Mobile Payment Schemes

Mobile Payment Schemes

The common types of mobile payment schemes are as follows:

• Bank Account-Based Payments
• Credit Card-Based Payments
• Micropayments

In each of these schemes, a third-party service provider (such as a bank, credit card company, or telecom company) processes the payment on behalf of the customer. One critical question is how the third-party provider recovers the cost associated with handling these transactions. Typically, service providers may require users to pre-pay, which allows them to invest the funds and gain financial returns. Alternatively, they may charge a small service fee, which could decrease as the customer base expands.

Bank Account-Based M-Payments

In this method, the customer’s bank account is directly linked to their mobile phone number. When making a payment, the customer connects via Bluetooth or wireless LAN to the vendor’s device, and the transaction is processed. The customer’s bank account is debited, and the vendor’s account is credited with the payment amount.

mCheck: A New Payment System

mCheck is a modern payment scheme. It links a user’s debit card, credit card, or bank account to their mobile phone, enabling payments directly from the mobile device. Once registered, users can easily pay utility bills, transfer talk time, book tickets, and make other payments using simple instructions. For example, Airtel users can download the mCheck app, which provides an intuitive graphic interface. Currently, there are no charges for downloading or using the mCheck service.

Credit Card-Based M-Payments

In this scheme, a customer’s credit card information is linked to their mobile phone number. When the customer completes a transaction, the credit card is charged, and the payment is transferred to the merchant’s account. However, credit card-based mobile payments face challenges, particularly in countries like India, where credit card penetration is relatively low but expected to increase in the coming years.

Micropayments

Micropayments are designed for small transactions, such as purchasing items from vending machines. The mobile device can connect directly to the vending machine via Bluetooth or wireless LAN to complete the payment. Alternatively, the customer can call a service provider’s number, where the call charge equals the cost of the item. This method is often used in cooperation with mobile network operators and third-party service providers, as seen in vending machine payments for Coca-Cola products.

Payment Settlement Solutions

Mobile payment solutions can be classified based on their settlement methods:

• Prepaid Payments: Users pre-load a smart card with funds. When making a payment, the amount is deducted from the stored value. This method offers privacy since no personal information is disclosed during the transaction.
• Instant-Paid Solutions: Payment is settled immediately after the user confirms the transaction, similar to direct debit systems.
• Postpaid Solutions: Payments are made after the transaction, typically through a credit card or included in the customer’s phone bill.

These varied settlement methods cater to different user needs and preferences, offering flexibility and options for both small and large payments.