently associated with quick-
service retail."


Let It Ring

In terms of remote transactions, Pugh sees ringtones, MP3 files,
movie theater tickets and other time-driven event ticketing as
today's big movers. "It is a much better shopping experience to
buy larger items over the Internet from your home or office PC,"
he says. As phones and personal digital assistants (PDA) sport
larger screens, more memory, keypads, Internet protocol (IP)
connectivity and faster download capabilities, it will make it
easier to transact remotely. Yet Pugh concedes that it will take
quite awhile for transactions to migrate from the micro level
(under $5) to the macro level.

Bellevue, WA-based Infospace is a leading producer and publisher
of personalized media, games and directory services for the
mobile market. It offers the largest licensed catalog of
monophonic (single tone) and polyphonic (16 to 24 notes using the
Musical Instruments Digital Interface [MIDI] format) ringtones
in North America. According to Consect, a consulting firm
headquartered in New York, ringtones generated about $4 billion
in sales around the world in 2004. America accounted for only
$300 million of that, although Consect predicts the figure will
double this year. Shane Dewing, vice president at Infospace, says
"ringtones are all about personalization. Right now most are
simple polyphonic snippets, but we see the future as entire MP3
song downloads and even video ringtones."

Infospace handles the complicated and onerous task of licensing
music from record companies, publishers and artists, as well as
formatting the ringtones for the myriad of handsets that are out
on the market. According to Dewing, "40 percent to 50 percent of
our music sales are from independent labels, so it is much easier
for us to handle these thousands of licensing agreements than it
is for our clients."

Most of the major telecom players handle their downloads on a
"post paid" basis through their monthly billing statement, often
relying on third parties such as Qpass and Qualcomm to provide
the technology needed to handle authentication and entitlement.
Sprint is the exception in that they have developed their billing
and delivery system in-house and have successfully offered a
subscription-based service, as opposed to the other carriers who
have focused on single downloads. Consumers also can download
ringtones, wallpapers, screensavers, games and quizzes from
popular online sellers such as Zingy and Jamster.

While the post-paid model is a standard payment method right now,
micropayment firms such as BitPass and Peppercoin are hoping
their solutions can find traction in both the m-commerce and
e-commerce markets. Matthew Graves, COO at BitPass, describes
its target market as "any payment $10 or below, but we can also
handle mid-sized payments from $10 to $25 and even larger
payments up to hundreds of dollars." To purchase online content
or services, BitPass "Spenders" first purchase a virtual prepaid
debit card using traditional payment channels such as Visa,
MasterCard, Discover, American Express or PayPal. They can then
use these credits with BitPass "Earners" to anonymously and
securely purchase music, photos, games, articles and other items.
Graves asserts that the company's "good funds" model means that
no merchant has ever been a victim of fraud.

Similar to eBay, BitPass makes its money from the seller, not
the buyer. The company normally makes a 15 percent commission on
items less than $5 and pay Earners via automated clearing house
(ACH) or Pay Pal when their account accumulates $20. "We handle
three critical items for our users: authentication, access
control and payment processing," says Graves. "Our goal is to
help sellers of all sizes monetize digital content."

Content and service providers can enable their offerings in as
little as 30 minutes by simply uploading a single file to their
site. Pixel]ump is one merchant that uses BitPass to sell
ringtones, games and graphics, and delivers them via short
message service (SMS).

Meanwhile Peppercoin recently announced its Peppercoin 3.0 Small
Transaction Suite, which adds subscription and prepaid payment
capability to the company's pay-as-you-go and post-paid
processing service. Peppercoin is partnering with Sun Trust
Merchant Services to deliver the small payment processing system
to merchants. "Peppercoin's solution is the only one that
supports our merchants' needs for digital, mobile and physical
point-of-sale (POS) transactions," says Barbara Roeber, Sun
Trust's general manager and senior vice president.

Mark Friedman, president of Peppercoin, is also excited about
the possibilities: "Each year, more than 354 billion cash
transactions occur in the U.S. for less than $5 at the physical
point of sale, representing $1.32 trillion in aggregate revenue.
We hope to tap into this market and move these consumers away
from cash payments."


'Small' Markets

Leading markets include vending ($18 billion), parking ($10
billion), coin-op ($6 billion) and quick service restaurants
($110 billion). Peppercoin already has a foothold in the parking
meter market with its signing of Reino Parking Systems, a global
leader in on-street parking solutions. The new high-tech meters
are equipped with card swipes, but users with cards on file also
can pay by dialing a toll-free number and entering a meter number
and payment amount. Additionally, users will receive SMS text
messages when their parking time is close to expiring so that
they can conveniently and remotely add more time to the meter.
Users of the system can also purchase virtual parking passes with
their debit or credit cards, thereby transforming these cards
into virtual pre-paid cards-the next time they swipe the same
debit or credit card, it will deduct the charge from their
balance that is stored on the gateway.

Not wanting to be left out of the small payments market, Star
Networks is reducing its fees for a wide range of merchants where
low-ticket cash transactions predominate: commuter-transit
agencies, parking lots, news dealers, laundromats, car washes and
cinemas. The nation's largest electronic funds transfer network
has even gone so far as to create a new merchant category, called
small ticket, with fee pricing intended to encourage installation
of PIN pads and conversion of typical cash payments to PIN debit.

While many merchants shun payment card transactions of $10 or
less, small ticket sales increased nearly 50 percent from $23.7
billion between 2003 and 2004, according to CardData Diamond.
Fast food sales with average ticket sales running $11 per
transaction hit $22.5 billion in 2004, while credit/debit card
sales of transactions of $5 or less grew from $10.8 billion to
$13.5 billion last year.


On the Go

While remote m-commerce is often associated with micropayments,
there is a whole other side to m-commerce: mobile acceptance of
card payments. MacAllister Smith, CEO of Pipeline Data, an ISO
and payment processor, says that "mobile wireless has opened up
a large new market that has not had good card acceptance in the
past." His firm has partnered with AIRCHARGE, a software and
hardware developer specializing in the development of commercial
payment applications across the Palm OS, Microsoft and J2ME
platforms, to offer wireless mobile payments. Target markets for
mobile POS units include transportation, service industries and
delivery firms.

At Credit Card Processing Services, President Kevin Aniess is
putting mobile terminals in some unique locations. "We have the
usual clients like sales people at trade shows, but we also
support souvenir stands at a Broadway play in Manhattan and
at the Louis Armstrong Society in New Orleans," he notes.

His company also targets the construction trades: electricians,
plumbers, heating and air conditioning, handymen, painters, etc.
While CCPS offers numerous wireless POS options, Aniess is not
completely enamored with the technology.

He emphasizes that "coverage and reception are not always the
greatest, so we still recommend a good old­fashioned
'knucklebuster' to our merchants as a safe backup." He also
recommends Touchtone Processing to small merchants because it
allows them ­ albeit at a higher rate - to authorize, capture and
settle credit card transactions using a normal touchtone or using
a cellular telephone.

For larger merchants that can justify the cost of a dedicated
wireless POS solution there are a slew of vendors ready to help
them: Lipman USA, Creditel, Way Systems, USA ePay and ExaDigm, to
name a few. Randy Wheeler, executive vice president of sales at
Lipman, is quick to point out that his company is currently on
its fourth generation of wireless terminals. He explains that
diners can pay right at the table, refreshments and souvenirs can
be sold to fans in their seats, and taxi and limo riders will
enjoy an easier, safer payment alternative since they can
minimize the amount of cash they have to carry. "It is also great
for seasonal businesses, such as fireworks stands and Christmas
tree sellers," he adds.

Over at Creditel, Vice President of Sales and Marketing Gary
Walker is focusing his efforts on the business­to-business market
through its unique partnership with Nextel. "All merchants need
are a compatible Nextel phone, a data plan with Nextel and our
snap-on attachment, and they are in business," says Walker.
Nextel's 'Push to Talk' capabilities and established base in the
business market were big factors in Creditel's desire to partner
with the carrier, which was recently purchased by Sprint.
Creditel sells its hardware through the ISO channel, and also
acts as a merchant processor to Nextel dealers.

Woburn, MA-based Way Systems is taking a different approach with
its pocket-size mobile solution dubbed the Mobile Transaction
Terminal (MTT). Its unit, which is slightly larger than a
standard cell phone, includes a combo magstripe/smart card
reader, PIN pad and an IR port for communicating with a receipt
printer. In the United States, Way Systems has a partnership with
AT&T Wireless to use its General Packet Radio Service (GPRS)
network, but it also targets the nascent Chinese POS market
(where there are approximately 480 million payment cards but only
3 percent of the 25 million Chinese merchants have a POS device),
with its low-cost device.

Will Graylin, CEO at Way Systems, explains that "we started with
the cell phone platform and then designed it so that it is ready
to go right out of the box."

Prime Time Shuttle, a limousine company with a fleet of more
than 3,000 vehicles, has chosen to go with USA ePay's wireless
solution. USA ePay CEO Ben Goretsky says his company's systems
can process transactions wirelessly with a merchant's existing
Java-based phone over any provider's wireless network.

With the addition of a card swipe cradle and USA ePay's $49.95
Java­based software, merchants can quickly transform many
Java/data-enabled cell phones and PDAs into POS terminals. Prime
Time Shuttle experiences a high fraud and theft rate with cash
transactions, says Goretsky, and mobile payment devices should
help cut into that figure dramatically.

"A new breed of POS systems" is how ExaDigm's Mike Mulcahy
describes his company's models; they are PC-based systems running
the Linux operating system. Through a variety of attachments,
ExaDigm's units support the entire gamut of connectivity options:
IP, dial-up, Bluetooth, WiFi and every cellular network. Mulcahy
adds that the systems are flexible: "Since we are virtually a
PC and have USB ports, you can easily add a keyboard, Webcam,
biometrics, ID verification, PIN pad, basically whatever you
like."

POS device and PC convergence, ubiquitous high speed wireless
networks, software improvements and consumers' increasing desires
for digital content and convenient payment options all bode well
for the near future of m-commerce. These ideas have been hot
topics for some time, but their implementation, at last, seems
imminent.




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Article by Thomas Wright, featured in Transaction Trends,
April 2005. Thomas Wright is a freelance writer based in
St. Louis. He also publishes a technology newsletter
called Credit Union Tech-Talk.
http://www.cmscreditcards.com/