Cash, Credit, or Keitai?

Back to Contents of Issue: August 2000

Japan Braces for the Cell Phone as Wallet

by Daniel Scuka

WHILE VOICE HAS CERTAINLY been mobile's killer app during the dawn of the wireless era, many observers point to the need for mobile terminals -- cell phones, PDAs, and Rio-like music players -- to provide wireless payment functionality to really start disintermediating either the wired Net or traditional retail commerce. With this in mind, NTT DoCoMo has been working with partners Sony and NTT Data on a system aimed at allowing cell phone users to transfer money from their bank accounts to plastic cards used for electronic commerce. In a competing move, Fujitsu, the Citigroup, and mobile network operator DDI have teamed to develop a wireless order-taking and payment settlement system that can work for both Web and off-the-shelf retail purchases.

The Citigroup-Fujitsu-DDI system is presently undergoing proof-of-concept trials and will enter user testing with an estimated 600 users later this summer, with launch targeted for December via DDI's EZweb mobile access service. "We chose Japan for our trial because wireless technology is further advanced, there are some 10 million wireless Net surfers already here, and this is one of our key target markets for the service," says Robert Berardy, Japan head of virtual banking at Citigroup. "We think people will start thinking of their phones as their wallets."

Berardy says the system will allow a user to purchase an item off a catalog or Web site by selecting the item's code number and then choosing a payment method, like their credit card, debit card, or line of credit. The user would also enter a PIN number, and the merchant would receive immediate payment from the supporting financial institution, listed together with a transaction serial number -- no customer data gets transmitted to the merchant, giving the system a high level of security.

Berardy also says that the system could be applied to bricks-and-mortar shopping, with sales clerks entering item and price data into their terminals based on a customer's selection, the customer receiving a message prompting whether or not to accept the purchase, and the transaction being confirmed when the customer enters a PIN. "It can all be done in about 30 seconds," he says.

A Fujitsu spokesman explains that the new payment system provides a transaction gateway to switch payment messages between a consumer and a merchant, and their respective financial institutions. The incentive for merchants to join the system will lie in being able to accept orders from a wider variety of customers, not simply those paying by cash, and in lower discount fees for credit and other card transactions. Further, the Citigroup-Fujitsu-DDI system is based on open standards, and this should encourage third parties, including other financial institutions and system integrators, to participate. "There will be tons of opportunities," says Berardy.

In the NTT DoCoMo system, customers of DoCoMo's i-mode mobile access service would be able to "top up" their existing smart card with digital cash transferred from their bank account, and the smart card (not the mobile terminal) can then be used for purchases at merchants, vending machines, and ticket and other service counters. However, trials will only begin next March, and that late start, combined with the need for complementary smart cards, would appear to put the DoCoMo system at a disadvantage, despite i-mode's large user base.

The ability to make payments of any size through any sales channel using a trusted third party payment gateway without requiring an accompanying smart cash card, as the Citigroup-Fujitsu-DDI system promises, could kick Japan's wireless phenomenon into the stratosphere, and forever lock this country's Internet future into wireless mode, with the rest of the world rushing to catch up. But DDI only has a small fraction of DoCoMo's mobile subscribers, and however great the system's technology, it would be tough to make it a success until other network operators come aboard.

Although it was reported earlier that DoCoMo had declined to participate in the Citigroup-Fujitsu-DDI effort, Berardy claims that NTT is actively considering involvement, and J-Phone (owner of the J-SkyWeb mobile access service) has already indicated it will be involved. Pressure to join may come in part from Citigroup having filed for a business model patent for the service concept, which, if granted, would force similar services to go out of business or pay license fees.

Whichever system wins out, it appears that Japan is once again serving as the world's test bed for the wireless future, and what happens here could be a good indication of what will evolve elsewhere.

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