4.3.2. Mobile payments

Mobile payments are possible owing to the efficient development of electronic banking and mobile communications. In autumn 2002, a new payment method was introduced in Estonia, namely that of mobile payment which enables to make payments via a mobile phone instead of paying with a card. Mobile transactions can be performed in different ways. The difference lies in the type of settlement system used, i.e. the way money reaches the merchant’s account.

The following mobile payments systems are in use (Veljo Otsason „Mobiilimaksed”, Tartu 2003 (an overview of mobile payments, in Estonian only) http://www.cs.ut.ee/~veljoo/works/Veljo%20Otsason%20-%20Mobiilimaksed.pdf):

• Mobile operator’s settlement system. The mobile phone owner pays via the mobile phone and the purchase sum is included in the monthly phone bill or is drawn from the prepayment of the phone card. The merchant receives the money from the mobile operator. In that case the mobile operator performs the role of a bank, operating as the payment intermediary and as the creditor. In Estonia, this solution serves as the basis for all main mobile commerce services: logos, ring tones, mobile parking, mobile transport ticket, payments for using Internet web sites, etc.

• Bank’s settlement system. Client’s bank account is used to make payments for goods or services and the money is transferred directly to the account of the merchant or the service provider. This calls for integrating the bank’s system with the information system of the merchant and the mobile operator. However, banks are often reluctant to provide access for third parties to their system and to their clients' accounts. In Estonia, EMT Simpel phone cards are an example of that system, allowing to draw funds from the bank account via a phone call (available since March 2002).

• Settlement system of another intermediary (e.g. credit card company, clearing company). The intermediary’s system can integrate the systems of several banks, allowing the merchant to provide its services to the clients of different banks. An example of that would be the mobile payment system used in Estonia with Pankade Kaardikeskus AS (PKK – Card Centre of Banks Ltd.) as the intermediary.

• Merchant’s or service provider’s own system. The merchant can sell its goods on hire purchase (sending the bill later) or for prepayment (the customer has to deposit a certain amount of money and the payment can be made afterwards). In both cases a prior contact between the client and the merchant is necessary. As regards hire purchase, the merchant must assess the creditworthiness and the credibility of the client. As regards prepayment, it is the client who has to be convinced in the credibility of the merchant. Therefore, such payment method might be suitable only in case of a small client database.

In summer 2002, several large Estonian commercial banks in cooperation with PKK and mobile operators launched a pilot project of mobile payments to create a solution for making direct payments from the bank account via a mobile phone. Mobile payments were to serve as an alternative to card payments. Since autumn 2002, all contractual clients of mobile operators and phone card holders with a personal account in Hansapank or Eesti Ühispank can join the mobile payments system. The system is built so as to allow also other banks to join in the future. The system is administered by PKK, which also manages the cross-usage of ATMs and payment terminals between Estonian banks and those abroad. At the beginning of 2005, there were already over 1,360 merchants accepting mobile payments in Estonia.

In addition, several banks have started to treat mobile services as a single integrated service. For example, Mobile bank is a service provided by Eesti Ühispank, enabling the client to get information via a mobile phone on the client’s account balance and credit cards, pay for goods and services when purchasing or as a prepayment, and transfer funds to other users of Mobile bank.

How does the client use a mobile payment system? The client can identify a merchant accepting mobile payments by a specific logo or a short description, which also includes all necessary codes. M-payment sign to the door of a shop To make a mobile payment, the client who has concluded a mobile payment contract with his/her bank dials the mobile payment service number and enters the code of the merchant and the amount of payment or product code. After that the bank sends an SMS to the merchant confirming the completed transaction. In short, the payment procedure goes as follows: The client dials the number and indicates the merchant’s code and the amount of payment. The payment system checks the availability of funds on the client’s bank account. The bank draws funds from the client’s bank account. The system sends an SMS to the merchant confirming the completion of the transaction. The bank transfers funds to the merchant's account within three days, charging also a service fee for that. How does the merchant use a mobile payment system? The merchant has to conclude a contract with its bank. The contract includes the merchant’s mobile phone number to be used with the system (the bank will send transaction confirmation messages to that number). The merchant receives a unique code upon concluding the contract. The merchant also has to make a short guideline available for the customers, including the short number of mobile payments system and the respective merchant's code. M-payment quick guide

Mobile payment is very much similar to a card payment and so are the service fees. The card centre does not charge the client an extra fee. The service fee is paid by the merchant. Unlike with card payments, the communication costs are paid by the client and not by the merchant.