UK banks show a clearer vision on mobile payments than the cellcos

Whilst UK mobile operators have yet to fully unveil their plans for a mobile wallet joint venture, dubbed Project Oscar, the UK’s Payments Council has been quietly working with leading banks and payment networks to roll out a nationwide mobile payments service next year in which the operators appear to have zero input.

The service won’t be SMS based, as has been reported by some media sources. According to the press release issued by the Payments Council, the service will allow users to pay friends or businesses via their mobile “as easily as sending a text” – which is not the same as saying via SMS. The payments will be made via Internet connection from, mostly, mobile banking apps downloaded on users’ phones. It is also be able to make payments from online banking sites on the mobile browser.

Banks representing 90% of UK current accounts are already on board and each bank will be encouraging their customers to register for the service. To register, users will just need to go online, put in their mobile number and specify which account they want to make payments from. An industry-wide registration drive is planned when the service launches.

Essentially, users’ mobile numbers will act as a proxy for bank account numbers and sort codes. Once set up, users will just need to key in the mobile number of the person they wish to pay to make a transfer. The idea is that most people tend to know their mobile number by heart but struggle to remember their account number and sort code. And when paying family, friends and acquaintances, users will more likely than not have these people’s mobile numbers stored in their mobile phonebook.

Who needs mobile wallets?
It’s a simple idea – reminiscent of the Pingit app launched by Barclays last year, which also enables person-to-person money transfers using mobile numbers as identifiers. There is no need for phones to be especially equipped with secure elements or NFC antennas; or for users to set up a separate mobile-wallet account; or for complex, long-drawn out negotiations to take place between a long cast of would-be value-chain members, including mobile operators, handset makers, OS providers, banking and payment entities, and retailers.

The service will be pretty much universally available to any mobile user with a bank account (which in the UK is the vast majority of the adult population) – although take-up will inevitably be skewed towards smartphone owners (which are also rapidly becoming a majority of the UK population). One in three smartphone users surveyed as part of the market research for the service said they were either definitely or extremely likely to sign up to the service at launch.

Although transactions will be initiated from mobile phones, all of the authentication and processing will happen remotely in the cloud within the existing banking and payments realm – without the need to get players involved from the telco and consumer electronics worlds.

In December, the Payments Council completed the creation of a central database where banks will be able to store their customers’ mobile numbers and link them to their corresponding bank account details. When the service is up and running, the transfers made from one bank account to another will be handled by established payment schemes – by Faster Payments, which last year processed more than 800 million online and phone banking payments, and the Link network, which also last year processed 3.1 billion real-time ATM transactions.

The project has now entered its final phase before commercial launch, which includes testing; setting service standards and parameters, such as a cap on the amount of money that users will be able to transfer per transaction; and getting the banks that haven’t yet signed up to the scheme to do so.

A threat to operator schemes?
So what does the new service mean for other mobile payment schemes in the market? The Payments Council, a body set up by the UK payments industry to decide on the national strategy for payments, says it is not aiming to replace other schemes with its service. The mobile wallets being rolled out by operators are ultimately primarily aimed at enabling physical-good purchases in brick-and-mortar stores, via NFC.

The Payments Council-driven service could in theory be used for such purchases if retailers register their “mobile number” on the scheme. But retail payments are not what the service is primarily targeting.

The service is aimed at enabling payments between individuals, for things like splitting a bill between friends at a restaurant or lending some money to friends or family. It is also aimed at person-to-business or business-to-person transactions, such as a paying an electrician or plumber, or receiving a payout or refund from an insurance company, say – to use the example given to me by a Payments Council spokesman.

Similar mobile money transfer services are ubiquitous in parts of the developing world, especially Africa, where the most famous, and successful example, is M-Pesa in Kenya. These largely mobile operator-led services started out solely focused on P2P payments but quickly spread to other kinds of transactions, such as utility-bill and salary payments. But they are filling a much bigger void than the UK scheme will be – since most people in Africa are unbanked and have no credit/debit cards.

Where’s the clarity?
Project Oscar, a joint initiative unveiled in June 2011 by UK cellcos Everything Everywhere (Orange, T-Mobile), O2 (Telefonica) and Vodafone, was placed on hold for over a year whilst it was investigated by EU antitrust authorities. It got the all clear in September, but it is still unclear what shape its mobile wallet plans will take and when they will come to fruition. So far, the initiative has spawned a mobile advertising joint venture between all three operators called Weve. Meanwhile, the initiative’s members have been rolling out their own individual mobile wallets, such as Orange’s Quick Tap and the O2 Wallet.

The words and actions surrounding Project Oscar lack the clarity and simplicity of the Payments Council scheme. And when Project Oscar does eventually spawn its joint mobile wallet platform – or whatever it is it wants to roll out – it might very well find itself overshadowed by the alternative mobile payments service that the banks and the Payments Council are putting together.