Mobile Payment System in Malaysia: Its Potentials and Consumers' Adoption Strategies

Mobile payment is new and rapidly adopting alternative payment method especially in Asia and Europe. Instead of paying with cash, check or credit cards, a consumer can use a mobile phone to pay for wide range of services and digital or hard goods such as music, videos, ringtones, online game subscription, wallpapers, transportation fare, parking meters, books, magazines, tickets and other services or digital/ hard goods.

Mobile payment has been well adopted in many parts of Europe and Asia. Combined market for all types of mobile payments is expected to reach more than $600billion globally by 2013.

There are four primary models for mobile payments:
1. Premium SMS based transactional payment
2. Direct Mobile Billing
3. Mobile Web Payments (WAP)
4. Near Field Communication (NFC)

1. Premium SMS based transactional payments
This is where the consumer sends a payment request via an SMS text message to a shortcode and a premium charge is applied to their phone bill. The merchant involved is informed of the payment success and can then release the paid for goods.

Since a trusted delivery address has typically not been given these goods are most frequently digital with the merchant replying using a Multimedia Messaging Service to deliver the purchased music, ringtones, wallpapers etc.

A Multimedia Messaging Service can also deliver barcodes which can then be scanned for confirmation of payment by a merchant. This is used as an electronic ticket for access to cinemas and events or to collect hard goods.

2. Direct Mobile Billing
This is where the consumer uses mobile billing option during checkout at an ecommerce site such as an online gaming site to make a payment. After two-factor authentication involving PIN and One-Time-Password, the consumer's mobile account is charged for the purchase. It is true alternative payment method that does not require use of credit/debit cards or pre-registration at online payment solution such as PayPal, thus bypassing banks and credit card companies altogether.

This type of mobile payment method, which is extremely prevalent and popular in Asia, provides the following benefits:

• Security - Two-factor authentication and risk management engine prevents fraud.


• Convenience - No pre-registration and no new mobile software is required.


• Easy - It's just another option during a checkout process.


• Fast - Most transactions are completed in less than 10 seconds.


• Proven - 70% of all digital content purchased online in some parts of Asia uses Direct Mobile Billing method.

3. Mobile web payments (WAP)

This is where the consumer uses web pages displayed or additional downloaded application and installed on mobile phone to make a payment. It uses WAP (Wireless Application Protocol) as underlying technology, thus inherits all the advantages and disadvantages of WAP.

However, using a familiar web payment model gives a number of a few proven benefits:

• Follow on sales - where the mobile web payment can lead back to a store or to other goods the consumer may like. These pages have a URL and can be bookmarked making it easy to revisit or share with friends.
  
• High customer satisfaction - from quick and predictable payments.


• Ease of use - from a familiar set of online payment pages.

Mobile web payment methods are now being mandated by a number of mobile network operators, use of credit/debit card or pre-registration at online payment solution such as PayPal is still required unless mobile account is directly charged through mobile network operator.

4. Near Field Communication (NFC)

NFC is a short-range technology used mostly in paying for purchases made in physical stores or transportation services. A consumer uses a special mobile phone equipped with a smartcard waves and moves his/her phone near a reader module. Most transactions do not require authentication, but some require authentication using PIN before transaction is completed. The payment could be deducted from pre-paid account or charged to mobile or bank account directly.

Mobile payment method via NFC faces significant challenges for wide and fast adoption, while some phone manufacturers and banks are enthusiastic, due to lack of supporting infrastructure, complex ecosystem of stakeholders, and standards.

NFC vendors in some Europe countries use contactless payment over mobile phones to pay for on and off street parking in specially demarcated areas. Parking wardens may enforce the parking by license plate, transponder tags or barcode stickers. End users benefit from the convenience of being able to pay for parking from the comfort of their car with their mobile phone. NFC enabled payments are far easier and less costly to handle than cash itself including other traditional payment methods. Also, as an added advantage, users can have a complete trail of all payments they make.

The first example of mobile payment system available in Malaysia is Hong Leong Mobile Credit Card using the concept of Mobile Money. Mobile Money is a new payment system to facilitate payments with only the mobile phone via SMS with a Security PIN. Plastic cards and merchant terminals are not required. All payments are made via mobile phone and a Security PIN. Hong Leong Mobile Credit is a proprietary virtual credit card to allow payments via SMS. Hong Leong Bank works in partnership with Mobile Money to allow credit card payments via SMS. In this regard, Mobile Money is like MasterCard and Visa Card, which are payment systems or gateways offered in partnership with the banks. Before any payment can be made, customer is required to approve payment by entering a 6-digit Security PIN on the mobile phone to authorize payment via SMS. It is highly secure as it uses a PIN-based authentication process compared with the signature-based credit card payment process. The entire payment process is both internally and externally audited and is approved by Bank Negara Malaysia.

The second example of mobile payment system available in Malaysia is Mobile Money. It is also a PIN-based Mobile Payment Solution designed by Mobile Money International Sdn Bhd to address the limitations and bottlenecks created by cash, cheques and credit cards. It unlocks the power of the mobile phone to make payments, allowing registered users to pay for goods and services at anytime, anywhere using only a mobile phone coupled with a 6-digit security PIN via SMS. This gives the freedom to shoppers to buy products online and pay the merchant using his/her mobile phone without being physically present at the store.

Below is one of the payment mode in Mobile Money Payment System:

Currently in Malaysia, many of us are already familiar with making payment using contactless smartcards, namely, Touch ‘n Go to pay our tolls, LRT fares, bus fares and parking. Currently there are about 2.6 million active Touch ‘n Go cards in Malaysia and over 3,000 payment points in Rapid KL’s LRT, Monorail and bus systems, KTM Commuter, toll plazas and 25 parking sites in Kuala Lumpur. It is a kind of Radio Frequency Identification cards (RFID) contain an embedded memory, control circuitry and an antenna. They have no power source of their own and so are powered by electromagnetic induction by an unlicensed 13.56MHz signal from the card reader, which acts like an electricity generator and temporarily energizes cards brought within 10 cm of it, enabling it to read and write to the card’s memory such as when making deductions in these micro transactions.

However, emerging type of RFID technology is Near Field Communications (NFC). NFC provides a simple and secure way for handsets to communicate over distances of a centimeter or two. NFC is emerging as a leading standard for applications such as mobile payment, with successful trials conducted in several countries. It also has wider applications, such as "touch to exchange information" (for example, to transfer an image from a handset to a digital photo frame, or for a handset to pick up a virtual discount voucher). In Malaysia, NFC is likely to become important sooner in emerging markets, it seemed will untie the potential of mobile payment and become common after 2010.

Another expectation is Mobile Money will encourage more consumers to shop online, and this will definitely be a great boon to the e-commerce industry in Malaysia.