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Mobile Payments - How is it done?


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Different Types of Mobile payments
Payment Models
- SMS/USSD-based transactional payments
- Direct mobile billing
- Mobile web payments (WAP)
- QR Code Payments
- Contactless Near Field Communication
- Cloud-based mobile payments (Please elaborate applepay, google, paypal and others)
- Audio signal-based payments
- Direct carrier/bank co-operation

Published in: Mobile

Mobile Payments - How is it done?

  1. 1. 1 Mobile Payments
  2. 2. 2 Mode of Mobile Payments 1. SMS/USSD-based transactional payments 2. Direct mobile billing 3. Mobile web payments (WAP) 4. QR Code Payments 5. Contactless Near Field Communication 6. Cloud-based mobile payments 7. Audio signal-based payments
  3. 3. 3 SMS/USSD-based transactional payments  In the predominant model for SMS payments, the consumer sends a payment request via an SMS text message or an USSD to a short code  The merchant is informed of the payment success and can then release the paid for goods  A Multimedia Messaging Service can also deliver barcodes which can then be scanned for confirmation of payment by a merchant  Since a trusted physical delivery address has typically not been given because of purchasing of goods become very quick  A premium charge is applied to their phone bill or their online wallet  SMS are attractive for micro payments and are fast, easy and anonymous
  4. 4. 4 SMS/USSD-based transactional payments Pros Cons Easy and quick to make payment using SMS Poor reliability - transactional premium SMS payments can easily fail as messages get lost No internet required because it work on GSM/CDMA service provider Slow speed - sending messages can be slow and it can take hours for a merchant to get receipt of payment Nice mode of payment for micro payment Security - The SMS/USSD encryption ends in the radio interface, then the message is a plaintext SMS based payment is possible to all the types of phone basic and smart phones High cost - The cost of setting up short codes and paying for the delivery of media via a Multimedia Messaging Service and the resulting customer support costs to account for the number of messages that get lost or are delayed Quick delivery of goods like ring tones, music , wallpaper etc… Low payout rates - operators also see high costs in running and supporting transactional payments which results in payout rates to the merchant being as low as 30%. Usually around 50% SMS/USSD based payment globally used Low follow-on sales – its very difficult to remember where something was purchased or how to buy it again
  5. 5. 5 SMS/USSD-based transactional payments SMS Gateway GPRS Gateway Mobile Service Processing Mobile Network Customer SBS/USSD Digital goods return
  6. 6. 6 Direct mobile billing  Addressing to security hole in the premium SMS model, the direct mobile billing adds an additional authentication step in the purchasing process  It requires “two factor” authentication which shows to significantly reduce the potential for fraudulent purchases , protecting both consumer and merchant  Direct mobile billing, also known as mobile content billing, and carrier billing, requires integration with the operator  Direct mobile billing is one of the preferred micro-payment methods for gaming tokens, in-app items, or social network credits.  It is becoming popular in both emerging and developing markets, since it offers the safest and fastest way for completing a digital purchase.  It allows people to buy digital content by adding the cost of a purchase directly to their mobile bill, regardless of the type of device they own. The concept is comparable to buying on-demand television shows by adding it to your cable bill.  Companies: AT&T, Sprint, T-Mobile, U.S. Cellula
  7. 7. 7 Direct mobile billing Pros Cons The operators already have a billing relationship with the consumers, the payment will be added to their bill Only good for digital goods and micro payment Provides instantaneous payment Operator Spending Caps Protect payment details and consumer identity Late charges applied if missed to make payment before due date Reduced customer support costs for merchants This is a logical alternative to credit card and Premium SMS billing. If bill is disputed, the money is still deducted from account or put on credit card whether customer is ready or no Accurate reporting and notifications to consumers e.g. paid, not billed, etc. the payout rate will be much lower than with other payment providers.
  8. 8. 8 Direct mobile billing
  9. 9. 9 Mobile web payments (WAP)  The consumer uses web pages displayed or additional applications downloaded and installed on the mobile phone to make a payment. It uses WAP(Wireless Application Protocol) as underlying technology and thus inherits all the advantages and disadvantages of WAP  Mobile online payments are simply typical eCommerce payments using a credit card over a mobile phone via a website or application. Mobile online payment s require user to enter all the mandatory details for payment like name, card info etc..  There could be multiple mechanism behind web based mobile payment  Direct Operator Billing – This involves a direct connection between the customer and billing operator  Credit Card – This involves the usual based credit card transaction, in which users are directed to a ‘credit card payment’ page where they are required to fill credit card details  Online billing through third party players like Paypal, Google Checkout, Amazon etc..  The WAP protocol is designed with the network, device and user interface limitations in mind. This means that WAP is optimized for mobile networks with narrow bandwidths, mobile devices with small screens and limited keys for user entry, little memory storage, and limited processing and battery power
  10. 10. 10 Mobile web payments (WAP) Pros Cons Transaction is reliable, which add to customer satisfaction Limitations of WAP today are related to the devices used and the mobile networks Bookmark the pages to make the payment next time Time consuming because of network issues on mobile Access your bank accounts and related services Not everyone aware with web based payment Transfer funds between various bank accounts of the same as well as different banks It requires internet on device to make the payment The Mobile Banking application emulates a majority of banking services provided by the bank Security point of view its possible for hackers to grab the detail enter of customer and make the use of it
  11. 11. 11 Mobile web payments (WAP) Client/Customer WML WML Script WAP Gateway WML Encoder WML Script Encoder Web Server WML Decode with WML Script Protocol Adapter WAP HTTP BankHTTP
  12. 12. 12 QR Code Payments  Quick Response Codes (short: QR codes) are two-dimensional machine-readable codes usually consisting of a matrix of black and white squares. They contain data (e.g. a link to a website or a short text) that can be read and displayed by a Smart phone  QR code is another way of delivering payments that display on a Smartphone screen and are scanned at point of sale.  Originally used to track products in warehouses, QR codes were designed to replace traditional (1D bar codes)  QR code contains all the business details you need to get paid, including your mobile number or Short Code.  We can put a QR code on business cards, bills, website, point of sale or product labeling for interactive and easy payment  Generating a QR code is very easy  Companies:Walmart, CVS and Rite Aid, CurrentC
  13. 13. 13 QR Code Payments Pros Cons Ease of implementation – It’s relatively quick and inexpensive for a merchant to implement a mobile wallet solution based on this technology Availability - Not everyone on has a smart phone. People also have to download an app to scan the QR codes Simplicity – This type of solution relatively easy to use, although it is important to properly align the QR code with the scanner or camera Security –Malicious QR codes can contain malware or Trojans Addressable market – Since no NFC chip is required on the phone, the addressable market for this technology interface is quite large Inconsistency – There currently exists no standardization for payments via QR codes, resulting in unpredictable technical specifications and an inconsistent user experience Usability – Using QR codes at the point of sale is not as easy as “tap and pay”: consumers and merchants are both required to perform more work in order to complete a transaction
  14. 14. 14 QR Code Payments Merchant Customer Merchant Server Payment Gateway
  15. 15. 15 Contactless Near Field Communication (NFC)  NFC is a short range wireless technology , enabling communication between devices over a distance of < 10 cm  It has three main mode of communication  Card Emulation  Enables devices to act like contactless cards  NFC –enabled mobile phones used for payment  Reader/Writer  Enables devices to interact with RF tags  E.g. NFC-enabled phone used to read “smart poster”  Peer-to-peer  Two NFC devices communicate to exchange information  Companies:Apple Pay, Google Wallet, Softcard, LoopPay
  16. 16. 16 Apple Pay  Apple Pay is a mobile payment service that lets certain Apple mobile devices make payments at retail and online checkout  It lets Apple devices wirelessly communicate with point of sale systems using a near field communication (NFC) antenna, a "dedicated chip that stores encrypted payment information" (known as the Secure Element), and Apple's Touch ID and Passbook  Passbook is use to store credit or debit cards while registering it for payment  It keeps customer payment information private from the retailer, and creates a "dynamic security code generated for each transaction“  iPhone users authenticate by holding their fingerprint to the phone's Touch ID sensor  To keep transactions secure, Apple uses a method known as "tokenization," preventing actual credit card numbers from being sent over the air. Card numbers are not stored on the device, instead, a unique Device Account Number is created, encrypted and stored in the Secure Element (SE) of the device  User's payment information, and credit card numbers and data are never uploaded to iCloud or Apple's servers  Apple utilizes Device Account Numbers, a user's credit card number is never shared with merchants or transmitted with payments
  17. 17. 17 Apple Pay
  18. 18. 18 Contactless Near Field Communication (NFC) Pros Cons Easy-to-use : Anyone can use it with a single touch. Expensive: It may prove to be much too expensive for companies to adopt NFC-enabled technology Versatile: NFC is very versatile, in that it covers a range of different industries and services. Not Advantageous Enough: Not all the phones are NFC enabled Better User Experience: This system is beneficial for enterprises too – companies that readily adopt the latest technology are viewed by customers as being dynamic and progressive Lack of Security: While NFC transactions are undoubtedly more secure than regular credit card payments, this technology is not completely free from risk. It gives hackers more incentive to access people’s smart phones because more valuable data is stored there. More Secure: Using mobile wallets is, to an extent, safer than using physical credit cards. Fraud risk : debit cards clear money immediately. NFC, however, requires an overnight update to actually clear the funds. Mobile as Wallet: Customers have all their important information on their phone for payment
  19. 19. 19 NFC Mechanism
  20. 20. 20 Cloud Based Mobile Payment  The cloud based payments enable the industry to efficiently deploy innovative payment solutions. It gives the industry more flexibility in offering the consumer convenient and secure ways to pay with mobile devices.  When secure element (SE) is placed in cloud then payment made by such process is called could based payment  Cloud based mobile payments can be deployed by Host Card Emulation (HCE), tokenization  Cloud-based payments enables to perform NFC card emulation without using a hardware Secure Element (SE) in mobile handsets , this SE get placed in cloud space where all the information of credit card store to make the payment secure  Major players involved in cloud based mobile payment are:  PayPal  GlobalPay  GoPago  Google
  21. 21. 21 Cloud Based Mobile Payment Pros Cons Easier to integration with third parties which includes mobile network operators, NFC device manufacturers and trusted service managers (MSMs) One of the major concerns with cloud computing is the security of data. Often mobile users will provide sensitive information through the network, and if not protected, can lead to major damages in the case of a security breach. Cardholders as well as financial institutions might find it easier to get their cards into this wallet as Secure Element (SE) is deployed in cloud which leads to lower cost as well A wireless connection (via WiFi or 3G/4G) is required to deliver credentials from the cloud to the phone The computing power of an SE in the cloud is higher than that on a mobile device Storing information in the cloud could make your company vulnerable to external hack attacks and threats. Storage capacity on a physical SE is limited. In the cloud, storage is scalable and can be expanded to meet individual requirements and to support any card, application and payment scheme Credentials stored in the cloud can be available to any device, assuming the user is properly authenticated on the device. And the credentials stored in the cloud can be delivered from the phone to the POS via a variety of mechanisms, including NFC
  22. 22. 22 Cloud Based Mobile Payment HCE
  23. 23. 23 Audio Signal Based Payment  The audio channel of the mobile phone is another wireless interface that is used to make payments. Several companies have created technology to use the acoustic features of cell phones to support mobile payments and other applications that are not chip-based  It uses different technologies like Near sound data transfer (NSDT), Data Over Voice and NFC 2.0 produce audio signatures that the microphone of the cell phone can pick up to enable electronic transactions  Each time a client make a transaction, encrypted information is embedded in an audio one-time password (OTP) that is sent to the payment server through the phone’s audio channel  Today, NSDT is primarily used for mobile banking transactions through the mobile money platform Tagpay. It is also used to securely open doors and enable authentication on websites etc…  By using TagPay as an integrated solution, banks, microfinance organizations and other financial actors can benefit from secure, convenient, and affordable mobile transactions  The NSDTTM technology built into the TagPay platform is widely recognized as the leading solution for enabling mobile payments  Companies: Illiri sound API, Verifone (Way2ride), Edgetech , Alipay etc…
  24. 24. 24 Audio Signal Based Payment Pros Cons It uses the mobile phones audio channel to transmit secure information used to electronically sign transactions its more secured More noisy environment can create the problem in data transfer It provide an excellent level of efficiency and reliability even in noisy environment Payment is performed regardless of network operator No extra hardware require in mobile device like NFC so it becomes less expensive
  25. 25. 25 Audio Signal Based Payment Audio Channel Internet Customer Merchant Merchant Gateway