UK banks payment service threatens mobile wallets

UK operators preparing mobile wallet offerings will potentially face stiff competition from financial institutions, after UK quango the Payments Council announced plans to launch an industry-wide mobile payment service.

The service has been delayed from early 2013 to spring 2014 despite financial institutions representing 90 per cent of UK current accounts having already committed to offering the service. However, a Payments Council spokesperson said that this is because the body wants the service to be “as ubiquitous as possible” when it does launch, and despite the Council’s members historically being financial institutions, an invitation will be extended to mobile operators.

“We wouldn’t rule out any type of institution getting on board with this. We know mobile network operators have been looking to make the move into mobile payments and the minimum requirement that businesses need to have in order to join up with the service is they need to have access to faster payments – such as internet banking – or LINK, the ATM switching network,” the spokesperson said.

The Payments Council service will ensure that, as a minimum, a passcode or similar security feature will be required to authorise payments and the service will also offer the technical capacity for financial institutions to remotely disable an account in case of suspected misuse. The service would most likely take the form of a smartphone app, the Payments Council added, although it would not mandate how it is packaged by service providers.

“Our role is to build the nuts and the bolts behind the scenes, and make sure there are minimum standards in place in terms of things like security and speed,” the spokesperson said. “The members will be able to develop whatever they want and customise the service in the way that they want to.”

The Council added that from its research, the most popular use case for the service will likely be for person to person money transfers, although it also presents possibilities in consumers paying tradesmen and also for businesses to pay customers, such as insurance firms paying out on their policies.

Eden Zoller, principal analyst at Ovum, believes that mobile operators will likely wait and see how the service develops before deciding whether or not to join.

“UK operators have been working on their own mobile payments initiatives, either individually with services such as O2 wallet, or collectively through ventures such as Weve (formerly Project Oscar), and they’re too far in to abandon their efforts now .”

She admitted that while it looks the operators’ role might be quite limited in this service, as it is primarily aimed at banks, they still want to participate in the mobile payment space and this could offer an avenue for them to do so.

“They could perhaps bundle in this service for the person-to-person element of their mobile wallet offerings and offer their own other services alongside them,” Zoller added.

Daniel Mayo, practice leader for Ovum’s global financial services technology team, added that the service already has most of the UK’s high street banks on board, it will be simple to use and banks will be aggressively promoting the services. However, he added that person to person money transfer does not represent the most appealing opportunity for the operator community anyway.

“P2P money transfer is at the low end of the money services spectrum, it’s not going to be a chargeable service. I suspect mobile operators will not be that interested due to the relatively weak business case. What they will want to get into is more of the paying for goods side of things,” he said.

Direct operator billing firm Mach, recently signed Vodafone, Everything Everywhere, O2 and 3UK up to its Direct Operator Billing platform for digital goods, and said that the use of such a solution to purchase physical goods is on the horizon. While Mayo agrees, he added that this will still be limited to low-value purchases.

“I do think mobile payments will take off in the way that online payments have become a significant part of the retail world now. But the issue for operators is if they charge purchases to customers’ mobile phone accounts, they are effectively providing credit, so there is a credit risk, which is why it will likely stay limited to small value items.”