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EASY E-ROUTE: Mobile payments are the future

ELECTRONIC PAYMENT transactions — there's a lot of innovation going on out there in this space. The first big innovation happened in 1996 which was internet payments. The famed "card not present" came into being. Transactions moved to the Internet and consumers paid for goods purchased by bravely putting in their credit card numbers over the web. Even as security concerns were voiced, consumers were rewriting history. Born was the internet payment gateway and firms such as CyberCash became pioneers.

The ubiquitous point of sale terminal or POS continued to be the darling of the brick and mortar merchants. Merchants were busy buying into POS terminals and all the software ramifications that meant. Credit card fraud was the next big thing in 2002. Visa and Master Card upped the ante on merchants whose transactions resulted in huge charge-backs. A charge-back transaction is one where the consumer refutes that he/she has participated in a credit card transaction that appears on their monthly credit card statement. The onus of proving the fraud was with the card issuer. Hence the loss on such transactions was borne by the whole payment chain minus the merchant and consumer!

Visa and Master Card invoked harsh penalties on merchants and put many merchants out of business. Merchants who were processing credit card transactions from internet pornographic sites were the first targets. The consumer would disown such transactions to their spouses when they appeared on their credit card statement. Such merchants ended up with large charge back transactions.Later, Visa and Master Card introduced 3D Secure. This moved the onus of the transaction onto the merchant. Merchants should have their payment gateways with this product 3D Secure which was certified by them. But entering the payments processing business was not easy as the entry barriers were stiff. One of our firm's customers had their payment site hacked by an employee! Forty million credit card numbers were stolen. That firm lost its name overnight. Visa blacklisted them and refused to process their transactions.

While the credit card ruled the roost in the US, Europe moved over swiftly to smart cards or the famed chip and pin transactions. The card reinvented itself several times over. Gift Cards and Loyalty Cards were issued by retail chains to reward clients. Prepaid cards became a godsend for those who did not possess a bank account. The Holy Grail that is being sought after by all payment processors is a payment gateway that connects seamlessly to all the POS terminals out there, works in all countries accepting multi-currency transactions but settles in the local currency.

A new POS terminal has been added — the mobile device. Payment transactions can be put through from the mobile phone over secure SMS to the payment system and the confirmation of the transaction can be got on the phone itself. The mobile phone market is largest in China and India where the penetration is highest. There is a flurry of activity in China and India. The estimated market for mobile payments in the world is $900 billion by 2013. India with its 900 million cell phone users today has one more reason to become interesting for global companies. Nothing can stop mobile payments.

V Rama Kumar