m-Commerce

Paying Through Mobile Phones

Mobile payment systems can be broadly classified into mobile phone based
payments, card-based mobile payments, mobile Web payments and mobile
wallets. Here is an overview of various mobile payment systems and services
in operation world over

 Karabi bandyopadhyay an integral part of m-Commerce. It is systems can be broadly classified into
an alternative payment system where mobile phone based payments, card-

M
obile commerce (m-Com-
merce) is the process of con-
ducting business transac-
tions using mobile devices such as cel-
lular phones, smart phones, personal
digital assistants, pagers, palmtops and
laptop computers. Mobile payment is
instead of paying in cash, the consum-
er can use a mobile phone to pay for a
wide range of goods and services.
In order to facilitate financial trans-
action, the mobile payment mechanism
utilises digital currency in the form
of digital bits. The digital currency is
freely exchangeable and imitates tradi-
tional currencies such as cash, cheque
or credit cards. In order to make the
payment mechanism safe and secure,
extra care is taken to maintain the pri-
vacy, integrity and confidentiality of
online payment. Special security and
encryption techniques are adopted to
ensure that the financial transaction
cannot be duplicated, reused or
counterfeited.
In order to pay for an item
through his mobile device, the
user first connects to the cash
register of the concerned
store using the mobile device
and enters the bank personal
identification number (PIN)
that authorises the user for
making the payment. Next,
the PIN is verified and if it
is found okay, the user gets
a ‘go ahead’ signal from
the cash register. Then the
user enters the amount to
be paid in his mobile and
completes the transaction.
The entire process of mo-
bile payment takes only a
few seconds.
Depending on the mode
of payment, mobile payment
based mobile payments, mobile Web
payments (WAP) and mobile wallets.
Mobile phone based
payments
SMS-based transactional payments.
In this mode of payment, the cus-
tomer makes payment through his
mobile phone by sending an SMS to
the retailer. Both the customer and the
retailer must have a regular credit or
debit card account in one of the partner
banks of the payment service provider.
After selecting an item for purchase,
the customer sends an SMS to the
retailer requesting the purchase. The
retailer responds by sending a pay-
ment request through SMS to the cus-
tomer. The customer keys in the bank
PIN number to approve the payment.
The bank verifies the PIN and im-
mediately debits the amount from the
customer’s account and the transaction
is completed. Both the customer and
the retailer get an SMS indicating the
transaction details. The entire process
takes around 10 seconds to complete.
The transaction gets listed in the cus-
tomer’s monthly bank statement.
Such SMS-based mobile payments
are extremely simple and cost-effec-
tive. There is no special tariff plan or
mobile operator registration required,
and the cost of making the payment
is just the cost of an SMS. Also, this
method ensures secure payments on-
line, over the mobile phone via SMS,
either across the counter or from just
about anywhere.

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m-Commerce
SMS-based payments are exten-
sively used for airline ticket booking,
purchase of online games, music CDs,
movies and videos, etc. Prominent
players in this area are PayMate,
mCheck and Gpay.
Direct mobile billing. In this mode
of mobile payment, the customer uses
his mobile phone for purchase of
digitised items such as mobile ring-
tones, music, videos, video games and
wallpapers that can be downloaded in
the mobile device itself. The purchase
amount is added to the monthly mobile
bill of the customer.
This provides an alternative pay-
ment method that does not require
use of credit/debit cards or any online
payment solution provider, such as
PayPal, and thus bypasses banks and
credit card companies altogether. The
customer is billed by the mobile net-
work operator based on different tariff
rates, and the payment is either debited
Mobile phones equipped with contactless smart
cards use near-field communication technology
to exchange data between the mobile device and
nearby smart card readers
from the subscriber’s prepaid account
or added to the standard postpaid in-
voice of the subscriber as the case may
be. In order to secure the payment,
two-stage authentication involving
PIN and one-time-password is used
while making the purchase through
the mobile device.
In most of the cases, the transaction
completes in less than 10 seconds. As
this provides a fast and easy way of
mobile purchase, around 70 per cent
of all digital content purchased online
uses direct mobile billing method.
Card-based mobile
payments
Credit card based payments. In credit
card based mobile payment system, the
mobile handset is used as a credit card
for making payments. The credit card
issuing bank gives a PIN number to the
mobile handset user. In order to make
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payments, the mobile user initiates the
transaction by entering the PIN from
his mobile handset. The issuing bank
verifies the PIN and authorises the
payment. Next, the customer enters the
amount to be paid and completes the
transaction. The amount is automati-
cally deducted from the credit card ac-
count of the mobile user and credited
to the bank account of the payee busi-
ness partner such as the shop owner.
In order to ensure safe and secure
payments, the issuing bank employs
user authentication using encryption
technique. In case the mobile handset
is stolen or lost, the corresponding PIN
is automatically and instantly locked so
that no payment can be made using the
mobile handset. As the customer only
needs to enter the PIN and no other
details such as credit card number,
date of birth and date of expiry are re-
quired, such mobile credit card based
payments provide a much simpler and
convenient mode of mobile payment.
Mobile handset users are using
this mode of payment extensively
for post-paid bill payment, booking
movie tickets and travel tickets, micro
payments in shops and restaurants,
and shoping on the Internet. Leading
players in this field are Paymo in USA,
DoCoMo in Japan and Reliance mPay
in India. Online payment companies
such as PayPal, Amazon Payment and
Google Checkout also provide mobile
options. These require the customers
to register with a PIN that they will
use for making mobile payments from
their mobile handsets. These systems
are integrated with credit card pay-
ment systems through a combined
Web payment interface.
Smart card based payments. Smart
cards are plastic cards with embedded
integrated circuits containing micro-
processors and memory to store per-
sonal data such as credit card number,
driving licence number, bank account
number, insurance information and
personal identification number (PIN).
These are primarily used for user
identification, authentication and data
storage.
Smart cards are of two types, con-
tact and contactless. Contact smart
cards need a card reader to retrieve the
stored data and transmit to external de-
vices such as computers, point-of-sale
(POS) terminals or mobile phones for
further processing. These have a con-
tact area containing some gold-plated
contact pads. When the contact smart
card is swiped inside the card reader,
contact pads in the smart card make
contact with electrical connectors of
the card reader and allow reading the
information from the microprocessor
chip or writing the information back to
the memory of the smart card.
In contactless smart cards, the mi-
croprocessor chip communicates with
the card reader through radio fre-
quency identification (RFID)—a tech-
nology that employs radio waves to
transmit/receive information to/from
the card reader without any physical
contact. It requires only an antenna
in close proximity to complete the
transmission. This provides a hands-
free, contact-free way of transmitting
data from the smart card to external
devices such as POS terminals or fare
collection terminals in mass transit
systems.
Contactless smart cards are exten-
sively used in mobile payment systems.
Mobile phones come with a subscriber
identity module (SIM), which is a
microprocessor-based card containing
programmable memory to store user
information, used for authentication
purposes. If the smart card capabili-
ties are combined with SIM cards, the
mobile phone can very well act as a
contactless smart card and can be used
effectively in making mobile payments.
Both the smart card and SIM card are
integrated in a mobile handset and the
mobile phone is used for making pay-
ments in a contactless mode.
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m-Commerce
Mobile phones equipped with
contactless smart cards employ near-
field communication (NFC) technology
to exchange data between the mobile
device and nearby smart card readers.
The technology combines the smart
card interface as well as the reader in-
terface in the mobile device so that the
mobile device can communicate with
card readers and other NFC devices/
mobile phones.
At the time of making payments,
the mobile phone user waves his
mobile phone (equipped with contact-
less smart card) near a reader module
installed inside the store or in a public
transport system. In order to make
the transaction more secure, a PIN is
required for authentication, which is
automatically supplied by the smart
card. After the authentication is veri-
fied, the transaction completes and the
payment is automatically deducted
from the prepaid account of the mobile
Mobile wallets have become popular in developing
countries such as Kenya and the Philippines, where
people at the bottom-line of the pyramid are usually
underserved by traditional banks and lenders
user or directly charged to the bank ac-
count of the user.
NFC-based contactless mobile pay-
ment finds wide applications in trans-
portation services, toll-tax collection,
transit fare collection in mass-transit
networks, parking fee collection, vend-
ing machine collections and other unat-
tended POS terminals where the users
can pay with their smart card enabled
mobile phones sitting inside their
car while driving. Leading players in
this field are MobiPay, MobiPurse,
MobiCard, NTT DoCoMo and FeliCa
(Sony).
Mobile Web payments
In this mode of mobile payment, the
payment is made through webpages
displayed in the micro-browser of
the mobile phone. The webpage is
displayed following wireless applica-
tion protocol (WAP) and associated
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technology. It has a URL and displays
descriptions of various products that
the user may intend to buy. The mobile
online payment mechanism combines
direct debiting systems of some partner
banks with SMS payment confirmation
through the mobile phones.
It works like this: The customer se-
lects a product from the webpage dis-
played in his mobile phone screen and
places order for the product through
the website. Next, he types the mobile
phone number and the password to
make the payment. The partner bank
verifies the password and, if found
okay, sends a text message to the cus-
tomer. Next, the customer sends an
SMS to confirm the payment and the
payment is directly debited from the
customer’s bank account.
The entire payment process is sim-
ple, quick and user-friendly as there is
similarity to the familiar set of online
payment pages. This plug-and-play
payment system offers a smooth and
transparent micro payment solution to
mobile users and is gradually emerg-
ing as a potential payment mechanism
in mobile commerce. However, special
care should be taken to secure such
Web payments and proper password
authentication procedures should be
implemented.
Vodafone has recently launched
a mobile Web payment system called
mpass that is accessible to each and
every mobile phone user in Germany.
Mobile wallets
In mobile wallets system, the mobile
phone user opens a mobile wallet ac-
count in an issuing bank and deposits
cash that will be used in future mobile
payments. The user gets the mobile
wallet account number from the issu-
ing bank.
At the time of making any purchase
through his mobile phone, the user
types the account number and sends
to the issuing bank through SMS. The
mobile wallet’s automated system
checks for sufficient balance in the
user’s mobile wallet account and the
payment amount is automatically deb-
ited from the user’s account to perform
the required purchase transaction. All
the payment requests to the participat-
ing banks must be initiated from the
registered mobile phone number of the
mobile user. After successful comple-
tion of the payment transaction, both
the merchant (supplier of the product)
and the mobile user get notification
about payment confirmation from the
mobile-wallet issuing bank.
Two different mobile wallet ac-
count holders can also transfer money
from one mobile wallet account to
another. In order to make the transac-
tion safe and secure, proper encryp-
tion and authentication techniques are
employed.
Mobile wallets have become popu-
lar in developing countries such as
Kenya and the Philippines, where peo-
ple at the bottom-line of the pyramid
are usually underserved by traditional
banks and lenders. The major players
in mobile wallets are Globe’s G-Cash in
the Philippines, PLDT’s Smart Money
and mPesa in Kenya.
Services in operation
world over
NTT DoCoMo. NTT DoCoMo is the
prominent mobile phone operator in
Japan that provides mobile phone,
video phone, Internet phone and mail
(Internet mail and SMS) services to the
customers. It has established a simple
and effective mobile payment solution
in collaboration with Sony.
DoCoMo mobile phones are em-
bedded with Sony Felica contactless
chips that enable mobile payments in
shops fitted with a Felica smart card
reader. These Felica-powered smart
card handsets can be used for a variety
of functions such as debit card transac-
tions and credit card transactions, and
also act as personal identification card.
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 m-Commerce
They are capable of using Felica i-mode
mobile wallet service and can be used
for making purchases and subsequent
payments in numerous shops equipped
with a Felica card reader. The payment
amount is directly billed to the custom-
er’s existing credit card account.
The current balance and payment
records can be viewed using the mo-
bile handset and the prepaid users can
track the remaining balance and take
time to reload the account with cash
as and when needed. Also, during any
payment transaction, the mobile sub-
scribers can increase the credit limit at
any service-supported store.
Such mobile payment services are
widely popular in Japan and Shanghai
and Beijing in China.
PayPal. PayPal, a wholly owned
subsidiary of popular e-commerce
auction site eBay, allows customers to
make online payments during online
purchases without using their credit
cards. In order to use PayPal service,
the user first has to create a PayPal
account and deposit money in the ac-
count either using electronic debit from
a bank account or by using a credit Near-field communication (NFC) technology
card. At the time of making online
purchase, the user enters his PayPal ac- and completes the transaction. Such gramming interfaces (APIs) to fa-
count number along with the amount SMS-based mobile payment, where the cilitate ‘open’ payments. To provide a
of payment and the recipient (vendor) user need not use his credit card, has standardised payment infrastructure
details. PayPal transfers the amount become widely popular worldwide. for mobile communication services,
from the user’s PayPal account to the PayCircle. PayCircle is a global PayCircle developed some specifica-
recipient either by cheque, electroni- consortium that aims to provide mo- tions and standardised procedures that
cally depositing to the recipient’s bank bile device users worldwide a standard support interaction between payment
account or, if the recipient is also a means of making mobile payments, re- procedures and individual mobile
PayPal account holder, depositing in gardless of the payment systems used communication services. PayCircle
his PayPal account. by the merchants or service providers. makes the specifications available to
In order to allow payments through It was initially formed by computer all interested parties and tests the APIs
mobile devices, PayPal has introduced and telecommunication giants such in multiple environments to drive their
PayPal Mobile service, where PayPal as Hewlett-Packard, Lucent, Siemens, commercial application.
facilities are extended to mobile phone Oracle and Sun Microsystems. The pri- Mobipay. Mobipay system operat-
users. To avail this service, the mobile mary goal of PayCircle was to increase ing in Spain is a joint venture of all
handset user, who already has a Pay- consumer use of m-Commerce by mak- major Spanish mobile operators such
Pal account, needs to sign in by regis- ing mobile payments simple, uniform as Telefonica Moviles, Vodafone and
tering his mobile phone number and and secure. Membership of PayCircle is Amena and the Spanish financial in-
create a PIN. At the time of making open to groups or companies involved stitutions such as BBVA and SCH. Its
payment through the mobile, the user in the mobile payment market, includ- objective is to launch mobile payment
sends an SMS to PayPal and types the ing banks, credit card companies, mer- facilities by transforming the mobile
PIN, amount and name of the recipi- chants or content providers. handset to a user-friendly, flexible and
ent/vendor. PayPal then contacts the PayCirle’s main objective is to safer device for micro payment. With
mobile user to confirm the payment develop uniform application pro- Mobipay, the mobile handset users

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m-Commerce
can purchase online and make online
bill and taxi fare payments from their
mobile phone.
Mobipay is established on a single
technology standard supplied by Atos
Origin, which is a renowned interna-
tional information technology services
company that deals with consulting,
system integration and managed
operations. Atos Origin performs
telcofinance activities that involve
banks, payment processors, merchants
and mobile network operators. The
payment system first validates the
payment request made from the user’s
mobile handset against credit/debit
cards, virtual wallets, billing systems,
etc and then routes authorisation
requests for transactions to respec-
tive parties. Apart from providing
payment services, Atos Origin also
provides managed services in busi-
ness process outsourcing and infra-
structure solutions.
Mobipay systems are comparative-
ly low-cost and low-risk. The systems
are designed for end-to-end control by
trusted partners and USSD messaging
supports secure delivery of sensitive
information to authorised users.
Reliance mPay. Reliance mPay is
a virtual credit card, jointly launched
by HDFC bank and Reliance Commu-
nications in India, that allows users to
pay from their Reliance mobile phone.
In order to avail this service, the users
must have an HDFC bank credit card
and a Reliance mobile phone. They
don’t have to carry the physical credit
card, as the mobile phone acts as the
credit card to make postpaid bill pay-
ment, book movie or travel tickets,
pay electricity bills, make payments
in shops and restaurants and shop on
the Internet.
The customers are issued a PIN
for using the virtual credit card. To
make payments, they need to enter
the PIN and all the transactions must
be initiated from the registered mobile
number to which the mPay service PIN
has been issued. The mPay credit card
can be used with HDFC Bank and any
merchant establishment that accepts
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payment via Relaince mPay. The pay-
ment is automatically debited from the
user’s credit card account. Users don’t
need to enter a credit card number,
card verification information or expiry
date to use the mPay service. HDFC
bank would authenticate all the infor-
mation and then initiate and authorise
all payments using the customer’s
mobile handset.
With a virtual credit card, there is
less chance of misuse, as at the time of
payment, only the PIN is to be entered
and not the credit card number. So in
case your mobile phone is stolen or
lost, the credit card number cannot be
misused as the mobile phone does not
contain the credit card number. Owing
to their convenience and safety, virtual
credit cards have become a preferred
medium of transaction.
SEMOPS. Secure mobile pay-
ment service (SEMOPS) is a project
to develop a secure and universal
mobile payment service that can be
used uniformly in all kinds of mobile
commerce/electronic commerce trans-
actions. SEMOPS technology allows
multichannel access (including Web,
GPRS, GSM and SMS) to bank accounts
and also electronic/mobile payment
transactions between customers and
merchants irrespective of whether they
are banking with the same organisa-
tion or not. Based on this concept, a
truly global payment system can be
developed with addition of more and
more banks.
With SEMOPS, consumers will
be able to perform different types of
transactions including point-of-sale
purchases, person-to-person money
transfer, bill payment, payment at
vending machines, mobile phone bill
payment, parking fee payment and
online purchase through the Internet.
It provides a comprehensive mobile
payment solution that can be easily
adopted by different banks, merchants,
mobile vendors and consumers. Users
will be able to pay for anything, any-
where and at any time.
SEMPOS is designed to follow
standard banking processes so that
financial institutions can easily inte-
grate it into their existing infrastruc-
ture. It follows a multi-layer security
architecture where the consumer has
full control of the payment process
and approves each and every stage
of the transaction with the help of the
accompanying PIN number. If the
mobile phone is lost, it cannot be used
for making purchase without the ap-
propriate PIN number.
SEMOPS was first introduced in
Hungary and then spread over other
European countries. It is open to banks
or mobile operators who wish to join
and offer services to their existing cli-
ent base in a universal manner.
Future outlook
With the explosive growth in mobile
technology and rapid penetration
of mobile phones in developing
countries, the future holds immense
possibilities for mobile payments.
NFC-based contactless smart cards
will enable users to combine the func-
tionalities of credit card, debit card,
bank account card as well as personal
identification card in a single device
in the form of a mobile phone. The
mobile phone will replace the pocket
money and provide a low-cost, low-
risk alternative to credit/debit cards
for making payments anytime, any-
where and for anything.
However, in order to make mobile
payment universal and acceptable
to all merchants, banks and mobile
operators, proper standardisation
is needed. Also, the success of any
mobile payment system largely de-
pends on consumer acceptance. The
consumers will adopt any new mobile
payment system if they find it conven-
ient, easy to use and secure. So future
developments in mobile payment
system must give special emphasis on
security and cost factor. 
The author is currently the chairperson, technology
and faculty, information systems, in International
School of Business & Media (ISB&M), Kolkata.
She has over 20 years of industry experience and
expertise in embedded systems, wireless & digital
communication and office automation
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