Mobile is conspicuous by its absence in O2's financial play

By Guillermo Escofet

UK cellco O2 recently announced that it is entering the personal-finance sector with the launch in August of two prepaid Visa cards in conjunction with NatWest bank. In a press release issued by O2, a NatWest executive is quoted as saying that these “groundbreaking” cards will “really raise the bar in terms of the added value customers will get from the interaction with their mobile phone.”

Yet, the only thing really “mobile” about the cash cards is the fact that they will be offered by a mobile operator and that users will receive a text alert after every transaction. There’s nothing groundbreaking about such alerts.

The cards will essentially be plastic chip-and-PIN cards just like any others, which users will be able to use in stores, ATMs and for remote payments. They are not a mobile-wallet or mobile-payment service as such.

Marketed under the O2 Money brand, the Load & Go card is aimed at youngsters, users age 13 and older who are not old enough to own a credit or debit card, and the Cash Manager card is aimed at older people who want to better manage their finances.

The latter is accompanied by an online budgeting tool that enables users to work out how much “discretionary spend” they have a month after deducting fixed expenses. The idea is that users will then transfer any spare cash to the Cash Manager card for spending. This is an innovative concept but, again, from a mobile services perspective, it is not, since the budgeting tool will be accessible only via PC, not mobile.

Part of the thinking behind the Load & Go card is to make youngsters less reliant on having to borrow their parents’ credit or debit card every time they want to pay for something online. Interestingly, though, there is already a more mobile-centric alternative to Load & Go or relying on parental help in such instances.

A lot of web sites on the fixed internet, such as social networks, are giving users the option of making micropayments via mobile. Users under 18 might not be able to obtain credit or debit cards in most countries, but many have prepaid mobile accounts. And they can spend the spare airtime credit they have in their account on other things, such as avatar accessories, virtual gifts and other digital goods sold in online communities.

The interest is there, but…

But this is not to say that O2 is not interested in mobile-payment and mobile-banking services. It very much is. Its goal is to eventually integrate Load & Go, Cash Manager and other plastic money into handsets, turning phones into “mobile wallets,” and it has been involved in several trials to test the near-field communications (NFC) technology on which such handsets will rely. Many other carriers are working toward the same goal.

But putting all the pieces together to enable mobile wallet services is a hugely complex task. Although the technology to make it work on phones exists and has already been tried and tested, there are many other hurdles that still need to be cleared. There’s the question of how exactly the technology should be integrated into phones. There’s also the messy business of agreeing on how money will be made from the service and divided among the different value-chain members. And, perhaps the biggest barrier of all, there’s the question of how the readers that enable NFC payments will be deployed at all points of sale.

It took 10 years to get chip-and-PIN payments fully up and running – and it was just banks that were driving that project. With mobile wallet payments, both banks and operators are at the helm, involving two sets of companies from two different industries with different mindsets and agendas. So it could well take another 10 years – or longer even – to get mobile wallet payments off the ground, beyond just public transportation systems, where NFC readers are already in place.

The two biggest bones of contention among value-chain members have to do with where the so-called secure element for mobile-wallet payments should go in the phone and, predictably, revenue sharing. But there is growing consensus on these issues.

It looks as if operators might get their demand to have the secure element embedded in the SIM card and not in the phone, as some manufacturers are pushing for. But at the same time, it looks as if operators are giving up on their demand to get a fee for every mobile wallet payment made. The banks and credit-card issuers dug in their heels on that one, and it seems that, as an alternative, operators will be offered a fee for every mobile wallet account that is activated. The question now is whether operators will receive this fee as a one-time payment or on a recurring basis. No doubt they would prefer the latter.

It took the banks a lot of time and money to roll out chip-and-PIN. Beyond agreeing on standards for the card and reader technologies and then rolling them out, they also had to agree on the regulations that would govern the new payments system. The same will have to be done for mobile wallet payments, but in a much more fragmented ecosystem.

With all these barriers in mind, it’s hardly surprising that mobile has little to do with the new services announced by O2 this week. O2 is one of the operators that is most committed to offering mobile financial services. That’s why it has come up with the O2 Money brand. But it can’t press ahead with these services without first getting a long chain of other companies to join forces and stop dragging their feet.