Thursday, May 20, 2010

Mobile phones as personal ATMs?

It has been very obvious for sometime that mobile phones have the potential to be the game-changer in promoting digital financial transfers by both lowering costs and user-inconveniences and more importantly, by dramatically expanding access among people without formal banking accounts.

Mobile phone-based payments are also expected to also revolutionize the way in which governments can transfer subsidies to targeted beneficiaries, including making activity-based micro-payments. Besides, it will be a boon for small businesses who had been disadvantaged by their inability to accept card-based payments.

The Times reports that several companies (like eBay’s PayPal unit, Intuit, VeriFone and Square) have developed small credit card scanners that plug into a cellphone and for a small fee enable any individual or small business to turn a phone into a credit card processing terminal. PayPal’s cellphone application calls for only a simple bump of two cellphones to transfer money.

The technology being used by the likes of eBay will involve the direct involvement of both the credit card companies and the cell-phone providers. The former will use the cell-phone as the gateway to access the individual accounts. This is in contrast to the digital payment model based on simply swiping cell-phones equipped with digital wallet interfaces against readers, developed by Visa jointly with phone manufacturers, which has been very popular in Japan since 2006.

But, the substantial transaction fees charged by both the mobile operators and credit card companies mean that it will be sometime before such transactions can catch on in a big way.

Further, as I have already blogged elsewhere, such readily accessible payment sources also increases the possibility of self-control problems that could adversely affect the spending and savings habits of people, especially poor people.

Apart from improving access to the formal banking sector, mobile phones could have an even bigger impact in the monitoring of the delivery of various welfare services and in delivering customized micro-information on a real-time basis. For example, attendance of teachers in schools and doctors/nurses in hospitals could be taken using GPS enabled mobile phones (which can capture co-ordinates of the location) or 3G phones (which can photograph locations). Further, ANMs in the field could be informed details about their daily ante-natal and immunization targets (details of the individuals and the services to be administered).

See also an ICRIER working paper by Surabhi Mittal, Sanjay Gandhi, and Gaurav Tripathi (pdf here, via Amol Agarwal) that explores the utility of mobile phones in agriculture. Mobile phones can deliver highly customized real-time information about inputs, credit, weather, storage facilities, price trends, and extension services that can enable farmers to maximize their productivity and optimize returns. The report also claims that mobile phones can play a critical role in increasing market efficiency and reducing price dispersions in agricultural markets.

Update 1 (24/3/2011)

NYT article on the developments in the usage of mobile phones as wallets. Wide adoption of the so-called mobile wallets is being slowed by a major behind-the-scenes battle among corporate giants - mobile phone carriers, banks, credit card issuers, payment networks and technology companies are all vying to control these wallets.

Update 2 (20/9/2011)

Google launched its Wallet service for making one-tap payments with a mobile phone using Nexus S 4G phones on Sprint’s network in the US. The Wallet is an app that links to a near-field communication (NFC) chip inside the phone. The technology allows the handset to make a payment by simply tapping on a reader in a shop. The service will use an existing payment gateway of Visa or Mastercard to transact the payments.

Google has thereby moved ahead of a similar joint venture called Isis, set up by the AT&T, T-Mobile and Verizon mobile operators.

Update 3 (19/7/2012)

NYT points to a new iPad application developed by Square that helps you pay your bills by merely repeating your name. See also this.