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 occur¬ring 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 partic¬ular 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 trans¬actions 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 bil¬lion in sales around the world in 2004. America accounted for only $300 mil¬lion of that, although Consect predicts the figure will double this year. Shane Dewing, vice president at Infospace, says "ringtones are all about personal¬ization. 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 ring¬tones 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 han¬dle these thousands of licensing agree¬ments 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 sub¬scription-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 stan¬dard payment method right now, micropayment firms such as BitPass and Peppercoin are hoping their solu¬tions can find traction in both the m-commerce and e-commerce mar¬kets. 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 pur¬chase 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 com¬pany 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 accu¬mulates $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 rev¬enue. 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 con¬veniently 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 trans¬forming 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 transac¬tions predominate: commuter-transit agencies, parking lots, news dealers, laun¬dromats, 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 con¬version 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.