MOBILE PAYMENT Mobile Payment Provider Services eingereicht von: UN-IL YANG DIPLOMARBEIT Zur Erlangung des akademischen Grades Magister rerum socialium oeconomicarumque Magister der Sozial- Wirtschaftswissenschaften (Mag.rer.soc.oec.) Fakultät für Wirtschaftswissenschaften und Informatik, Technische Universität Wien Fakultät für Betriebswirtschaften, Nationale Universität Seoul Studienrichtung: Wirtschaftsinformatik Begutachter: Univ. Prof. DI. Dr. Jürgen Dorn Berater: Univ. Prof. Mag. Ph.D. JoongHo Ahn Wien, im 2007-1 -!
Abstract Telecommunication operators have started to activate the mobile payment to offer various services and create more profit. The types of payments by mobile phone are rapidly spreading from micropayment, like paying for downloading of music, games and contents, to macropayment like paying in restaurants, clothes shops and department stores or buying airline-tickets. As the necessity of M-commerce is gradually becomes more important, the general interest in mobile payment increases more and more also. In this thesis, the mobile payment systems in South Korea and Austria have been analyzed and divided into four chapters. Then the present situations and actual conditions have been evaluated. In the first chapter, the motivation for this thesis and background for the researched field is briefly discussed. In the second chapter, the concepts of mobile payment and services are described, and the situations related to mobile payment are also surveyed. In the third chapter, Mobile Payment Provider Service (MPPS) in each country is analyzed. Technology, the legal situation, social habits, organization and services are compared. In conclusion, the differences between both countries are evaluated and suggestions for mobile payment in the future are given. - 2 -!
Table of Contents 1 Introduction 1.1 Background 1.2 Purpose of Research 2 Mobile Payments 2.1 What is M-Payment? 2.2 Technology 2.3 Legal 2.4 Social Habits 2.5 Organizations 2.6 Service 3 Analysis 3.1 South Korea 3.1.1 Technology 3.1.2 Legal 3.1.3 Social Habits 3.1.4 Organization 3.1.5 Services 3.1.6 Vision 3.2 Austria 3.2.1 Technology 3.2.2 Legal 3.2.3 Social Habits 3.2.4 Organization 3.2.5 Services 3.2.6 Vision 3.3 Comparison 4 Conclusion 5 References - 3 -!
Chapter 1 Introduction Imagine a world where you can use your mobile phone to order and pay securely for your theatre tickets, for the information you need for your upcoming meeting and your lastminute groceries, from the back of a taxi on the way home. And then pay for the taxi when you get there. Imagine a world where offering this service to your customers makes them more loyal, increases their mobile usage, and reduces your costs. Tomorrow, you can. [Cgey.com04] 1.1 Background Mobile payments are used to pay, not only for merchandise but also for transactions in the physical world. The key driver for mobile payments is the widespread use of mobile phones and the trend towards digital cash. The most active players in this industry are mobile operators, financial institutions and device manufacturers, and they all have their own interests in driving the future in the direction they desire. Most of all, mobile operators (as mediators between consumers and merchants) have important roles in developing and widening the mobile market by providing security and reliability to consumers and merchants. They provide payment solutions for merchants at their mobile portal. It is very convenient for the customers because they can receive their regular bills from a company they trust. Moreover, using the services does not require the additional troublesome effort of filling in complicated forms with a cellular phone company. All the necessary information already exists because they are already recognized and identified by the operator. Mobile operators are also offering payment services for various companies that traditionally, have nothing to do with mobile technology, for example; vending machines, car wash machines, jukeboxes, toy car rides, copy machines, passport photo machines, etc. The machine is equipped with transmitters connected to a mobile network. The consumer calls using a certain number in order to activate the machine and the specified amount of money is automatically added to his personal debit account with the mobile - 4 -!
operator. In this way, the consumer can buy soft drinks, use public copy machines and take photos for his passport without carrying coins or park the car without a car-park ticket. On the other side, owners of vending machines, car wash machines jukeboxes and so on can get more profit because they need not employ many employees for troublesome work and can save time and cost. As a result, the mobile payment market is now expanding rapidly in Europe and Asia. In Austria, the penetration rate of mobile phones is about 97% in April 2005. It has the top position in mobile payment market in Europe. That means that every user owning a mobile phone can easily pay with it. For a transaction, users need the service offered by telcos (telecommunication companies). But this service is actually provided by the mobile payment operators called MPSP (Mobile Payment Service Providers) or MPG (Mobile Payment Gateway) like paybox Austria AG which had more than 150,000 customers and 4,000 business partners (in 2004). It offers several services such as M-parking, tobacco automatic machine, SMS lottery, ticketing for cinema or train and shopping. In South Korea, there are more providers such as Danal, Infohub, Mobilians, Telewood, and Mcharge. The total services which are switched from telcos to CP (Contents Provider) by these MPSPs have rapidly developed since 2000. 1.2 Purpose of Research Nowadays, many people demand a new way of paying because the present charge system doesn t satisfy their expectation for proximity and convenience. Compared with other payment systems, mobile payments have particular advantages. They can be used at POS (Point of Sale) as well as in E-commerce and M-commerce. [Dahlström01] MPSPs in South Korea as well in Austria are offering good solutions for mobile payment, and the report of the Austrian central bank (OeNB) shows that the development of Austrian and South Korean M-payment show advanced maturity. (See Figure 3-12) In both countries, the security technologies show that high levels and suitable services for regional and cultural requisites are being offered. Besides, the adaptable regulations or legal protection for customers have been established. The positive policy of government - 5 -!
and operators make the mobile payment market especially successful. The purpose of this thesis is to research the differences of the mobile payment systems in South Korea and in Austria. Through the analyses of Austrian and South Korean M- payment market, the present situations of the mobile payment market in both countries, and further in Europe and Asia, are presented. The following factors are selected as main factors which have influence on the spread of mobile payment: technology, legal, social habits, organization and services. Technology is one of the most important factors in the M-payment market because the security offered by technology provides for reliability for the M-payment system. Now, various security technologies are offered to fit the situations and development levels of the m-payment market in each country. The establishment of legal regulations for the new way of payment makes customers use M-payment confidently. It protects customers from possible scams and controls the M-commerce in general. Social habits, like regional and cultural requisites by customers, influence the formation of the infrastructure and the acceptance of M-payment. Organization, the growth or scope of domestic and international markets and the trend of development also plays important roles. Services are offered in each country in accordance with social habits and technologies. Briefly, the contents of each chapter are as follows: In Chapters 2, the definition of M-payment and background of the M-payment market will be described and the core elements related to M-payment which have important influences on M-payment market, for example, technology, legal, social habits, organisation, and services, will be concretely described. In Chapter 3, according to the core elements which are listed above, actual situations in South Korea and in Austria will be dealt with vision. After that a comparison of the two countries will be shown in accordance with the core elements. In Chapter 4, suggestions for the prospective M-payment market and the coming subject to be solved for enhancing M-payment will be shown. - 6 -!
Chapter 2 Mobile Payments Since the end of the1990s, people have enjoyed a more comfortable life style. The mobile phone has spread out over the whole world, and with it people can get information, reservations, tickets, download music and do commercial transaction the so called mobile commerce. Since the early 2000s, a wireless network has developed around Europe and Asia. Presently, the mobile phone penetration rate in industrialized countries reaches around 70-80% and people can do commercial business via mobile phones without difficulties. Such infrastructures have made m-payment possible. In this chapter, the definition of mobile payment and the present situation of the mobile market will be shown. 2.1 What is M-payment? Mobile devices are continuously more popular - about 10 million devices are used today in the world [Gartner Research03]. With the spread of mobile devices, customers want to find new and useful ways to utilize the mobile technology. Then, what is the definition of mobile payment? Krueger defined M-payments as payments made via the mobile phone. Mobile payment is a point-of-sale (POS) payment made through a mobile device such as a mobile phone, a smart phone or a PDA. Through using the M-payment method, a person with a wireless device could pay for items in a store or settle a restaurant bill without interacting with any staff member. [Krueger01] In person this is a good example of potential E-commerce and M-commerce applications that mobile devices can bring now and then. Heijden identified it as any conventional or new payment system that enables financial transactions to be made securely from one organization or individual to another over the mobile network. [Heijden02] Mobile payments are used to pay not only for merchandise purchased via mobile channels but also for transactions in the physical world such as vending machines, passport photo machines, car wash machines and so forth. Mobile - 7 -!
payment service is a service of payments for transaction money via mobile device such as mobile phone, PDA, etc. in all kinds of electronic commerce carried out online and offline. Mobile payment services are divided into several aspects. The detailed content will be explained concretely in section 3.1.5 and 3.2.5. 2.1.1 Meaning of M-payment Mobile payments have three functions: 1) increasing convenience for the user, 2) promoting competition in the payment market and 3) offering new chances and opportunities for mobile operators and financial institution in the mobile market. 2.1.1.1 User Mobile payment is very convenient because it gives people the flexibility to use this service at any time and at any place. Moreover, mobile payment is a economic way for consumers to save money and time. 2.1.1.2 Provider Mobile payment offers a new transaction channel in the market of payment for services and facilitates the effective use of the present payment system. It activates the use of new ways of payment like electronic money and also promotes the competition of the payment market. 2.1.1.3 Market Payment by mobile phones offers the opportunity of new creative profits but can also cause danger to mobile telecommunication and financial organization that participate in the market. At present the mobile phone carriers in the mobile telecommunication market have already reached their growth capacity which means that they have to face a slowdown in new subscribers. M-commerce and mobile payment can give the best opportunity for new profitable business. In the view of financial organization, mobile payment offers the opportunity of innovative profit construction through various models of business. For example, the reduction of the conductive cost of the transaction channel helps to increase the profit. However, it also has a dangerous factor because lots of new - 8 -!
competitors will come into the mobile payment market in the near future. 2.1.2 Characteristics Potential mobile payment is divided into several distinct categories: Content type, Content value, Transaction type, and Transaction settlement method. [TMN02] In this section, some of these important characteristics will be analyzed and researched. 2.1.2.1 Content Mobile content is divided into two parts which are content type and content value. Content type distinguishes itself according to usage into digital goods (e.g. value-added information, MP3 or downloaded ring tones), hard goods (e.g. TV, CD-ROM and book), voting (e.g. vote for TV program) and ticketing (e.g. book a theatre ticket). Differentiation of content value into micro and macro-payments is at the limit of!10 which means payments under limit!10 is considered as micro-payments (e.g. newspaper, parking tickets etc.) and all payments above!10 are considered as macro-payments (e.g. purchase of books, CDs etc.). For macro-payment, security is much more important than for micro-payments due to higher consequence in case of non-payment. For micropayment, the purchase experience must be easy and quick for the end-user as well as the operational cost of the purchase should be not too high for the payment service provider. 2.1.2.2 Types of M-payment In this section, the different types of mobile payment will be explained. Moreover, suggestions will be made what of types and what kind of electronic money is used for payment activities. In general, the mobile payment has three types, credit- and payment card in mobile phone, mobile payment without direct card-access and mobile payment through the phone bill. 2.1.2.3 Card in mobile phone These systems read the data direct from smartcards whereas two types of cards can be differentiated, one is dual-slot-system and the other one is dual-chip-systems. For - 9 -!
dual-chip system a SIM card is required for transactions, the service itself is very secure and simple. For the dual-slot-system a new mobile device is necessary which is expensive and complex. But the advantage of this system is that it is very secure and the payment is made with the well-known Bankomat Card. 2.1.2.4 Contactless card The most popular systems in the market access indirectly to data whereas connection is provided by a server. Identification takes place usually with a PIN. As an example for the many existing systems in the market, analyzes and evaluations will be done on the basis of the leading Austrian mobile payment provider paybox.at (see 3.2.5.1). 2.1.2.5 Methods of M-payment The time aspect distinguishes two different payment methods which are pre-paid (debit) and post-paid (credit). The pre-paid is that consumers pay in advance to obtain the content they desire. Voice pre-paid cards and electronic wallets (stored value wallet) are examples of these kinds of payment methods. The other one is that consumers receive the content and consume it before paying. For example, a consumer gets a ring-tone and pays it through a bill issued by his or her trusted third party. A short summarize of characteristics shows the positive and negative points of M-payment which is listed in the following table below. Table [2-1] M-payment + well known, popular, personal + transactions possible everywhere at any time + simple safe and convenient service + mobile phone company knows customers + new payment method (new opportunities for mobile operators and financial institutions) - often bad receipt in in-buildings - payment usually not anonymous - hardware & software relative inflexible - high costs for M-payment-operator - account from roaming becomes more complex - increased credit risk for operator Table [2-1]: Characteristics of M-payment (reconstitute) Source: Mobile Payment [Günter & Jens & Thorsten02] & KISDI Issue Report [Kim & Yoo & Oh03] - 10 -!
2.2 Technology Regarding mobile payment, there are various technologies related to network and securities and so forth. But lately awareness of security technology has appeared as the most important element in mobile payment service. Without trust and security, customers will avoid transacting in M-commerce. To activate the mobile payment service, contents provider or mobile payment provider have to take reliability and security in order to gain customers confidence. As the usage of mobile payment increase rapidly, customers want more and more a variety of service methods, resulting in the development of service technologies. At first, chapter 2.2.1 deals with security technology and in chapter 2.2.2 classification of technology according to payment methods will be described. 2.2.1 Security Technology Security is the most important point for potential customers. If a sufficient standard of security isn t guaranteed, the whole M-payment service is impossible. Security needs to contain and ensure the following points: Confidentiality for the parties involved in a transaction Authentication of buyer and seller Authorization of the transaction Integrity of data Non-repudiation of a transaction To round off the elements of security technology mentioned above, an electronic signature is necessary for the stability and credibility in M-commerce and for the transmission of information. It is based on the PKI (Public Key Infrastructure) and WPKI (Wireless Public Key Infrastructure) that check the personal identity, confirm the exchange of information and keep the security. Most of all, WPKI is useful for wireless network environment. 2.2.1.1 PKI (Public Key Infrastructure) The prerequisite for electronic signature is a Public Key Infrastructure (PKI). The Public Key Infrastructure uses a digital certificate, to identify users. [Kram 02, 469] A digital certificate is an electronic data which identifies individual persons and websites in the - 11 -!
internet. With this a sure and safe communication is possible. The certificate is registered and issued by the so-called CA (Certificate Authority) or Trust-center. The digital certificate can be compared with digital pass or identification card and is signed by the CA. A very famous standard for a digital certificate is the ITU-T-StandardX.509v3 (International Telecommunication Union). [HaNe01, 186-187]. While A-Trust represents an accredited CA in Austria, KCAC (Korea Certification Authority Central) represent it for South Korea. 2.2.1.2 WPKI (Wireless PKI) In order to ensure the security standards for WAP, a digital signature based on WPKI (Wireless Public Key Infrastructure) needs to be implemented. During data transaction through WAP integrity, confidentially and encoding must be ensured on basis of WTLS/SSL (Wireless Transport Layer Security). WTLS allows encoding of the connection between mobile phones and the WAP gateway. [Bäum02, 257][Tmob04a] A graphic overview of the whole WPKI process can bee seen in figure below. Figure [2-1]: WPKI Structure Source: KISDI Issue Report [Kim & Yoo & Oh03] 2.2.2 Classification of Technology A classification into three large groups is made depending on the technology method used in mobile payment. According to whether the IC (Identified Chip) card is equipped or not, it is classified into hardware or software methods, and according using the wireless - 12 -!
network or not, into online or offline method. And finally, a classification is made into direct or indirect payment method depending on the participation of telcos. First, the difference between hardware and software methods is as follows. The hardware method is equipped with the smart card, which can store credit card or debit card on the device. In accordance with the equipping method it is divided again into the slot method or chip method. The other software method is used without the extra equipment of a physical slot or chip in order to authenticate the transaction in real time through the network or to put the information for payment into the mobile phone s memory. Mobile payment is also divided into the online and offline method depending on the use of the wireless network. The online method is to purchase the online goods by connecting to the internet with the mobile device. The other transaction method is where the customer purchases the goods in a common shop and the payment information is transmitted wirelessly to the POS (Point of Sale), installed in shop. The POS device is similar to a credit card reader and reads and transmits the credit information of the purchaser. Finally, there are two kinds of participation for telcos. The first one is the direct payment method where telcos function as the main or direct payment service provider, and the second one is the indirect payment method in which telcos have only the role of transmission the charges to the financial institution. In case of direct payment telcos are responsible for the most of the financial transaction, unlike for the indirect payment where the financial institutions are responsible for it. The above technical classification is not exclusive and not strict. For example, a simple account inquiry service is a software method because it is not equipped with special physical installment for online transaction and an indirect payment method because the financial institution directly offers the financial service. On the other side, the payment method with the smart card is a hardware method because it must be equipped with the chip or slot for the payment and a transaction can be made not only offline but also online, and it is an indirect payment method because the credit card institute is the main body of financial services. A detailed technology classification of M-payment is shown in the - 13 -!
following table. Division Type Content smart card (IC chip) hardware - Authentication and payment service through payment information within smart card(chip) - single slot, dual slot, dual chip, one chip (community chip, credit card chip) software - Authentication and settlement (phone bill) in real time through the wireless network - Mobile Wallet that puts the payment information into the memory of the mobile phone (client type, server type) - Barcode method wireless network online - Connection to wireless network, payment (with call fee) for online shopping using mobile banking or wireless payment gateway (PG) - phone bill, remote payment offline - Payment using a short distance community technology between cell phone and POS device, ATM, etc. (RFID, lrfm, Bluetooth, 2D Barcode, etc) - no charge call fee telcos direct payment - telcos, main roll for direct payment service - telcos, management & responsibility for the process of mobile payment - phone bill indirect payment - Join with the financial institution for indirect service -prepaid, debit, credit card, account transfer Table [2-2]: Technological Classification of M-Payment Resource: KISDI 03-16, 2003-14 -!
2.3 Legal Mobile payment is one of the various electronic payment methods, so common rules of electronic payment methods are applied to it at home and abroad. Until now, most typical electronic payment methods like ATM, credit card, debit card, etc. have been influenced by common financial regulations because they are issued and managed by financial institutions which are controlled by the Financial Supervisory Service. But with the payment function which is not easily controlled by financial regulation, the enterprisers who publish electronic money professionally increase (the widely used prepaid card), extra laws are now needed for sound finance, security of the apparatus for users and the promotion of technological innovation. The regulation of electronic money must be standardized to determine the maximum extent to which payment methods can be issued and managed. An institution providing electronic money can do business anywhere in the EU, if it gets permission from home country or European Union Member. And then it is controlled and surveyed under the supervision of home country. The EU EMI (Electronic Money Institutions) Directive has also four meanings. [EMI00] The first, bank or non-bank financial institutions or non-financial institutions can officially issue electronic money. Secondly, the customers can trust the issuing institution for electronic money more than before. Until now, they don t have the trust from customers because they are not controlled by regulations. Thirdly, the problem of unfair competition between traditional banks and non-bank institutions which issue electronic money are solved to some degree. Fourthly, with the regulation of electronic money, electronic commerce is activated. 2.4 Social Habits Present literature shows why people choose mobile community technology and the payment system service using mobile phone. First, the people, who are classified into five groups, adopted the new technology or service which is similar to the mobile payment. - 15 -!
Behavior and motive were shown by these groups. Innovators is novelty, early adopters is practice, early majority is economic, late majority is social pressure, and laggards is rejection in new payment method or anxiety in technology. For example, the adopters of common mobile phone services were studied. The study suggested that the adopters of SMS (Short Massage Sends), in the case in Europe, are younger than the adopters by voice community service and the using SMS by the age is going to be younger and younger. [Mante-Meijer & Haddon01] Similarity is not only the implemented attributes such as usefulness and ease of use entered into the choice of new technological services like the mobile community service but also expressiveness, interpersonal influence and subjective norms in the character of service. Secondly, the result of looking into common conditions in electronic payment systems suggested four cases: " As security, forgery or loss of data should not occur from keeping information during electronic payment. " As adoption, it should be able to be used widely without trouble with currency or area. " As compatibility of various methods, should be able to be used widely. It should be able to choose payment method that customer prefers to use in every transaction. " As anonym, it should be possible to track information of transaction list. Present literature suggests that we know that even though customers intend to use M- payment, the adoption of a new payment method requires a change of old habits and this change don t occur suddenly. Additionally, in the adoption of M-payment, region plays very important role. The reasons are as follows; 1) the infrastructure of various wireless networks, 2) specified request in region of customers 3) differences of culture. 2.4.1 Various Infrastructure In a city where the network is wide spread, out the adoption of mobile payment is smoother than in a region where the network is decentralized. In the region where newer - 16 -!
and higher speed networks are made, the use of M-payment is much easier and comfortable and mobile payment will succeed lastly in this region. 2.4.2 Request in Region The adoption of a new payment method depends on its capability to solve any request for the specified zone. For example, the new system in London which makes citizens pay traffic charges through SMS helps. Customers pay easily, even though they don t know that he entered the charged zone on that day. 2.4.3 Different Culture Cultural norm and tradition are the most powerful reasons for promotion and control for adoption of the mobile payment. Because Japanese like to use new technology, they tend to use the new mobile technology for purchasing purposes a lot. Because the majority of West-European countries use SMS for communications, their customers have the tendency to use the solution of M-payment based on SMS more than American customers where SMS and text messaging are popular only among teenagers. 2.5 Organization Forrester Research claims that the mobile payment market will be worth $22 billion by 2005, and Wireless World Forum (2002) emphasized that Japan, the U.S.A., Germany and the U.K. will become four of the largest mobile payment markets in the world by 2006 and forecasted that more than 200 million mobile payment users will spend a total of 47.2 billion Euros on mobile payment system. The European Committee for Banking Standards (ECBS) and the European Telecommunications Standards Institute expect M-commerce to be one of the key drivers in developing the global information society, with applications to various areas including banking, financial services, security services and shopping. [smarttravelnews02] As mobile markets continue to grow, paying via mobile handset will be the key to the development of the next generation of services. Also, the necessity of mobile payment is increasing and their added value is becoming - 17 -!
more and more due to the following advantages: 1. Mobile phones have the advantage to use in all transactions like the real POS (Point of Sales), E-commerce and M-commerce because the penetration rate of mobile phones is continuously increasing worldwide. 2. The payment by mobile phones offers convenience based on mobility and proximity to end users as customers. 3. Mobile phones can be a substitute for money and credit cards payments because people take always their own mobile handset in their pocket and use it everywhere and every time. 2.5.1 M-payment Market In this chapter the past and the present European Mobile Payment Market will be compared and discussed and the market perspective until 2007 will be analyzed too. Figure [2-2]: European M-Payment Market Source: Forrester Research 2001 According to Forrester Research in 2001, the profit scale of the European mobile payment service market in 2004 was EUR 15,069 million [Forrester01-05], and Gartner Research in 2002 had predicted about EUR 1,978 million. It appeals that the largest change will be made from 2002 until 2007. According to the report of Gartner, the M-Payment market of - 18 -!
the USA, West Europe and Japan in 2002 recorded USD $ 80 million, 800 million and 900 million expectably, and it is predicted in 2007 that the volume will be expanded USD $ 18 billion, 25 billion and 20 billion expectably. [Gartner02-11] [Unit: $ billion] Figure [2-3]: Perspective of M-Payment Market Volume (2002-2007) Source: Gartner Research, 2002.11. According to Celent, a financial service research and consulting firm, 60 million mobile payment users will have generated sales of $50 billion by 2004. [MPF02] Towergroup undertook the study and predicted that 118 million Western Europeans and 145 million users in the Asia-Pacific region will purchase low-cost mobile premium content by 2005. So far the M-payment market is not so enhanced, but Towergroup (2001) predicts that the number of consumers using mobile devices to make payments will rise dramatically between 2002 and 2005 because of growing customer s confidence in developing security technology. [TowerGroup01] In Gartner research about 48% of West Europeans have used mobile devices in order to buy goods. Although the M-payment system is not constructed as well, about 38% of customer in North America answered that they wanted to purchase mobile devices in the - 19 -!
near future. Western Europe is a good example how M-payment system has become successful. They have the newest wireless networks and a SMS popularity which promote the adoption of M-payment. The area covered with common packet wireless service is being expanded and served with roaming without breaking between main operators. But until a suitable method for payment arbitration between the operators has been developed, M-payment solution will be limited regionally in West Europe. A high potential and an increase for M-payment in the Asian area such as South Korea and Japan with high population densities is evident. More and more people are using mobile payment services in their daily purchases. Beside the improvements in technology and security are huge. Nevertheless, it is predictable that the demand for M-payment will be expanded by a lot of wireless operators and financial service institutes also in North America. Network infrastructure is split up and customer s requirements are satisfied with only credit cards. Besides, most Americans aren t accustomed to mobile data services. They are beginning to have some interest in it now. All this has an impact due to the growth of the North American market will develop slower than West European and Asian market. 2.6 Service As shown in figure [2-4], many phases and steps are involved in a M-payment transaction. Figure [2-4]: Service of M-Payment [TMN02] - 20 -!
In the mobile environment, transaction dynamics are similar although the form factor containing the different transaction credentials. In addition, in the case of remote payments, the transport of payment details include the mobile network operator and use either a browser-based protocol such as WAP or HTML, or a messaging system, such as SMS or Unstructured Supplementary Service Data (USSD). Alternatively, the transport of payment details could be via Bluetooth, infrared, RFID or contactless chip in the case of proximity payments. Today M-payment transactions based on different strategies have been implemented. They include different combination of key players in the role of TTP (Trusted Third Party) and PSP (Payment Service Provider). A TTP is the company who performs the authentication and the authorization of transaction parties and the settlement. It could be a telco, a bank, or a credit card company (pre-paid account, consumer bill, bank account, etc.). The PSP is the central entity responsible for the payment process. It enables the payment message initiated from the mobile device to be routed and cleared by the TTP. This service generally includes an e-wallet application that enables payers to store their payment details such as credit card account numbers and shipping addresses on a provider s secure server so that they do not need to type in all the pertinent information required for each sale on small and difficult-to-use mobile keypad devices. The PSP may also act as a clearinghouse to share the revenues between all the partners involved in the payment process. It could be a telco, a bank, a credit card company or a start-up. Several models of collaboration as well as architecture have been implemented today in the M-payment transaction process. For example, a Full Payment Service Provider, where the key player acts both as the payment services provider as well as the trusted third party between consumers and merchants. Fees from these transactions together with basic hosting fees generate the revenue for the full payment service provider. Some authors suggested that the mobile network provider could fulfill this model if they have the technology to handle the end-to-end. - 21 -!
Another model is the Mobile Wallet Provider, which offers mobile payment processing without clearing. The provider stores and maintains consumer account information and establishes secure communication with merchants for user payment and order information. All communication between consumers and merchants will be handled via the mobile wallet provider. The mobile wallet provider provides customizable authentication methods that fulfill the consumer s needs for security. Transaction fees are the main source of revenue, which is supplemented by hosting service fees. Other models include revenue sharing models where separate key players undertake the roles of TTP and PSP respectively. In the above examples of M-payment models, the role of the customer and the merchants remain consistent. Many new initiatives that include various combinations of different types of players already exist in the M-payment market. According to Northstream (2002), the future M-payment market is a place where players act together, each taking a fair piece of the pie. New players will enter the market and will take some of the profits that could otherwise remain with existing players; mobile operators could possibly have a share of a market they have not been a part of before; credit card companies could potentially have reduced profits due to the entrance of mobile operators. [Duracher01][Northsream02] A key advantage of the independent players is that they enable every mobile user to use the service upon registration regardless of their mobile service provider. For a specific merchant intending to use an M-payment solution, teaming up with such a player is more efficient than teaming up with three or more separate mobile operators. On the other hand, an independent player needs to build a user base, usually from scratch. A mobile operator or a bank has already millions of potential customers as M- payment users. [Northstream02] The M-payment value-chain is complex and it takes some time until the different roles will be assigned to the best actors. It will, however, require expertise from a variety of players in a carefully coordinated manner if mobile data services are to be provided successfully. Cooperation between players is desirable to achieve synergy, especially between banks and operators. According to Birch, PayPal (global leader for online payment solutions) is an example that shows clearly how synergy between a marketplace and an effective transaction system will by itself generate and - 22 -!
refine business models. [Birch03] These new service methods are offered and chosen in accordance with differences of technology, infrastructure and culture in each country. In the following chapter, the mobile payment services which are now offered in South Korea and Austria are described more in detail. Then, the differences between the two nations will be analyzed. By doing this, a better insight in M-payment can be gained and the global standard mobile payment between Europe and Asia can be found out. - 23 -!
Chapter 3 Analysis In this chapter, the technology, legal, social habits, organization, services and vision are analyzed between both country, South Korea and Austria. And then they are compared with each other for these factors. 3.1 South Korea 3.1.1 Technology Here are described the Korean actual status of technological security and technological development related to m-payment. 3.1.1.1 Security Technology South Korea has first generalized the CDMA method in the world, and now uses CDMA 2000 1x and CDMA 2000 1x EVDO (Evolution-Data Only) cellular phones. Now there are various movements to spread mobile payment. The one is the standardisation of mobile platform. From 2001, the Korean three telcos have developed WIPI (Wireless Internet Platform for Interoperability), Korean mobile platform standard, and now present WIPI 2.0. The other is the WAP security technology which is preferred in Korea. In this chapter, the Korean wireless internet security solutions will be concretely described. With the developed functions of Korean mobile devices, from services based on easy SMS or WAP to services like Secure Browsing, Banking & Payment which require high security are applied to mobile terminal. As the connecting methods to wireless internet have been known and the open terminal platform like WIPI has applied, the risk for security is now increasing.the wireless internet solution offers elementary encryption function like security library and WPKI, and it is consisted of Code Signing, E2E, TLS, DRM, Anti-Virus which use this. - 24 -!
The security library offers the function for construction and interpretation of Algorithm which is the base of security solutions and security data format. This includes functions related to cryptography which is necessary for other wireless security solutions. WPKI offers the functions for authentication of user, encryption and clearing of data. With the user authentication, electronic signature and cryptographic through public-key cryptographic technology SK Telecom, one of the Korean representative telcos, offers now MOS (Mobile Online Signature). Seen in figure [3-1], MOS consist of important two parts, MOS Service and MOS Broker. In case that the user needs electronic signature in Internet, the Web server requires the electronic signature through MOS Broker. Then MOS Broker checks the users through MOS server, and transmits it to user. Users receive SMS, and make electronic signature, and then transmit the result again to MOS. MOS Broker transmits the result of electronic signature to Web server, and the Web server uses it when it is necessary (e. g. e-commerce or internet banking). When one uses different computers for e-commerce or internet banking, the risk for security becomes reduced. But there is troublesome work always to install authentication to that personal computer. However, if one uses MOS, one can make secure electronic signature. Figure [3-1]: MOS (Mobile Online Signature) Service Source: SK Telecom (2005) Code Signing offers the completeness of program installed on mobile devices, and limits the circulation authority. Code Signing is included to DRM (Digital Rights Management) in - 25 -!
broaden meaning, and it can be also regarded as specialized DRM. With E2E (End-to- End) & TLS (Transport Layer Security), the secure transmission of important data between mobile devices and server is possible. E2E offers End to End security between WAE (Wireless Application Environment) and service application in WAP. TLS protocol provides secure telecommunication between client and server, with authentication of each other, using of electronic signature for integrity and encryption for privacy. DRM transmits safely charged contents from content provider to user, and make it be used in domains. The DRM System on following figure [3-2] means the technology which protects contents and contains them by digital method safely. Through it, transaction, distribution regulation and using of regulation can be legal established from creation to consumption. Figure [3-2]: Functional Architecture of DRM Source: SK Telecom (2005) Anti Virus copes with positively and prevents malicious code from spreading, when it flows to mobile terminal. Now with opening of Korean wireless network and the adoption of standard platform WIPI, the flowing and spreading route of malicious code become various. - 26 -!
And then the possibility of Mobile Virus is increasing and the need for mobile Anti-Virus service becomes important, in order to ensure the safety environment for mobile terminal. 3.1.1.2 Classification of Technology In this section, the technological development of Korean mobile payment is analyzed. Most of all, the describing of general situations in Korea is useful for the understanding for technology development of mobile payment. Since 2001, the connection to internet through WAP (Wireless Application Protocol) has been used via mobile devices such as mobile phone and PDA. WIPI (Wireless Internet Platform for Interoperability) is used to download games and dynamic system upgrades over the network, install extra applications and define the graphical user interface of the terminal, in South Korea. The Korean mobile payment includes smart card-embedded type form, the initial version of ones through public mobile networks, which are 2.5G for CDMA and cdma2000, and financial institutions because it provides secure payment and authentication have taken a technology which is smart card. Most CDMA operators are SK Telecom, KTF and LG Telecom in South Korea and there are also countries using this technology in Asia and North America. The cdma2000 is similar to the WCDMA of the GSM operators and another path to the Universal Mobile Communication System (UMTS). Korean mobile payment service providers have win-win business model in forms of joining with telcos in accordance with service for mobile payment. The following is the yearly description for development of Korean mobile payment market. In the middle of 2000s, SK Telecom, one of the main Korean mobile telecommunication companies, has joined with Danal to start the first mobile payment service in Korea. In the end of 2001, the telco which adopted the chip-based, called smart card, joined with credit card institute and brought together that the remainder of each account which user owns is transferred. The concept of the virtual account and electronic money that the telcos can take an active hand in the mobile banking is adopted. SK Telecom, one of Korean carriers had serviced the electronic money, NeMo, with joined common bank together. It was able to be used as the remittance-service and the function of payment - 27 -!
on/off-line via mobile phone. But this service is nevermore offered since May 2004 because of problem of security. Figure [3-3]: The Flow of Money Transfer Service using Mobile Phone Source: KISDI Issue Report (2003) In 2002, the joined card made by the telcos and credit card institute included the dual slot type in the mobile phone. Continuously, the Slot of Smartcard is inserted into the mobile phone and paid. Moreover, the service has started to sale the enhanced type, the IC-chip, directly included in the mobile phone. The type including IC-chip is able to be paid through the wireless community for a short distance such as IrFM (Infrared Financial Messaging), RFID (Radio Frequency Identification), bluetooth, etc. in the offline affiliate. Finally, the mobile payment service has begun using the only mobile device in wired/wireless and on/offline affiliate. - 28 -!
Figure [3-4]: The Flow of Mobile Payment based Dual Slot Card Source: KISDI Issue Report (2003) In Korea, there are main three mobile telcos: SK Telecom, KTF and LG Telecom. Nearly 3 million mobile-phone users changed service providers until 2004 with number portability, which allow them to move to other carriers with keeping their earlier numbers. That s why that about 10,000 subscribers change carriers every day. The Korean telcos have emphasis on their non-voice applications such as online music services, mobile banking and mobile broadcasting. And they help to prevent customers from changing to other carriers. Thus, an agreement about donggle which is a device for the mobile phone payment such as credit card reader for the interoperability of mobile payment has been reached among three telcos in Korea in order to open the entire mobile payment.[koreaherald04][etnews04] - 29 -!
3.1.2 Legal According to research by KCPB (Korean Consumer Protection Board) for about 1,575 customers, the 40 % of customers have experienced dissatisfied and damaged cases. The methods of payment consist of electronic money (60.9%), cellular phone and ARS (50.5%), online banking (42.6%), credit card (25.6%), e-mail banking (25%). [KCPB02] The related damage types are payment error, unused charging request, double charge, transference error by customers mistake, insufficiency of refund system and so on. To strengthen the protection of user related to mobile payment, the KEFTB (Korean Electronic Financing Transaction Bill) will be established based on the regulation for Korean electronic money. [KEFTB03] [FSC03] The main contents of KEFTB are briefly as follows. The 5 th paragraph shows that e-commerce must issue the approaching terminal for personal identification of users like pin-code only with request of users. The 8 th paragraph shows that financial institutions and e-commerce operators must be responsible for damage of users occurred in the course of electronic transaction transmission/processing or copy/changing pin-code for terminal access. When both of financial institutions and users have no-fault like hacking, the responsibility is as follows. The financial institutions/ecommerce operators are responsible for the following cases. That is, the problems for transaction settlement by copy/changing of terminal access, hacking, system error or the problems in the course of electronic transaction transmission/processing. But, if the damage has occurred by disclosure of users personal data, exposure of terminal access and carelessness for managing of PC, the user must be responsible for it. The 12 th or the 16 th define the process for electronic payment like the case of payment validity and withdrawal of payment. The 20 th and the 21 st regulate that financial institutions/ecommerce operators and the concerned have to observe the standard of security defined by Financial Supervisory Commission (FSC) and preserve records for e-commerce for 5 years. The 22 nd shows that the using limit / charging limit / maximal issuing limit of electronic money of financial institutions/e-payment operator and the concerned must be made and defined by FSC. The 28 th shows that the operators need the certification from FSC in order to publish and manage electronic money, but the other operators which want - 30 -!
to manage e-money transfer or e-payment need only process of registering to FSC. Finally, the 41 st defines that FSC supervises the financial institutions and e-commerce operators with reports and inspection for e-commerce business and accounting state. The trust in M-commerce as well as in e-commerce is accomplished by the Korean regulation, KEFTB (Korean Electronic Financing Transaction Bill) which protects and secures personal data of customers, makes responsibility between customers and operators allot and controls finances. - 31 -!
3.1.3 Social Habits Most of all, Korean mobile payment is prospected that the growth becomes in 2005 though wireless network and various mobile services. It shows the willing for using of Korean mobile users, and it will be described. The first, the increasing distribution of Korean wireless internet network and DMB (Digital Media Broadcasting) show indirectly that the high possibility for mobile payment indirectly. For example, the selling of wireless internet in 2003 records US $ 1,590 million. It is prospected that from 2004 the selling growth reaches about US $ 9,200 million with opening of wireless internet network. In Korea, the payment using IrFM for facilitated adoption of mobile payment in buying merchandise and prepaid method like transportation card are used. With DMB service in 2005, people can watch TV and listening to radio everywhere. These situations satisfied the curiosities of Korean for new technologies because they can use the services freely and rapidly anywhere and anytime. The second, the Korean government promotes mobile payment service positively. Therefore, men can get profit like discounting when they use public facilities. For example, men use smartcards (prepaid cards) from 2002, when they use public buses and subways. Now it is possible that men pay the traffic fee using phone-bill methods by telcos or equipping smartcard to own cellular phone. These new services get public favor, and it has been adopted in short time because of convenient using and trust in security. Besides, many shops which are opened around o clock (e.g. Familymart, Seven Eleven, Buy the Way, etc) are placed in Korean many cities (e.g. Seoul) and they serve necessaries to customers. In these shops infrastructure (Doggle) for mobile payment is installed, and they satisfy the regional requests of customers because they can buy necessaries without coins immediately. The third, the service type that Korean customers use the most in 2002 is SMS & chatting(76.1%), ringtones & wallpaper downloading (71.1%), information searching (29.0%), mobile game (28.6%), sales coupon receiving (27.1%), and so on. But additionally, the favored services by customers are banking account, mobile payment and GPS (Global Positioning System). Surveying people from teenagers to thirties in Korean, - 32 -!