Bankable Frontier Weblog

For those interested in the convergence of wireless communications and consumer finance, last week’s Economist magazine carried an interesting article. Subtitled “Japan’s leading mobile operator believes it has found the next big thing”, the article described how DoCoMo has developed plans to enter the mobile payment market by embedding a credit card into the wireless chip in each phone. Apparently, some 4-5 million (of the 51m DoCoMo subscribers) already carry handsets with technology developed by Sony called FeliCa (follow the FeliCa link on DoCoMo’s website for visual presentation). This technology, already in use in mass transit systems in card form, enables the chip to be read by nearby scanners. Soon, the handset itself will replace the card. However, for this to happen, FeliCa-enabled scanners have to be sufficiently ubiquitous at merchants for the application to be useful to phone users. As a way of accelerating the process of acquiring merchants, and of profiting from the new card business generated, DoCoMo has also recently purchased a sizable chunk of Japan’s second largest card issuer, Sumitomo Mitsui Bank.

These latest developments will come as little surprise to those who follow this rapidly evolving area. However, the conclusion of the article deserves further attention: that, even if DoCoMo is successful in this new venture as it has been with previous offerings (such as internet access via i-mode), this phone-with-credit card approach is less likely to spread, at least to other developed countries.

Two reasons are given:  first, the Japanese credit card industry is much less developed than counterparts in the US or Europe, implying that there is less competitive space in these developed markets for card issuance to current non-card users who nonetheless have cell phones. Second, because iMode vertically integrates its offering of the whole cellular process—from handset to wireless service and downstream products—it relies less on industry co-operation to create technological standards. This cooperation can be time consuming and even eventually fruitless—the article cites the failure of Simpay to establish and profit from mobile payment standards in Europe. Even DoCoMo, however, is reportedly considering making its scanners inter-operable with other FeliCa applications. This surely is the lesson of the original roll out of credit cards in the US in the 1960s and 1970s—that the benefits of interoperable acquiring systems outweigh those of proprietary ones.

However, even if it is right that this application is unlikely to take off in developed markets, does the conclusion hold in developing countries? In these nations, there is usually vast open space for growth in credit and debit cards, more like Japan. With typically relatively few operators and ineffective on-line retail payments in many, convergence on new, effective payment standards may be easier there.  After all, as this blog has previously noted, Zambia has been doing a version of this for a while.

You, too, can buy fuel with your cell phone—in Lusaka

Some version of the cell phone wallet is likely to become an important retail payment instrument in many developing countries over the next 5-10 years. The real question for networks and banks alike is: which version?