O2 UK Will Allow Users To Pay By Swiping Their Mobile Phones... By July

While giving a briefing in London, James Le Brocq head of O2’s financial services division said:

O2 envisages various services living in the mobile wallet app, including a shopping service for browsing and buying physical goods, mobile money transfer between individuals, and top-up options – initially for airtime but which he said could be extended to include bill payments and more in future.

Already we’re seeing very clear trends in the use of mobile phones for mobile commerce – to view retailers’ websites, to do price and product comparison… and increasingly, we’re seeing a trend towards the use of the mobile device as part and parcel of the payment process for the products you want to buy.

What we’d like to do is broaden that shopping opportunity for our customers by providing a shopping service through that mobile wallet so you can browse, you can product search… and you can actually effect a purchase through a mobile phone in a more convenient, easy-to-use manner than you might be able to today.

The payment options that a mobile operator can provide are limited because of regulations. As a result of this, mobile operators such as O2 currently offer limited payment possibilities to their users, which includes purchases of low cost virtual goods such as ringtones and mobile games. However, O2 is now applying for an eMoney license from the UK government that will allow it to hold a balance on behalf of each subscriber. This balance can than be used to make person-to-person payments, purchase physical goods and pretty much everything else that you can currently do with your credit card. So in essence, O2 is planning to turn mobile phones into mobile bank accounts + debit cards, that a subscriber can use to make payments anywhere anytime.

But for the system to go mainstream, retailers would have to install contactless terminals, similar to the way they provided credit card payment option, so that users could just swipe their mobile phones to make payments. In UK, 40,000 retailers are already accepting contactless payments including, McDonald’s, and Yo Sushi. However, Le Brocq expects the London 2012 Olympics to really drive contactless payments into mainstream:

The opportunities to use a contactless payment product – whether that’s a card or a mobile phone – are only really just growing in scale now. The Olympics is going to be a significant milestone in the world of contactless.

O2 has been experimenting with contactless payments for quiet some time now. The company initially started trials of NFC technology back in 2007, when it ran experiments with 500 individuals to make payments in London Metro via contactless technology. The individuals were provided with NFC enabled Nokia phones and the transactions were processed by Barclays.

Although O2 is still partnering with Banks to process transactions, it envisions a future where O2 has a much more integral role in the entire process. According to Le Borcq:

The initial foray into financial services was done through a bank-partnering model. We’ll continue to work with banks and other partners and providers but I think increasingly what you’ll see is O2 taking more of a role within the overall system/value chain and doing that by bringing in financial services-experienced people.

O2’s mobile wallet will essentially be a mobile app that any mobile phone user, irrespective of his mobile carrier, can download on his mobile. This will enable O2 and non-O2 subscribers to make person-to-person payments to each other.
O2 will likely face stiff competition in this market. Ericsson, the world’s largest telecom vendor, is planning to launch its own mobile payment service sometime this year. Apple on the other hand has mobile payment service plans of its own for the iPhone and iPad devices.