Mobile phones have increasingly become tools that consumers use for banking, payments, budgeting, and shopping. Given the rapid pace of developments in the area of mobile finance, the Federal Reserve Board began conducting annual surveys of consumers’ use of mobile financial services in 2011. This 78-page report, “Consumers and Mobile Financial Services” (March, 2015) examines trends in the adoption and use of mobile banking, payments, and shopping behavior and how the emergence of mobile financial services affects consumers’ interaction with financial institutions.
SMS, USSD Based Mobile Payments
The consumer sends a payment request via an SMS text message or an USSD to a short code and a premium charge is applied to their phone bill or their mobile wallet. 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.
Transactional payments have been popular in Asia and Europe but are now being overtaken by other mobile payment methods such as mobile web payments (WAP), mobile payment client (Java ME, Android…) and Direct Mobile Billing for a number of reasons:
- Poor reliability – transactional payments can easily fail as messages get lost.
- Slow speed – sending messages can be slow and it can take hours for a merchant to get receipt of payment. Consumers do not want to be kept waiting more than a few seconds.
- Security – The SMS/USSD encryption ends in the radio interface, then the message is a plaintext.
- High cost – There are many high costs associated with this method of payment. 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.
- 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%
- Low follow-on sales – once the payment message has been sent and the goods received there is little else the consumer can do. It is difficult for them to remember where something was purchased or how to buy it again. This also makes it difficult to tell a friend and friend.
Source: Wikipedia