Making Change for Wireless E-Commerce

From content providers to mobile phone manufacturers, the mobile commerce vision of the future is for consumers to use their WAP-enabled handsets to purchase just about anything.

Both wireless Web and wireless point-of-sale transactions will likely become very popular, according to a recent report by International Data Corp. (IDC), which predicts the U.S. mobile commerce market will result in almost $21 billion worth of transactions in just four years.

"These numbers are assuming that the value of transactions will get higher, such as being able to purchase airline tickets in a few years," says Callie Nelsen, senior analyst with IDC's wireless and mobile communications research group. "The number also depends on carriers forging relationships with other businesses and having many more customers doing transactions from wireless devices."

Wireless Transactions

The big hurdle for mobile commerce will likely involve payment and settlements. Traditional Internet commerce through wired browsers generally involves the exchange of credit card information over SSL-secured connections. With wireless commerce, credit cards may be only one method of paying for goods and content.

Allowing wireless commerce, including transactions involving micropayments, will involve several different parties, including the wireless operator, the merchants and financial institutions.

Today, wireless operators allow access to stock quotes, weather and traffic information, and the news. In these instances, the operator will partner with companies such as Ameritrade, Bloomberg and The Weather Channel. Billing is fairly simple, usually a flat fee per month. The flat fee might include a set number of Web updates, with customers paying an additional amount if they go over that number. Time spent on the wireless Web usually gets deducted from the overall number of minutes in a monthly plan.

Purchasing goods through sites such as Amazon.com works a little differently, according to Nelsen. Sprint PCS has a deal with Amazon, which allows its wireless customers to purchase books through their Web-enabled handsets. As will likely be the case with most wireless purchases, browsing will not really be possible. But sites like Amazon can present a list of best sellers or popular products in text form.

Upon checkout, the Amazon site will ask what payment method the customer wants to use. If customers already purchased something from Amazon, their information is stored in a profile. They log in and the system will ask if they want to use the credit card and billing/mailing address information already on file. Purchases appear on the customer's credit card bill.

For the customer, the transaction ends there. For the wireless operator and merchant, settlement requires banks to get involved, and Amazon will give the carrier that sent the customer a percentage of the transaction amount, much as the company does with its current affiliate program.

"We're definitely in the early stages of mobile commerce, and today if you buy through Amazon or trade through Ameritrade it's really no different than what you do over the wired Internet," says Paul Reddick, vice president of product management and development at Sprint PCS.

Carriers that don't have the time or the expertise to set up relationships with various parties can outsource the wireless commerce features. (See "The Outsourced Model")

The current model of wireless Web transactions relies heavily on the wireless operator. Customers often have to go through their operator's portal before accessing any services. Merchants may not know the identity of the customer until they log in to their site, but they will know which carrier sent the customer to them.

This could all change when micropayments are used in a retail point-of-sale (POS) environment. In this case, users are not accessing a corporate Web site and completing the transaction. Instead, they interact with a store's POS system directly. Not only does this create new models for making payments and settling them, but it adds a new wrinkle to the authorization and approval side.

POS transactions using wireless phones aren't available yet, but in most instances a consumer will take merchandise to the cash register, and instead of handing over cash or a credit/debit card, they would give their wireless phone number to the clerk. The clerk would type that into the POS terminal, which would communicate with a commerce server either in the store or off-site. The store system would then ring the consumer's handset or send a text message, and through text prompts the consumer could authorize payment.

An expansion of this idea deals with location-based services, where wireless handsets would received coupons and offers from merchants in their vicinity. A New Jersey-based company called GeePS is developing a location-based system for the United States. The company is currently in trials on a GSM network in Europe. Consumers don't pay for location-based coupons in the GeePS model; instead, merchants pay for them on the basis of either revenue sharing or cost per thousand impressions. In the GeePS example, coupons are not pushed to consumers; rather, they are sent based on consumers' preferences.

(For more on how GeePS pinpoints handset locations, see "GeePS Finds Its Place")

How exactly payment would occur in these various scenarios is still up in the air. Wireless Web and wireless point-of-sale transactions (including location-based services) have a number of payment possibilities, all of which will require cooperation among several parties and the collection of transaction information.

Payment Options

Today wireless operators have the upper hand in wireless e-commerce, because they can provide access to the customers. In the future, they may act as a proxy, even pass credit card information directly to merchants that consumers want to do business with. This not only protects sensitive credit card information from being sent over the wireless Internet, but it assures the merchant that the operator vouches for the customer. In this scenario, either the operator can settle the transaction with the merchant, or settle with the credit card company.

"There could be hundreds or thousands of merchants, so the operator won't have just one agreement in place," says Shlomo Baleli, president of research and development at Amdocs. The company's Ensemble platform contains a commerce server component that acts as a liaison among merchants, consumers and the billing system. He adds that in a similar fashion to an intercarrier settlement agreement, operators will charge varying rates to the merchants based on the amount of transactions that take place between those merchants and the operator's customers.

"In addition to using credit cards, transactions can be billed to a customer account on either a prepaid or postpaid basis so it appears on the wireless phone bill," says Baleli. He adds that customers may allocate a small amount of funds, say $10, in a prepaid bucket to make payments on such items as a can of soda. "We can enable the consumer to use that prepaid account for specific merchants, and then they could also use a postpaid account to charge for additional goods," he says.

Sprint PCS has looked at the idea of putting transactions on its monthly statements to customers and directly handling payments. "There are a lot of advantages to customers" in this approach, Reddick says. "If they store their credit card once, they can go across a lot of different merchants." In addition, the phones themselves are secure devices. "Phones are as unique and harder to replicate than a credit card, since they have electronic serial numbers," he says. "It definitely announces to the merchant who the customer is." He also says that in addition to identifying customers based on unique phone serial numbers, users can use passwords and PINs for authentication.

A consumer might have separate accounts to pay for Web-based and retail transactions, says Harald Hynell, business development manager for Internet payment systems at EHPT USA. "The difference between prepaid and postpaid is not that great; with postpaid you might have a credit limit, and with prepaid you might have a debit limit," he says.

Another option for wireless payments involves using a secure, software-based wallet. eCash, for example, is a company that develops relationships between banks (including Deutsche Bank) and wireless service providers. Customers could sign up through their bank or other financial institution to participate in the virtual wallet program.

Merchants would only require an Internet connection to their point-of-sales system, according to Al Phillips, director of business development at eCash. "This connection doesn't have to be at the store level; it can be a legacy deployment where the store systems are connected back to a central merchandise system, which would have access to the Internet," he says. Customers would have a small piece of software on their PDA or handset, or their wireless provider or financial institution would host the software. Once customers had electronically transferred funds into their eCash account, they could start using it at stores.

The current vision involving retail transactions has the store system contacting the consumer's handset either by ringing or paging it. This could all change once Bluetooth technology becomes more mature. Bluetooth enables devices, such as wireless phones and other handhelds, within a particular distance of one another to communicate easily and securely.

"Instead of using the network and having the phone ring to approve transactions, this could be more natural and immediate," says Salim Samaha, director of business development at GeePS, the location-based service provider. He adds that Bluetooth could also be used to send information to customers while they are browsing in a brick-and-mortar store. For example, they might be able to call up product reviews of items they are looking at on the shelf. Using Bluetooth, transaction information can be sent to the billing system via the wireless connection. (See "Billing for Wireless Sales")

In a Bluetooth environment, where the handset can talk directly to the POS system, the wireless operator may not be in the loop at all, says Phillips. Rather, customers may have a relationship with a financial institution, which in turn has relationships with particular merchants. In this sense, wireless point of sale commerce may initially be limited to establishments that are part of a transaction network. "Once you put a Bluetooth chip on the handset, the transactions are done on a local network; you don't have to go through the operator if you've bookmarked the sites," he says.

In the location-based model, payment can happen several ways. Customers can bring their electronic coupon to the merchant, but then elect to pay with a credit card or cash. Customers wouldn't even have to present the coupon, because the store's server can correlate coupons with customers using their wireless phone numbers, Samaha says. The discount would be relayed to the POS terminal. However, the challenge with POS wireless transactions will be the need to upgrade the in-store network infrastructure, Hynell says.

Billing and Settlement Issues

The question of who owns the underlying payment system, regardless of the technology, is a concern with wireless transactions. "Except for credit card networks, there are no global networks today to handle invoices and transactions," says Hynell. He foresees the wireless operator or service provider owning the payment system technology, which would look a lot like the current credit card model for payment and settlement. "In the beginning, small islands will connect to consumers and merchants, and probably the telcos and mobile operators," Hynell says. "Eventually, they will be connected through networks."

Even if the wireless operator is allowing merchants to have direct relationships with customers, they will still probably want to play some role in wireless transactions. "From the operators' point of view, the big challenge is making the decision to move into this business," says Amdocs' Baleli. "They are building up agreements with merchants and convincing merchants that this makes sense." According to IDC's Nelsen, "Regarding electronic coupons and point of sale transactions, carriers don't necessarily want to take on that kind of debt today. You'll see carriers partner with credit card companies, and carriers providing wireless wallets." But she adds that many carriers have not been very innovative with offerings such as location-based services, because they don't want to take the risk.

"Even though a soda is only 50 cents, carriers don't want to take that on," Nelsen says. "They have a hard enough time collecting payment for services, and adding something like location-based wireless services will probably result in a lot of customer service calls." She also says that companies like MasterCard and Visa make it their business to guarantee payments to merchants; phone companies are not so willing to jump into collecting and keeping track of payments.

Sprint PCS, which allows users to access a wide variety of WAP-enabled sites, currently has customers send credit card information directly to the merchant. This is partly due to the fact that Sprint PCS is not in the business of evaluating customers' credit risk, a task better left to the financial institutions, says Reddick. "Banks don't know how to manage a wireless business and build networks, just as we'd be challenged to walk through the complex payment and settlement system that's required to make these things work," he says. "The payment system, including credit risk, is very complex, and who manages that credit risk has to do with who can assess the risk." Reddick adds that while Sprint PCS is able to do some credit checks on customers when they initially sign up for wireless service, it's not nearly the same capability that banks and credit card companies have.

GeePS is seeing a similar reaction on the part of operators. "To put charges on a wireless phone bill would involve the carrier taking a credit risk, and we haven't seen them willing to accept that yet," Samaha says. He adds that on the phone bill, a transaction will probably appear as an incoming call.

In GeePS' location-based environments, the carrier tells the retailer about customers in a particular area who are interested in certain products, and then has SMS messages sent to the customer. Rather than carriers pushing the coupons, customers would have the option of visiting a WAP-enabled portal to see the offers available. The customers could define under what circumstances they receive coupons. GeePS negotiates with carriers, and if the retailer is paying for the SMS messages or for ads on a WAP site, GeePS along with the carriers gets a share of the action. "If there's a promotion and a person goes into a store and actually buys the product, we and the carrier get a piece of that transaction," Samaha says.

In the future, we may be using our wireless handsets to pay for everything from highway tolls and bus fare to dinner at a fancy restaurant. "All of these are neat applications, but they will require cooperation among a lot of companies that have never talked to each other before," Nelsen says. "The credit card companies are really playing in this now, but it gets really complicated when you look at the value chain and all the players involved. There can be a lot of layers."

Sidebar #1

The Outsourced Model

Because of the competitive edge mobile commerce can bring to carriers, a lot of them are turning to outside help to get a system in place fast. InfoSpace, which counts such telco powerhouses as Verizon, SBC, GTE, AT&T and Qwest among its customers, offers private-labeled, outsourced mobile commerce services for carriers.

One of InfoSpace's services is a mobile commerce platform that provides everything from comparison shopping for end users to settling payment.

InfoSpace has relationships with about 500 retailers-some of them online, others traditional brick-and-mortar establishments. Customers of any of the telcos' wireless services can access the system through their handsets. Using keywords, UPC codes, part numbers or product descriptions, they can search for items and receive hits based on which merchants have the product.

"You'll be able to comparison-shop based on price and additional details such as merchant information, shipping and taxes, and a product description," says Jeff Davis, vice president of financial services at InfoSpace. "Once you have integrated a UPC database with a shopping platform, there are a lot of features and things you can do."

InfoSpace also handles the payments as an ASP. In this model, carriers retain control over their customer information and service offerings that are hosted on InfoSpace's servers. For payment, customers' credit card information and billing addresses reside on a secure server that could also be thought of as a virtual wallet.

Once InfoSpace communicates with the merchant to determine whether the product is available, the customer signs off on the purchase (by entering a password or PIN), and the credit card and other information goes to the merchant. InfoSpace keeps track of transactions and is able to provide settlement information to the parties involved. "It's either a percentage of the transaction or a per-lead fee," Davis says. "We share the revenue stream with our distribution partners."

Davis says that InfoSpace is looking at the wireless POS area and is eager to move beyond credit cards for payment.

Sidebar #2

GeePS Finds Its Place

Because global positioning systems are very complex-requiring three satellites to pinpoint a location-and require a lot of processing power, GeePS is using other technology to figure out where customers are and send them appropriate offers and coupons based on their location at a given time.

GeePS is going with assisted GPS, which relies on towers instead of satellites, says Salim Samaha, director of business development at GeePS. "It uses triangulation to see how long it takes for the signal to get from your phone to the three towers, and based on the time to the tower, it can determine your position very accurately," he says.

Samaha says carriers are eager to deploy location-based services, because they can charge merchants each time such services are used.

The concern with these services is that handsets will receive an overload of coupons and offers from merchants wherever they go. "We disagree with a lot of people who want to spam with a lot of messages; people look at these devices as private, and that has to be respected," Samaha says. He adds that customers will be able to specifically define the type of information they'd like to release. GeePS will also look at previous purchases and data mine that information, so appropriate offers arrive at user handsets.

GeePS' first customer, New Jersey Online, is providing location-based information to its users. The ability to pay for goods and content will be added in 2001.

Sidebar #3

Billing for Wireless Sales

Many transactions initiated by wireless handsets will most likely be completed without the intervention of the wireless operator. This would be similar to the way customers purchase through traditional Web browsers: the ISP never has to know where you've been and what you've bought.

In some cases, at least initially, wireless operators will play an important role in facilitating mobile commerce, and naturally they'll want to collect details of what their customers are doing.

Some wireless operators will probably handle payment and reconciliation of transactions. They may connect directly to credit card companies, conduct authorization in real time and post charges to the customer's phone bill. "When this happens, you'll have a blend of voice calls and credit card line items" on the bill, says Paul Reddick, vice president of product management and development at Sprint PCS. "We don't want to confuse the customer but instead want to have a logical presentation."

But how carriers know the amount of purchase is still a matter to be worked out. Today carriers can collect usage information for circuit-switched calls, and even IP and other network activity. So far, however, no standards are in place or in development for how a transaction will look to an operator's billing system.

"We need to know how to identify these types of transactions," says Shlomo Baleli, president of research and development at Amdocs. "A simple example would be taking the transaction that comes through after the sale and put it on the bill-probably on a separate section of the bill." Baleli adds that billing systems will need to support flexible bill formatting. He doesn't see this as a big issue, per se, but what could prove more complicated is collecting on those transactions. "In many cases, you don't want to disconnect someone's service if they haven't paid for a book," he says.

He adds that convergent billing will be important once e-commerce transactions become more common. This is so because operators may want to cross-discount based on how many calls and transactions a customer makes.

As for the record format, Baleli doesn't think it will be IPDR, but he does believe something should be defined. "We will probably publish an API, which shouldn't be too complex," he says.

Reddick says that while a detail record for transactions has yet to be defined, wireless providers will be in a good position to collect them, because today they have to deal with large numbers of voice and other types of calls. "We are very transaction-intensive," he says. "The number of transactions on a credit card pales with what customers generate through carriers."

Pull Quotes

"We're definitely in the early stages of mobile commerce, and today if you buy through Amazon or trade through Ameritrade it's really no different than what you do over the wired Internet." -Paul Reddick, Sprint PCS

"Except for credit card networks, there are no global networks today to handle invoices and transactions." -Harald Hynell, EHPT

Carriers "have a hard enough time collecting payment for services, and adding something like location-based wireless services will probably result in a lot of customer service calls." -Callie Nelsen, IDC