Standards Watch: Simpay: Reaching an Untapped Market

"Pay for stuff with your mobile." That's the simple tag line from Simpay, but its impact could be significant if projections by the founders of Simpay are any indication. Vodafone, Orange, Telefonica and T-Mobile expect Simpay to handle over €1billion in transactions by 2007. Expected to launch in Q2 2005, the Simpay scheme for micropayments and microcharges may catch the attention of American operators, which should take notice that Simpay's founding members represent more than 280 million wireless subscribers worldwide. That will increase, as Simpay has engaged talks with debitel, 3, Elisa (previously Radiolinja), KPN Mobile Group, Mobilkom, O2, Optimus, SFR, TeliaSonera and TMN, which could mean millions of subscribers more.

Why Simpay?

Where incompatibility issues were prevalent for both financial and technical reasons, Simpay's technical interface and application-level payment technology, as well as its partnership scheme among members, may offer a standard method for all parties to link up technically and contractually.

"These operators recognize the low-value end of the mobile commerce market is largely untapped," says Simpay CEO Tim Jones, who would ultimately like to see Simpay become an alternative to cash. "If you wanted a Coke or to refresh a parking meter, you could conceivably do so with your mobile phone in the absence of cash."

That would not be possible if people were not allowed the freedom to have charges of $10 or less debited to their accounts via their mobile phones. "Currently, major credit cards do not support $1 and $2 payments," Jones says, "so subscribers buying iTunes, MP3s, games, ringtones, have to rack up purchases to meet a minimum requirement ranging between $10 and $20 by Visa or MasterCard."

Operators are recognizing that subscribers may want to just buy a single download, or that a large portion of their subscriber base consists of youths who do not possess credit cards.

Orange, which recently announced it is experiencing 20 percent growth for all data downloads, was the first to jump on board. According to Jean Benoit van Bunnen, VP for channels development at Orange Group, "Mobile services will rely on enabling subscriber's freedom in mobile payments."

As a means to that end, Orange will use Simpay mobile payments via Valista's PaymentsPlus engine. It currently uses the services of France Telecom's w-HA for monetizing the content provided through its Orange portal and other third-party services like Orange Gallery in France.

Orange hopes the addition of Simpay connectivity will boost the diversity of content by allowing seamless transactions across operators and borders. Because users will be able to purchase digital goods and services over mobile and fixed Internet from all content providers participating in the Simpay scheme, these operators have an opportunity to open their walled gardens for content. "With Simpay, they want to open their multi-million-dollar portals up to generate more revenue from other networks," notes John Hurley, VP of marketing for Valista.

For example, Vodafone also expects to bolster its Vodafone Live virtual shopping center, launched last year to enable subscribers to buy items over their mobile phones. The service has millions of transactions for which Simpay will be another payment alternative. Vodafone Live-enabled handsets will possess an icon that takes users through a list of retailers with available items for purchase, including a picture and description. Users will select the product they want and pay with either a credit card or the Simpay option. Thus far, Vodafone has formed alliances with large retailers HMV, Thorntons, Oddbins, Gagetshop and Firebox.

Such partnerships could mean the Simpay logo would someday appear next to the MasterCard and Visa logos on the Web sites of all of these content providers.

Simpay members—whether content providers, merchants or operators—will offer buyers discounts for using the Simpay option to purchase products, services or content.

Currently, most subscribers buy content through the operators' portals, such as Orange Gallery in France. Now, however, operators want users to buy straight from the content providers. The Simpay founders are aggressively courting content providers, and U.S. operators will be pursued during upcoming tradeshows and events in the United States.

"Simpay wants to handle the transaction, but it wants to be more than a ‘dumb pipe,'" explains Hurley. Through mobile payment identifiers, Simpay will enable operators to profile subscribers for marketing and services purposes.

The Technology

The design of the payment platform is nearly complete, and expected to officially launch by Q2 2005. The vendors involved are Valista, Encorus, Privnet and Qpass, which are working with the founding operators to enhance specs.

The Simpay hub has recently been outsourced to Encorus, a mobile payments services company—majority owned by First Data Corp.—which will continue the development of Simpay's transaction processor. The acceptance testing will be conducted by Encorus in upcoming months. Simpay has built a test script and simulator hub, which transmits messages among members. It also has completed various business schemes, operating regulations and governing documentation.

The founding operators have given the go-ahead to the operating regulations, which will be fine-tuned by other European and American carriers as they sign on.

Participating operators and vendors are working to develop an interoperable platform by incorporating XML, WML and other basic standards, as well as ITU-x security certificates (SSL v. 3 under WebTrust), which would enable mobile phone bills—pre- and postpay—to be automatically debited after the Simpay logo is clicked on certain content sites.

Simpay members will use a "simulator" modeled after the Simpay hub and a "mobile payment issuer" that uses "bank card language" to interface with merchants and content providers, explains Jones. Through premium text messaging, authorizations will be sent back and forth in milliseconds.

The text messaging will open the door for revenues from premium-rate SMS as well, as purchasers of content commit to paying for the text messages that go with it. "There is application here for televoting during reality shows and other revenue-generating opportunities," says Jones.

As with Visa or MasterCard, Simpay is hoping to facilitate cross-currency transactions, but with a more advanced method of handling exchange rates. "When you participate in a credit card transaction, the authorization is crude in terms of the exchange rate," explains Jones, because only after the transaction is completed is the exact exchange rate applied. "Rather, we will negotiate exchange rates ahead of time with the settlement bank and apply it to all transactions in a 24-hour period to accommodate currency differences."

In other words, the negotiation will parallel that of a department store that signs up with a Chase or Wells Fargo to offer Visa or MasterCard.

To allow instant authorization, the advance exchange rate means that a product being sold for $3 to an Italian customer at a price in euros will be covered in a "spread" determined by Simpay and the bank to cover variations in exchange rates.

"Now they can access customers of all participating operators, without having to worry about different currencies, mobile technologies and networks," Jones says. "In turn, mobile merchant acquirers can offer a universal solution to their clients with a simple fee structure and a clear set of rules."