Last week’s note on Apple licensing generated a good flow of comments, all appreciated. I’ll respond, but not before we get Apple earnings and the putative Jesus Tablet out of the way.

I’ll approach today’s topic, mobile payments, using an Apple Store moment.

Some cables keep disappearing. In particular, the ones that connect MacBooks of various vintages to conference room projectors. As much as some of us admire Apple’s minimalist fixation, the parade of video-out connector generations can grate. The world outside of Cupertino is inelegant, imperfect, we know. But that world features one universal projector connector standard: VGA.
In recent years, Apple moved from mini-VGA to DVI to mini-DVI to micro-DVI to mini-DisplayPort, creating the need for a (dis)array of “to VGA” adapter cables - see the links earlier in the sentence. Elegance at a price. Let’s hope the mini DisplayPort will stay blessed for a while.

So… Entrepreneurs come to our office for a presentation; they forgot the VGA adapter for their MacBook, I lend them one from my private stash. You know what happens next, they’re entrepreneurs. I go back to the Apple store for a replacement.
Adapter in hand, I approach an Apple Store employee with a hip-mounted sales terminal, whip out my credit card; a couple of minutes later, we’re done. No bag, receipt by email, life is good.
But, why use a credit card?
I have an iPhone, the Apple sales terminal is an iPhone as well, why can’t I just touch an icon, enter a PIN and be done? That’s what I do when I buy the Inglorious Basterds movie, a Bo Diddley Blues album or the (very buggy) Kayak application via iTunes on my iPhone.

The iPhone (as well as many other devices) contains a micro-SIM, a Smart Card module similar to what you’ll find in many European payment cards. Insert one of those in the payment terminal, key your PIN and you’re done. Why can’t we do this with a smartphone and get rid of credit cards? Simpler transactions, neatly listed on the device, if desired, and in an on-line account, as it’s done today.

The idea isn’t new.

You’ll recall: once upon a time, with Ericsson and Nokia, Norther Europe was the land of advanced cell phone technology. There, about 20 years ago, putative mobile payment systems were demoed by standing in front of a soft drinks vending machine, dialing the particular drink’s phone number from your cell phone. Clink, the drink came down the chute and, clink, its price was incremented on your phone bill. The unique ID (SIM module) inside your GSM phone provided security. This was the future.

Unfortunately, it’s still the future.

We use a physical token, a credit card, to tag, to “verify” transactions - the signature is optional or irrelevant. But we don’t seem to be able to use another physical token, our phone or smartphone, with its unique ID, as a way to validate transactions.
We have the “card not present” problem. This term of art mostly refers to on-line transactions, ones where the merchant doesn’t get to see and touch the card. With all notebooks and netbooks now having both WiFi and Bluetooth (another Norther Europe invention) connectivity, it’s hard to see why my I can’t use my cell phone as a credit card wirelessly connected to my computer. Some agitate the fear of hacked wireless connection: a pirate would listen in to the exchange between the “credit card” inside the smartphone and the computer being used for the on-line purchase. IMHO, that’s bunk: such exchanges are encrypted, just like the transaction between your computer and the merchant’s server.
Again, the wireless terminal in the Apple Store seems secure enough for large numbers, transactions and amounts, it’s a smartphone with a bigger battery and a credit card reader.
Another more serious obstacle stems from customer and merchant behavior. We’re used to credit cards, they’re well understood, easily identified, separated from one another, one for business expenses, one for personal purchases, one for this merchant, one for another. Smartphones are still novel, expensive and somewhat complicated. We’re creatures of habit.

Fortunately, entrepreneurs challenge the status quo.

Obopay, a Redwood City company (we failed to invest, much to our chagrin…) was founded after Carol Realini observed people in Africa carrying a cell phone but no wallet. From that insight, she started a company that helps people send and receive money using cell phones and, now, an iPhone app. Anyone with a mobile number can send and receive money; this is pretty close to the soft drinks vending machine demo - only on a wider scale. Obopay is doing well, got a sizable investment from Nokia last year and is partnering with a large European bank for mobile payment solutions in Africa.

PayPal, the eBay subsidiary now offers a mobile version; it’s not a mobile to mobile system per se, more like a mobile version of their successful desktop process.

Zong is a “purer” mobile payment service. Unlike PayPal, it doesn’t require a pre-existing credit card account, just a mobile phone subscription, see their FAQ; it works in 26 countries, US included.

Boku, another mobile payment player, appears to focus on “digital goods”, see their blog and their demo. By digital goods they mean games and related virtual worlds transactions. Boku just received a new $25M venture round, proof the “sector” is seen as promising.

Almost next door, on Palo Alto’s University Avenue, we have Bling Nation, with a mobile solution requiring additional hardware added to your mobile device, see here how it works.

By now, you see the “customer behavior” problem. As one of our engineer used to joke: ‘What I like about standards is there are so many to choose from…’ If mobile payments are to displace today’s credit cards, we can’t expect merchants and customers to navigate a maze of disparate solutions.
Today’s magnetic stripe on the back of credit cards works almost everywhere: I remember how I felt when, on impulse, I tried it on a door in Beijing. The door unlocked and I was inside a bank’s ATM lobby, ready to get cash out of their array of dispensers - made in Germany, by the way.

Today’s mobile payment systems scene is a bit messy, some of the hundreds of millions of venture money invested will be lost, that’s the nature of the game. But the winner or winners will rake in huge wins when a standard or two finally coalesce as the smartphone market keeps exploding. Which one? Your guess is better than mine, I’m too much of a geek to intuit normal human behavior…

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