The idea that a customer could pay for one of your company’s products by using a mobile phone may have seemed far-fetched a few years ago — outside of a few Asian countries — but it’s now becoming a reality that any consumer-facing business needs to factor into its strategy. According to analyst firm Juniper Research, the global mobile payment market is likely to double in value to $200 billion by next year.

Google is already supporting the near-field communication (NFC) technology needed to turn mobile devices into e-wallets in the latest version of its mobile operating system (Android 2.3 Gingerbread), while Apple is rumored to be working on its own technology. It’s true that many Apple rumors turn out to be no more than fevered speculation, but if it can do for mobile payments what it did for MP3 players, smartphones and tablet PCs, then the future could be bright for m-commerce.  

Of course, to succeed in the market any mobile payments system requires many different organizations to cooperate, including mobile device manufacturers, network operators, financial institutions, retailers and app developers. The road to an agreed standard is rarely smooth and already we’re seeing many competing approaches that are likely to stick around for some time to come (see Data Feed, right).

One contender is the Isis joint venture announced in the US last November by AT&T, T-Mobile and Verizon. This is based on NFC technology and is backed by the likes of Barclaycard US. But neither MasterCard nor Visa is currently supporting the initiative, with each working on its own contactless payment model.

PayPal is said to be exploring alternative avenues, while others — such as Twitter co-founder Jack Dorsey’s mobile payments start-up Square — are taking a peer-to-peer approach.

In Square’s case, this involves turning any smartphone into a device capable of receiving payments via a simple card-swipe dongle attached to the phone’s headphone socket.

There is also a thriving market for SMS-based, peer-to-peer mobile payments in sub-Saharan Africa, where people are using far less sophisticated cellphone technology. For example, the M-PESA service on the Safaricom mobile network in Kenya won 6.5 million new customers by offering the ability to make money transfers on mobiles via text messaging.

But while there is certainly a market for peer-to-peer systems, contactless payments via smartphones are causing the most excitement in mainland Europe and the UK. And with Google backing NFC, the chances are it won’t be long before e-wallet apps supporting the technology are in the hands of a lot more people on both sides of the Atlantic.

Data feed

The current approaches to mobile payments can be split into four types:

1. Collaborative model Banks, mobile operators and other bodies work together on an agreed system — e.g. the Isis venture in the US.

2. Bank-led A financial institution provides mobile payment applications to its customers and ensures sellers have the required point-of-sale systems. Mobile operators would simply be carriers, so quality of service guarantees could be a problem.

3. Mobile operator-led A network operator initiates a service, such as giving users an independent “mobile wallet” account. This may cause problems due to lack of connection to existing payment networks.

4. Peer-to-peer A mobile payment service provider offers a “democratized” mobile payment system, e.g. Square.