|By Bill Ray||
|January 1, 2000 12:00 AM EST||
A secure mobile payment system is essential if m-commerce is to reach its potential. The most-popular method used credit cards has failed in this area, and fallen prey to astronomical levels of fraud and theft. Now, Paybox, a relatively new company with an authorization system that tracks transactions every step of the way, is taking on players such as Visa, MasterCard, and American Express.
While I was working at Swiss Telecom back in 1998, I heard about the most impressive example of mobile commerce. Elegant, simple, and completely impractical, it demonstrated what m-commerce was capable of and why it would never achieve it.
The system was very simple; posters were produced that advertised a music CD, for example, and in addition to the normal information about the band and price, etc., there was a number across the bottom of the poster with an identifying logo. A commuter passing the poster could decide to buy the CD and simply grab his or her mobile phone, key in the number on the poster, press "connect," then hang up and wait for the goods to arrive in the next few days.
The cost would be added to the mobile phone bill, while the delivery address would be retrieved from the Caller Line ID matched with the phone company database. Simple to use, and relatively cheap to implement, it provided the ultimate in impulse buying by making use of an already built infrastructure and payment mechanisms. Fraud would be minimized by the fact that goods would always be delivered to the phone number owner's address, and any potential credit problems would be largely negated by the fact that the customers would all be Swiss.
Of course, to deploy a system like this you need a nice solid monopoly; all the customer names and addresses have to be in one database. It's much better if you're outside Europe too. If British Telecom tried anything like this, they would swiftly be accused of abusing their monopoly position, and the practice of adding payments to phone bills won't be allowed in Europe until proper competition exists, by which time it will be impractical to create a central database of all mobile users.
But the concept of using a mobile phone to pay bills has much going for it; mobiles are pretty ubiquitous in Europe and the GSM network is still relatively secure.
Paying for the Thefts
To understand the amounts of money we are talking about, it's necessary to consider the current system of mobile payment credit cards in all their various forms. Credit cards certainly provide a flexible system of payment; production of the card and validation with a signature is almost as popular as cash in many countries, despite the obvious drawbacks. Fraud is endemic; with around 280 million U.S. dollars being stolen annually in Europe alone, it's clear that many of the costs of using a credit card are actually being used to sustain these thefts.
Signatures are remarkably easy to forge, given the cursory glance they generally receive, and experiments with putting photographs on the cards actually led to an increase in successful fraud (not to mention an amusing experiment where a picture of a gorilla was put on a card that was then used by several people without any problems). Europe is committed to requiring PIN numbers to replace signatures, and smart cards are rapidly replacing stupid ones, making forgery almost impossible, though theft will still be an issue. Keeping a PIN number secret won't be as easy as it appears; the terminal handed to you in a shop may well be a legitimate device, or could be one designed to lift your PIN while continuing the transaction.
When analyzing security systems, consider what the user is required to have in order to breach the system, in abstract terms of secrets and tokens. For example, when using an ATM machine to withdraw cash, the secret is the PIN number while the token is the card; only by possession of both items can the security be breached.
Current credit card systems are basically token systems where ownership of the token allows payment to take place. This is clearly not very secure. Even worse are so-called "card-holder-not-present" scenarios, such as Internet payments, where all that is needed is the number itself. These transactions are massively insecure, and adding a PIN number isn't going to help until every computer has a secure card slot and PIN entry keypad.
Credit card companies make money by taking a percentage of every transaction, the size of the percentage being based on the perceived risk of fraud to the company. (It's important to note that it is the credit card companies that lose out on most fraud. If the shops themselves were in danger of losing money they would be much more careful about checking signatures, or refuse to accept credit cards at all.)
Therefore, a normal transaction may be charged at 4%, while a merchant accepting credit cards on the Internet may be forced to pay up to 16% on every sale made. But if these high prices are mostly to cover the amount lost in fraud, then any system that can reduce that fraud can afford to charge merchants considerably less, allowing it to become competitive.
What we really need is something that works with the voice network already in place, separate from credit cards and the levels of fraud that would involve allowing a user to pay bills, both online and in person, with the use of both a token and a secret. This brings us nicely to Paybox.
The Mobile Phone As Proof of Identity
Paybox is a company originally established in May 2000 in Germany, though now spreading across Europe. Owned in large part by Deutsche Bank, it provides the mechanism described above, allowing payments from any mobile telephone without involving credit cards and with both a token and secret needed to make a transaction. The process is actually very simple (see sidebar) and relatively easy to work with.
First you need to sign up at their Web site (www.paybox.co.uk, in the UK) where you fill in a form with your personal details, and those of your bank account.
Paybox receives money directly from your current account, via the Direct Debit system, rather than from a card that would carry high costs. The company then performs what must be the most perfunctory credit check (the first one I've passed in 10 years!) before sending you a Direct Debit mandate, which you must sign and return to them. To be fair about the credit check, Paybox isn't actually giving you a great deal of credit; the total bill is deducted from your account each month and the merchants currently accepting Paybox aren't generally selling high-value goods.
It's to be expected that as the system becomes more widespread, the credit checking will become more rigorous. After signing and returning the form, I had to wait about 10 days before I got an SMS message confirming that my account had been established and I was able to start using the service (I could have spent up to 10 pounds before receiving the confirmation message). Paybox will charge me 10 pounds annually.
Using Paybox online is a very strange experience. You enter the Web site and when you reach the payment point your browser will display a message saying that it's checking for confirmation. Then your mobile phone rings and a voice asks you for your PIN number (thus confirming you have the phone [a token] and knowledge of the PIN [the secret]), which you enter. The browser then wakes up again and confirms that it has received confirmation. This whole process takes only seconds and is very smooth indeed, though it feels a little odd.
Available in Restaurants, Taxis, and a Cinema
Offline, Paybox is fairly limited; in the UK at least (they claim 10,000 merchants Europe-wide) there are only half a dozen restaurants, one cinema, and a taxi company. We were tempted by the cinema first, but they were showing "The Breakfast Club," a film I hated 17 years ago and feel no differently about now, so we selected a restaurant to try out paying by mobile phone. I was slightly nervous about the restaurant being in a basement, but luckily the GSM signal was good. (I would imagine there are venues where mobile phone payment would be impossible.)
After a good meal, the staff seemed slightly taken aback when we asked to pay by Paybox, but a search was started to find the person who knew what it was and actually paying turned out to be very simple indeed. I gave my mobile number and the waiter disappeared. About a minute later my phone rang, and someone told me the name of the restaurant and the amount of the bill and asked me to authorize the payment. I did, and as the restaurant wasn't busy, we actually heard the phone ring within seconds of my entering my PIN, and the waiter returned to let us know everything was okay.
Remarkably, and perhaps due to their lack of familiarity with the medium, they forgot to add the tip, so some cash was needed (it was a good meal), but overall the system was smooth and intuitive. Returning home I found an e-mail confirming the transaction, and the next morning I was woken from my hangover by an SMS message telling me how much I had spent the previous night (not the best way to wake up).
Paybox charges the merchant 15% of each transaction, depending on the number and size of the transactions, along with any perceived fraud risk. Of course, the chance of fraud should be considerably less than with a credit card, so costs will be lower. Making the calls and sending all those SMS messages is expensive, so a small number of high-value transactions will be much more cost-effective than a large number of low-value ones, and this is reflected in the percentages charged. It is with online transactions that Paybox merchants can benefit most. The level of fraud has forced the credit card companies to charge massive amounts of commission on transactions, and this is reflected in the number of online merchants signed on to the Paybox scheme.
Of course, Visa, MasterCard, and American Express are very serious companies to take on, and these are the effective competition to Paybox. Credit card security will improve, with mandatory PINs for authorization on all transactions and an increasing number of PCs with smart card slots. Amex recently offered their customers a free smart card reader for their PC, for the purpose of securing online transactions, so these companies shouldn't be expected to sit around waiting to be driven out of business.
Biometrics also has potential in this area; credit cards that refuse to operate without a fingerprint have been demonstrated (though getting a fingerprint reader into an ISO7816 smart card isn't easy, it can be done). The recent growth in the use of CV2 codes (the small number on the back of most cards, but the front of Amex cards) has gone some way toward reducing fraud, but this is only a temporary measure, as it won't be long before you can generate those too with a small bit of software.
The costs of credit card fraud are affecting all of us in the fees we are paying, so anything that can reduce those fees is certainly a good thing. But gaining wide recognition as a payment system with such entrenched competition won't be easy, or cheap. Paybox is a long-term plan, but must gain acceptance quickly to stand any chance of taking advantage before other technology makes them redundant (or, in order for them to make it redundant!). If they're going to be accepted by normal users they will have to stop sending messages at 8:30 in the morning telling you how much you spent last night!
How Paybox Works
- Customer gives his or her mobile number to the merchant
- Merchant passes on details of the amount and the number to Paybox
- Paybox checks that the number is a valid account, and then phones and lets the customer know how much the charge is
- Customer enters his or her PIN number to authorize the transaction
- Paybox contacts the merchant to let them know that the transaction has been authorized
- Later that month... money is debited from the customer's current account
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