Put the tab on my mobile

In what looks like the first major blurring between telecommunications companies, credit card networks and banks, a conglomerate of mobile networks is launching a system that may take on credit cards as a way of paying for things, online and off.

Simpay, founded by Orange, T-Mobile and Vodafone, along with Telefónica Móviles of Spain, is launching a system that will allow customers to charge things directly to their mobile phone bill. That's not a new thing but, just as with Visa or Mastercard, with Simpay it will not matter who your bill is from, who the merchant is and who you are connecting through. This is new: the Simpay network will, it promises, create an international payment system specifically designed for charging things to your mobile bill, whether they are bought online from your phone, on the internet or in a shop.

Mobile phone users have been able to buy things via their handset for a while, either by a premium text message, or by proprietary payment systems such as Vodafone's M-Pay. In some parts of the world, customers can use their credit card, buy prepaid credits, or charge things from their bank account via their phone in a variety of ways, but none of these systems can talk to each other.

This is not a good situation. Customers can only buy from merchants who are signed up with the same payment system as they are - meaning the merchants and the mobile phone companies have to go through the expensive business of finding each other and joining up their systems before they can start to look for people to sell things to.

Roaming customers are in trouble too: each mobile phone network has to negotiate with each other to support each others' payment system, or not, should people roam abroad. In the worst cases, with every country having three or more networks, the number of deals that need to be done for one company to be able to sell to every potential customer is prohibitive. It's just too much work for a small ringtone business, for example, to deal with and connect to every mobile payment system in the world.

Simpay will mean they won't have to. As with credit card networks, the merchant only needs to have an account with one of the connected networks, and every customer of every network connected to Simpay will be able to buy things from them, and charge the cost to their mobile bill. The merchant is guaranteed to get paid, and promptly: something so far not taken for granted.

Jim Wadsworth, Simpay's chief marketing officer, says: "The big difference is that it will be supported by multiple operators in multiple countries. Individual consumers will be able to transact with a much wider range of merchants. From a merchant's viewpoint, they will be able to do a single deal to get 'acquired' for Simpay, and then be able to transact with all consumers of all participating mobile operators."

The credit card network analogy is not stretching a point. The potential for a massively extended ability on the part of a Simpay-subscribing, mobile phone network - allowing customers to buy things across borders with money drawn on credit from their billing agreement - is close to being a credit card system. The European Union is undergoing a consultation process to decide how to regulate this "e-money".

Unlike the credit card networks, Simpay will not say how much commission it plans on taking for each payment - citing it as commercially sensitive information. But one Simpay employee says it is on a par with commercial SMS pricing, but proportional to the value of the transaction, putting it at around 30%. This is much more expensive for the merchant than a transaction with a regular credit card network, which works at closer to 3%. Combine this with the fee charged by the mobile phone network providing the merchant with access to the Simpay service, and the proportion ending up in the merchants' pockets could be disappointing.

Indeed, the card networks that charge more than the average - American Express and Diners' Club - are taken at fewer establishments for exactly this reason.

This pricing level certainly raises the question of precisely what Simpay is for. Low-cost intangibles, such as ringtones, are already catered for with existing SMS systems, and tangible goods, such as CDs, or non phone-related intangibles, such as cinema tickets, have profit margins too fine to make Simpay's possible cut a feasible one. Simpay's website says it envisages the system being used to "buy higher price items such as flights", but this seems unlikely under its current plan.

The one thing left is content sent to the phone itself - video and on-phone internet - and this, it says, is how Simpay will be positioned at launch. The projected appeal of this sort of content is the premise behind much of the mobile phone industry's recent upgrades, most notably the introduction of 3G.

With the cost of voice calls dropping, and the number of new subscribers starting to plateau, mobile phone companies need to find new ways to make money if they are to continue to impress shareholders.

Mobile content is thought to be the way, and with Simpay, the act of subscribing to a video service, or paying for a one-off hit of entertainment, ringtone, or icon, will be much easier, both for the customer, and the content provider who gets the money.

Because Simpay is an international affair, and designed to deal with users and merchants on different networks, or in different countries, it also deals with one of the main differences between the internet and the mobile world.

Currently, access to content is controlled by each mobile network: content providers who wish to charge for their services must deal with each network on the network's terms, and enrol into each network's payment system. Simpay, however, creates a payment system that is both common and, more importantly, allows for content providers to deal with just the one network of their choice for access to payments from every Simpay participant. This makes things easier for everyone, but also changes the balance of power within the mobile world to something more resembling the regular internet, where the sites you visit need not have any connection with your ISP.

With Simpay, says Susie Lonie, senior product manager for Vodafone UK, "end-users can buy from a much wider range of off-portal sites owned by content providers dealing with other telcos but with no Vodafone UK relationship. Content providers with a relationship with Vodafone UK off-portal can reach end-users from all other participating telcos: thus Simpay will enable growth of the mobile payments market."

Perhaps this is just in time. M-commerce, to get 1999 about it all, is again tipped by analysts to be the next big thing. One analyst, IDC, says that last year, there were 3.5m m-commerce users in Europe, spending around £2.7m. By 2007, it says, 27m people will be using their mobile to spend money.

Simpay thinks they "will bring more than €1bn of extra industry transactions by 2007". The question of what this will be spent on will have to wait but, in the meantime, the networks are scrambling to get ready.

Many networks, Simpay says, have expressed an interest in joining the founding four members. From early next year, when Simpay launches, the public will get to say if it was all worth it.

Digital money

Simpay is different from past online payment systems - it isn't creating currency, for one thing. But if Simpay doesn't work, its failure will not be unique. The internet is riddled with the corpses of online payment companies that failed to capture the hearts or wallets of customers.

Beenz was one. Launched in 1998, the company expanded with the dotcom bubble to have operations in the US, Asia and Europe. The idea was that customers would earn virtual currency, Beenz, for performing certain actions, such as visiting a website or completing a survey. You could spend Beenz at participating sites. It ceased trading in August 2001 due to a combination of lack of merchants and marketing failure.

Just 10 days before Beenz shut up shop, its rival, Flooz, had done the same. Reports quoted unnamed sources as saying the company had been the victim of a $300,000 credit card fraud originating in Russia. Others said it lacked customers. Either way, Flooz had gone through $50m in venture capital before it sold its furniture. Beenz had been more successful in that regard: it got through $80m before it dropped offline.

Electronic payment over the internet has always been like this. One of the first such firms, and holder of many of the patents of the art, Digicash only lasted from 1994 to 1998, when it joined fellow trailblazer First Virtual in the great Monopoly money box in the sky.