This term “mobile payment” is liberally used by payments experts, financial journalists, and members of the public. The demise of cash and payment cards and the imminent transition of the leather wallet into an antique shop relic, are often infused into board room and dinner party discussions about more convenient ways to pay for goods and services using mobile phones. But what is actually meant by “mobile payment”?
This article provides a definition for “mobile payment” within the broader definition of “payments”. Furthermore, the article provides examples of different mobile payments and perspectives on how mobile payments may evolve.
Firstly, what is a “payment”? Volker defines a layman’s understanding of a payment as “a transfer of value from one person to another.” (2013, p. 1). He also provides the definition from the Bank for International Settlements (BIS) as: “a payment is a transfer of funds which discharges an obligation on the payer via-a-vis a payee. The payer’s transfer of a monetary claim on a party acceptable to the payee. Typically, claims take the form of banknotes or deposits held at a financial institution or central bank.” (2013, p. 1).
A Google search of the term “definition of mobile payment” renders 22 800 000 results. These definitions generally suit the purposes of the business or institution that provides the definition. The definitions often include reference to mobile money, mobile money transfers and Stored Value Accounts (SVA’s) such as mobile wallets. These definitions would appear to be in conflict with the definition of the BIS’s definition of a payment in that they are usually closed-loop, non-interoperable “payments” and the payer’s transfer of a monetary claim on a party is not acceptable to the majority of payees. In laymen’s terms, a payer wishing to pay using M-Pesa, ABSA CashSend or Nedbank iMali is not able to make the payment because the payee is not willing to accept the payment.
Mobile payments is also often defined as payments made through a mobile device at the point of sale. This is not a bad definition but it assumes multiple different roles that may be performed by the mobile phone at a physical or virtual point of sale. This is explained in the examples below. It also excludes any mobile payment that does not happen at a point of sale such as an EFT credit initiated from a mobile phone.
A clear and concise definition of “mobile payment” is scarce in the academic literature. Schierz, G.P et al define mobile payment services as follows: “Mobile payment services can be considered a special form of the electronic handling of payments. Looking at existing definitions, we find several distinct commonalities and differences. Most conceptualizations emphasize the mobile device as the key characteristic distinguishing mobile payments from other forms of payment.” (2010, p. 210)
The reason for the lack of a concise and universally accepted definition for “mobile payments” is that the mobile phone has been incorporated into many areas of payments as a key characteristic within existing payment systems. According to the European Central Bank (ECB), as quoted by Volker, a “payment system consists of a set of instruments, banking procedures and, typically, interbank funds transfer systems that ensure the circulation of money.” (2013, p. 1). From the perspective of a consumer (i.e. ignoring wholesale payments) the national payment system constitutes the following Individual payment systems; debit card, credit card, cheque, EFT credit and EFT debit. There is no “mobile” payment system.
Some examples where the mobile phone has been incorporated as a “key characteristic” into existing payment systems are:
- Debit or credit card payment in which the role played by the physical plastic is replaced by a mobile phone. I.e. an NFC contactless payment where the mobile phone is used (instead of a card) to do a “tap ‘n go” transaction at a physical merchant.
- Debit or credit card payment in which the role played by the Point of Sale (POS) device is replaced by a mobile phone. I.e. PocketPOS. While this may appear unlike a mobile payment from the perspective of the payer (cardholder) there are certainly elements of the “mobile device as the key characteristic” in this form of payment.
- Debit or credit card payment in which the role played by both the physical plastic and the POS device is replaced by a mobile phone. I.e. paying for ITunes or any digital content downloaded to a mobile phone using a debit or credit card. Or paying for Uber or other physical goods or services (scanned QR code system such as SnapScan) using a debit or credit card.
- EFT credit payment in which the payer uses a mobile phone to initiate the transaction. I.e. a funds transfer on Internet Banking, SMS / USSD banking, or within a bank “app”.
The use of a mobile phone to authenticate a transaction (e.g. Nedbank’s Approve-IT) has not been included as an example of a mobile payment. The point could be argued but this is not considered a “key characteristic” distinguishing the payment as a mobile payment.
The definition of “mobile payment” is thus very broad. An attempt at a more succinct definition using Volker’s layman’s payments definition as a base and incorporating Schierz’s definition is: “a mobile payment is a transfer of value from one person to another where a mobile phone performs a key characteristic role within an existing payment system such as the credit card, debit card or EFT credit payment systems. This definition provides a useful point on which to conclude. Cash and plastic payment cards may at some point become extinct and the leather wallet confined to antique shops. However, the debit and credit card payment systems, in particular, will continue to flourish because they have “a set of instruments (including the mobile phone), banking procedures and, typically, interbank funds transfer systems that ensure the circulation of money.”
The significant opportunity to unlock for South Africa and accelerate the move to a “cash-light” economy is affordable, fast and secure interoperable mobile payments within the EFT credit payment system where the payee’s mobile number becomes a proxy for a bank account number.
Schierz, G.P., Schilke, O., Wirtz, B.W (2010). Understanding consumer acceptance of mobile payment services: An empirical analysis. Electronic Commerce Research and Applications, 9, 209-216.
Volker, W (2013). Essential guide to payments. Veritas Books
About the author
Graeme Holmes is employed by Nedbank as Head: Consumer Cards, Nedbank Card and Payments. He is the immediate past Chairman of the Payments Association of South Africa (PASA) and has recently completed a Masters in Management by Research (MMR) through Wits Business School. The title of the research report was “The meaning of money and the digital money socio-technical network in a low income community in South Africa”. Graeme writes in his personal capacity.