This is part 2 of a 2 part topic.  To read part 1 click here.

In part 1 we talked about how mobile payments mean different things to different people in different markets.  We will expand on this further here.

Does simply initiating a payment instruction from a portable device classify it as a mobile payment?  If I use Internet Banking on my laptop in a café does this automatically make it a mobile payment transaction?  What if I perform the same transaction using my tablet using a WiFi connection?  What if I use telephone banking on my mobile phone?  What if I use my Smartphone banking app?  You see how ridiculous it gets.  The problem is that some financial institutions have been known to classify many of these types of transactions all as a “mobile payment” – effectively overstating and distorting reality.  How are we as an industry to compare apples with apples let alone the consumer?

Does it matter?  Probably not but it can be very confusing to the consumer who hears about mobile payments from many sources and associates them as the all same thing and then wonders “why can’t I do that?”.

The simplest way to look at mobile payments is to first define the context in which the particular payment operates.  This is best done by the two broad categories “banked” and “unbanked”.  Banked means you have your money in a bank account and have access to traditional banking services.  Unbanked means you do not have access to traditional banking services.  Approximately 5 billion people in the world – the majority of the worlds population – are unbanked or underbanked.

Predictively, these two categories generally fall within two broad types of economies: banked = developed (Western) markets; unbanked = emerging markets.  While there is some overlap and exceptions in both (many developed countries have unbanked populations and vice versa), this is by far the most practical definition.

The debate as to whether being banked or unbanked is better or worse for an individual is for another blog topic.

In banked economies, money resides and circulates within the banking system i.e. in bank accounts.  In unbanked economies, it circulates primarily in cash.  Accordingly, and here is the main thrust of this topic, the mobile payment systems that are used to service these different markets are vastly different in architecture, the way in which users interact with them and the mobile devices and mobile networks on which they operate.  Users may even use the same type of device to move money around but how this physically happens (in the background) can vary greatly.

I must stress here that I am primarily referring to personal transactional banking (or payments) rather than corporate transaction which are usually exclusively managed by the banking sector regardless of the market.

In a banked (developed) economy, mobile payments are usually based on a payment instruction that directs a payment from one account to another either within the same institution or to a third party.  Banks have been moving money between accounts and institutions for many years and a mobile device simply represents the latest method in a range of these “payment instruments” starting first with cheques, card payment schemes and then internet banking.  One could argue that the services and functions accessible via mobile banking products are no different to those currently provided by telephone and Internet banking platforms.  By extension, one could also infer that mobile banking performed on a Smartphone app is simply a variation of Internet banking only it is performed on a mobile device.  In technical terms it still qualifies as a class of Internet Protocol (IP) transaction – with all the security vulnerabilities this introduces.  Even card and NFC based payments when integrated with banking platforms are an extension of the banking system – they still switch funds via bank platforms. (all are also good future blog topics)

While the mobile phone provides tremendous convenience, the utility of services available through the mobile device are determined and sometimes constrained by the (legacy) architecture of many banking platforms which do not transfer funds in real time.  I recently described Smartphone banking apps as lipstick on a pig as while the consumer facing interface in many cases appear fast, responsive and fantastically rich in features, the fundamental function of transferring money between bank accounts was often constrained by the inability of the banking system to perform this function in real-time.

Therefore in western markets, the utility mobile banking (mobile payment) provides is ultimately constrained.  The legacy architectures of many banking platforms create speed humps that limit what can be done with payments.  This can limit applications for bank-led products and restrict innovation in this sector.

Are these mobile payments?  Technically they may well be even though they are limited and slow.  Maybe for most of us this does not present a problem – after all we have been used to this type of thing for most of lives.

In emerging markets, the mobile payment platforms built for the unbanked are not constrained by legacy architectures and so are built using current, modern day, real-time switching platforms.  They provide instantaneous funds transfer between accounts that enable them to provide more features and value to the user.  Furthermore, payment services for the unbanked while they are usually very simple, offer the same core features that mobile banking services provide; account balance, paying another person (account), or bill payment – only they do not require a Smartphone to operate.  They make use of ubiquitous technologies including USSD and SMS which can operate on all mobile networks and which are supported by all makes and model of mobile phone.  In emerging markets, while Smartphones are available, their lack of affordability means by enlarge they promoted as “aspirational”.

Unbanked payment services are fast, simple and generally offer instantaneous funds transfers across the country and now thanks to the emergence of international mobile remittance – across the world – capability, which the banking sector in many markets, is still years away from providing to consumers.

The core difference between mobile payment services for the unbanked is that they are designed for and can only be performed via mobile device.

So the answer to the question: “what makes a payment mobile” depends really on the context.  This question will probably forever mean different things to different people in different markets.  Perhaps one useful definition might be that a mobile payment is one that can only be performed on a mobile (cellular) device.  It’s your call – where do you live?

Harold Dimpel is the founder and CEO of mHITs Limited an Australian based developer and operator of mobile payment services.  In Australia, mHITs (pronounced Em-HITS) operates the mHITs SMS payment service that allows consumers to send and receive payments by SMS text message.
mHITs is also working in emerging markets in the design, deployment and operation of mobile payment solutions for the so called “unbanked” (people who do not have access to traditional banking services).  For more details visit www.mhitslimited.com.