Booz Allen Hamilton: Mobile payment, a successful model for the Middle East

Booz Allen Hamilton has found that in countries where most retail sales are conducted on a cash rather than card basis, but have high mobile phone usage, phone-based payment systems have a strong possibility of success.

'The Middle East has a high mobile phone usage rate,' said Karim Sabbagh, a Vice President at Booz Allen Hamilton. 'A phone based payment system that simply replace paying by cash and other electronic means could be popular in this region.'

Banks, credit card companies, handset manufacturers and telecommunications companies in the Middle East could achieve sweeping success with the right innovative co-operation model. 'All stakeholders have an interest in this market, but to date the fears associated with getting involved in co-operations have been too great. Attempts by individual companies in the past, like Paybox or more recently SIMPAY, have foundered. At the same time, Japan is showing us how it can be made to work quickly and problem-free,' says Roman Friedrich, a Vice President at Booz Allen Hamilton

In just a short period, NTT DoCoMo and Sony have established a simple, device-based mobile payment solution in Japan. Sony FeliCa contactless chips have been integrated into mobile phones, enabling payments to be made by phone in the many shops fitted out with a FeliCa chip reader. At the end of 2004, only five months after the start of this service, the providers already had a million service users. By the end of 2005, it will be over ten million.

'This clearly demonstrates that not only are significant efforts starting to be made in this area, but that there has been some measure of success,' said Gabriel Chahine, Principal, Booz Allen Hamilton. 'When you have a market with rapidly advancing telecommunications penetration, like the Middle East, you have the potential of a mobile payment system.'

Going forward, NTT DoCoMo is set to rely even more strongly than before on collaboration with banks and card companies. 'The partners have developed a business model from which all stakeholders benefit. The really positive aspect is that no-one has to shoulder the entire responsibility for major investments on their own!' says Johannes Bussmann, Vice President Booz Allen Hamilton.

Bussmann adds: 'This shared participation is also the precondition for the successful deployment of mobile payment solutions in Europe. All stakeholders, especially the telcos, need to be aware of the fact that phone-based mobile payments are a form of cashless payment which can be realised even on the basis of the existing infrastructures. This is the critical difference between this route and all other previous attempts at mobile payment solutions. Furthermore, it is a solution with potentially broad acceptance and issuer participation. '

The collaborative business models represent a win-win situation for all players, which is a critical argument in favour of opening up a mobile payment market in specific regions.

• Device manufacturers and mobile telco operators are looking for sales drivers in the form of new services such as mobile payment, in order to promote sales of devices or to open up new revenue streams. Mobile payment will add to the value of mobile phones, and will position them even more firmly at the heart of everyday life.

• At the same time, the credit card associations are looking to realise contactless payments by using suitable chips, partly in response to increasing marginalisation by the card issuers. In this way, they are simplifying the payment process on the basis of the cashless payment procedures currently being used - both card-based solutions and electronic payment networks.

• In addition to this, banks are strongly promoting cashless payment transactions, using precisely such commonly-found technologies as mobile phones, in a bid to save on costs. The estimates by Booz Allen Hamilton indicate that cash logistics costs can be reduced by up to 10%.

• Retailers are attracted by a further reduction in costs per payment transaction through using a mobile payment system, just as much as by large numbers of mobile phone users (and potential customers) who are likely to adopt such a system. The key thing is that their businesses do not incur any more sizeable costs for the POS infrastructure.

'A mobile phone based payment system, if successfully implemented, gives credit card companies, and telecom carriers another possible revenue stream,' said Ghassan Hasbani, Principal, Booz Allen Hamilton. 'And it is a revenue stream that could be highly lucrative.'