M-wallet – take a step aside to remain relevant

Orange UK has launched what it says is the first contactless mobile-phone-based payment service, allowing customers to make purchases up to the value of £15 (US$25). The service has been developed in conjunction with Barclaycard and will use the credit card company’s network of contactless readers which is deployed in more than 50,000 UK stores. The service uses a secure, SIM-based solution but initially is only available to customers who buy a special version of the Samsung Tocco handset.

Whether the service will become a must-have for end users or not remains to be seen, but one thing is sure: Orange’ business model for M-wallet is an indicator of a radical change in the mobile operators’ positioning in the value chain. They are taking a step aside in order to remain relevant.

Access denied

Mobile operators have had an exclusive monopolistic access to their own customers for a long time. To any third party, direct access to their customers was taboo.  Any new initiative or service would start, but often prematurely end, in mobile operators’ hands.

Operators not only claimed the lion’s share of revenue but also a central and primary relationship with the customers. While some of the claims were legitimate, others were clearly not helping market development.  M-Wallet was no exception and we argue that this is one of the reasons why it took so long to happen.

But today the market is completely different.  Mobile terminals freely access the open Internet where any company could quite easily develop services running on top the connectivity provided by the operators.  Moreover, operators have lost some of the control they had over devices – a player such as Google could put security into the device itself.  The industry has changed from access denied to free runners.

Be a trusted custodian …

Today the role of operators is changing and Orange’s business model for M-Wallet is an indicator of this cultural shift. Essentially, Orange will host the “secure element” which is at the heart of M-Wallet business model. Orange’s SIM card will provide security and authentication and the operator will effectively become custodian of the customer’s data and also provide security.  In fact, operators are putting security into the SIM and are claiming that this is preferable because these can be swapped, changed or upgraded if there are any security issues.

Orange’s business model for M-Wallet is based on a fee per customer using the service and not on a per-transaction basis, which would have seen the operator taking the lion’s share of revenues. Orange’s direct relationship with the customer is preserved and the emphasis of such relationship will increasingly be focussed on trust, not merely on revenues.

… but don’t incarcerate your customers!

From a customer standpoint, it is a trust-based relationship. From an operator point of view, it is a retention strategy and perhaps a revenue-generating initiative.

Increasingly operators will store, hold and safeguard customer data. Many cloud-based services will help operators in their quest to remain relevant to their customers end eventually retain them.

But, in future, the temptation will be for operators to go full circle by tightly locking in their customers’ data in order to become their exclusive providers, ultimately denying access to their customers.

Avoid the temptation! As we all know, a barrier to exit your services will ultimately become a barrier to enter for the wisest customers.


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