Mobile Payment Systems Get Traction

New programs in Europe and Africa demonstrate the potential of cell phone-based payment systems.
Cell phones have evolved from being simple voice transmitters to productivity tools and entertainment devices. Now, as several new services illustrate, they are poised to replace international wire transfers and banks cards as well.

U.K. based mobile communications carrier Vodaphone (Quote) is launching M-PESA, a new service that allows Kenyans to send money to family members using their cell phones. Vodaphone will begin testing M-PESA as an international service between the U.K. and Kenya in April, and expects to expand it to other international markets, including Eastern Europe.

Currently, customers of Safaricom, Vodaphone's carrier partner in Kenya, can register at any authorized M-PESA agent, put money into their account, provide a security question and then send a text message to a friend or family member. The recipient gets a PIN number and a message telling them to go to a Safaricom agent, where they can pick up their money. Only the sender needs to be a Safaricom customer.

Vodaphone spokesman Mark Pursey said that another use emerged for this service during trials, which is businesspeople loading up their accounts with money before taking the bus to the capital city of Nairobi and then getting the cash upon arrival, in order to avoid carrying cash on the bus. "This is not a use we particularly envisioned," Pursey told

But the real opportunity for Vodaphone is in international transactions. Pursey said that according to the World Bank, migrant workers sent $250 billion home to their families. "The real competitive advantage is in international remittances," he said.

The M-PESA service is "very competitively priced compared to other remittance services, and more affordable to send smaller amounts rather than larger amounts only every-so-often," said Pursey.

Given that the U.K. is home to over 1 million migrant workers from Poland and Lithuania, Vodaphone is likely to expand into those markets soon, Pursey said.

At the same time, a service launched in Belgium will allow cell phone users to pay merchants and other service providers (like babysitters) as if they were using their bank cards.

The system was developed by the Brussels-based payment systems vendor Banksys and rolled out in collaboration with the three Belgian wireless carriers, Base, Mobistar and Proximus. The service requires users to have cell phones equipped with SIM cards containing Banksys' banxafe encryption software.

According to Jean-Michel Dasnoy, a spokesman for Banksys, the system allows consumers to use their cell phones for the same kinds of purchases as they would pay for using a bank card. The service is particularly attractive for mobile merchants who don't want to carry around a point-of-sale terminal. The system should also appeal to high-end retailers with low volumes because they can avoid paying the plethora of network and other fees associated with debit card transactions.

The system has been in place since April 2006, when the carriers began rolling out the newly minted SIM cards, allowing customers to check their bank balances and to pay their cell phone bills. "We've had more than 6.5 million transactions just testing the system," Dasnoy told

As with Vodaphone, Banksys has its eyes on foreign markets. "We're ready and keen to deploy this system with other carriers," he said. "Everybody has been impressed that you can see mobile payments with a cell phone."

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