Mobile Account
Management: The Mobile
Commerce Enabler

There is much talk about  retail banking on mobile devices, but mobile banking is just a first step  toward the
full-fledged account management needed to support mobile commerce. Today, financial institutions and service providers are making choices that could dramatically impact the growth and acceptance of mobile commerce.

By Barry McCarthy, President, Mobile Commerce Solutions, First Data
A First Data White Paper

Author’s   note:  Mobile  technology  is  transforming  how  people monitor  their  financial  resources,  make important purchasing decisions  and pay for transactions. As the fourth installment in First Data’s series on the ongoing  development of mobile  commerce solutions,  this paper  focuses on mobile  account management, which is really the key ingredient  to a healthy mobile commerce economy. Understand,  though, that mobile commerce is in its infancy. It is unlikely that First Data’s viewpoint  as a company,  or my personal thoughts as a commerce industry veteran,  is completely accurate.

Let me know what you think. Call or send me an e-mail sharing your own expectations and anticipations.

Mobile Account  Management: Beyond  Mobile Banking

The  cornerstone of  mobile  commerce is the  ability  for  consumers  to  manage money in their electronic wallets—bank accounts, yes, but so many other account types, too.

In the  same way  people manage the  cash and cards  they  carry in their physical wallets today, consumers need  to be able to manage the purchasing  instruments and  rewards  programs  in their electronic wallets.  This is called  mobile account management, but what does  that really mean?

Today,  people put  cash  into their wallets  by going  to an ATM and withdrawing money from a bank account. They pay credit  card bills with checks  or electronic funds transfers drawn from a bank account, and debit  purchases are immediately deducted from a bank account. People increasingly manage their bank and credit accounts from a computer, transferring  money from one account to another  and initiating electronic payments.

Clearly, the first step  toward mobile commerce is enabling  some, or all, of these banking  functions  through  the  mobile  phone,  because this is how  consumers will ultimately  manage the  balances  of  any  purchasing   instrument  built  into their mobile devices. And, while it’s not pervasive yet,  mobile banking  through mobile phones  is happening today.  Companies  like mFoundry, Firethorn, mBlox, Blaze Mobile, Vipera and others offer mobile phone software through service agreements with banks that  enable consumers  to manage their bank accounts with their mobile devices.

We’ll take  a closer look at mobile banking  services,  but first let’s see  why this is just the  first step  toward mobile account management. Consider  the  following mobile commerce scenario. A young couple  is out shopping  for a few small home- improvement  items...

At  the  warehouse-style home  improvement  store,  the  couple   comes  across  a clearance area  where  one-of-a-kind items are marked down  for quick sale. And there it is: a new bathroom vanity that would be perfect for the master bathroom, complete with fixtures, matching mirror and several  matching accessories. Here is a chance to get an item with many of the features they want at one low price. But even  with the substantial discount, this expenditure isn’t in the budget right now. So in addition  to the  usual discussion  between couples  about  such a purchase, this pair needs to figure  out if they  can pay for this item today, and if so, which payment method  is most advantageous and least likely to ruin their budget.

They  quickly  open  the  electronic wallet  application on  their  phone  and  gain access to a variety of accounts, including checking and savings  accounts, credit card accounts, stored-value accounts, airline miles and other rewards  accounts, their kids’ school lunch accounts, and even  a home equity  line of credit  account attached to a debit  card. After checking balances, they  decide the best  way  to pay for this bathroom set is to use a small balance they still have on an in-store gift card from last Christmas, redeem a few  airline miles, then pay for the remainder out of their primary checking account.

A few  quick clicks later, the decision  is made and the payment method  secured. Now  with just a tap  of the  phone  at  the  register  and  a Personal  Identification Number (PIN) entry, the amounts are automatically deducted from the appropriate accounts. Hello new bathroom!

So how  do  we  get from where  we  are  today  to  a point  where  consumers  can manage not just banking  information with a handset, but all of their accounts— retail gift  cards,  airline mileage  accounts, university  spending cards,  merchant rewards  programs  and utilities accounts—in one easy-to-use mobile interface? Let’s begin  by taking a closer look at mobile banking.

Today’s Mobile Banking: Starting Point for Mobile
Account  Management
Mobile banking  is the  first step  toward the  level of mobile account management needed to support  robust mobile commerce. This is because software and services  needed to support  full mobile account management are almost exactly the same as those  used  for mobile banking. At first glance, mobile banking appears to be an essential  component of mobile commerce, along with marketing and point-of-sale payments capabilities.

There  is, of  course,  more  to  the  story  than  that.  True mobile  account management supports  many  more account types than just bank and card accounts. Examining the technology and services  infrastructure behind mobile banking  gives  us a good sense  of how  close  we  are to true mobile account management. However, it also  highlights  the  battles brewing between  the  service  providers  actively  vying  to  become successful participants in the mobile commerce ecosystem.

Let’s  begin  by  looking  at  how  mobile  banking  services  work  today.  Currently, there  are two ways  to deliver mobile banking services  to the handset:

• Wireless Application  Protocol  (WAP) Delivery: WAP is a standard  suite of technologies and protocols that enables mobile phones  and other small mobile devices to access and browse Web pages

• Customers  can access account data  at secure  Web sites optimized  for display on a handset. In this way, they can perform the basic banking functions they would do from their computer, such as check  account balances, transfer funds and set up electronic payments. No special software is needed on the handsets, as access is provided through a simple Web interface directly to the various account holders. Users log into their accounts with usernames  and passwords
• WAP-based Web pages are fairly easy to set up, but they are somewhat difficult for consumers to use. They often  look different on various mobile devices, and they typically suffer from poor performance on the limited Internet Protocol  (IP) networks  of carriers. Even more problematic, username and password logins can be compromised easily, creating major security concerns

• Client-Server Model: A number of companies are developing products that use a client-server model for delivering account data  to the handset

• These systems  deploy a small applet (a piece of software that runs within another application) to the mobile device, allowing secure  access to a data  center server where  the actual account information resides. In some cases,  the account data  is collected from various sources,  stored  on the service  provider’s server and then optimized  for delivery to the consumer’s  handset. In other cases,  the server software pulls data  directly from account holder data  centers, translates  it for proper  display on the handset and sends  it to the consumer. In this case,  the data  is not stored by the service  provider. Both client-server models have advantages over the WAP delivery model. They do a better job of formatting  information for proper  handset display, and because the applet on the device and the software on the server work in tandem,  there  is an additional layer of security—a sort of “lock and key” relationship that is specific to a single customer’s handset

Many banks have implemented a WAP solution for mobile banking because it’s comparatively inexpensive, and it enables banks to offer  a service  to their customers without  involving a third-party intermediary.  However, the WAP solution is slow and not user friendly for customers, and because its security model is questionable, this solution is not likely to prevail in the world of true mobile account management.

The client-server model offers a more easy-to-use, secure  solution, but it comes at a cost. Banks pay fees  to the service  provider so their customers can use that provider’s proprietary  software and services  to access account information. Fewer  banks are offering  this true mobile banking  service  to their customers, but  the  ones  that do  are discovering savings  as well. For instance,  a paper  published  by mFoundry (Strategic Mobile Revenue Opportunities, February 22, 2008) reports that call center calls cost an of average $6.50 each, and most of those calls are for account balance information (half of these  calls come  from mobile phones!).  Providing the  same information through a client-server mobile banking application costs  approximately 50 cents  per transaction.

It’s important  to  understand the  difference between the  two  client-server models  currently  in use  today. In one  model—the gateway  model—the service  provider  is providing  access to  data  stored  at  banks  and translating the data  for display on the handset. Alternatively,  there’s a stored  data  model in which the service provider  stores  data  downloaded from banks, and then translates  it for display by the handsets. Let’s take  a closer look at these  two client-server models.

Gateway Model: In this model, the applet on the phone  opens  a door to the service  provider’s server,  which provides  a translation  layer between the  customer’s handset and  the  bank. The service  provider  does  not store  or host bank data.  It simply opens  a secure  communication-translation channel  between the  handset and the bank.

It’s important to note that with the gateway model, there  is no solution that a bank or institution hosts on its own. Because of that, banks must rely upon the service  provider for account authentication. The bank cannot use its own account authentication when working with the gateway model.

One of the largest  providers  of the gateway model service  is a company called  Firethorn. Firethorn has been purchased by Qualcomm, one of the leading  providers of chip sets for mobile phones.  A number of the major mobile carriers in the U.S., including Verizon and Sprint, have standardized their phones  and networks  to work exclusively  with Qualcomm®  CDMA chip sets. Firethorn is working to provide  mobile banking services  through these  and other carriers.

Stored Data Model: In this model, the service  provider replicates bank account data  and stores it on a special secure  server.  Customers  use  their  mobile  phones  to  access their  accounts on  this server,  and  software translates  the account data  for display on the handset. One great advantage of this model is that consumers access their accounts with the bank-provided authentication process.

Banks can  buy  the  software and  build their own  in-house  stored  data  solution, or they  can  use  a hosted service.  Software solutions based on the  stored  data  model are challenging to implement.  Only the  largest banks are likely to have the IT infrastructure  necessary to effectively install and run these  applications  as part of their mobile banking service.  However,  hosted services  for stored  data  solutions are available  and are well within the reach of any size institution. For instance, First Data offers a hosted mobile banking service based on mFoundry software. Typically, these  stored  data  solutions provide  greater flexibility and more customization options than gateway model solutions.

There’s  one other important point about  stored  data  solutions. Because they  store  actual  account data,  any company that  implements  them must fully conform to Payment  Card Industry Data Security  Standards (PCI DSS) compliance rules. This is true of banks as well as hosted service  providers.  First Data, which performs credit  and debit  card  transaction  processing, already  has systems  in place  that  are PCI DSS compliant.  Any companies considering  offering  a hosted content storage model as a mobile banking service—a mobile phone carrier for instance—would need  to become PCI DSS compliant, and they would need  to maintain compliance over the long term.

As you can see, there are a number of viable and competing solutions for mobile banking services. Many banks today  offer  some  kind of mobile banking,  and a few  are making major investments in this area.  But mobile banking is only a subset of the account management capabilities demanded by mobile commerce.

Next, we’ll focus on how mobile banking needs to evolve in order to support  true mobile commerce.

What Are the Missing Pieces to Get from Mobile Banking to Mobile Accounts?
In order for mobile commerce to thrive, mobile devices, including mobile phones,  need  to support  more than basic banking functions  like checking balances, transferring  funds and initiating electronic payments. At the very least, mobile devices also need  to allow consumers  to do the following:

• Manage accounts from multiple financial institutions and associations
• Manage merchant  loyalty and stored-value accounts
• Exercise real-time control over accounts used for point-of-sale purchases
• Initiate and receive mobile payments
• Manage opt-in marketing programs  that allow consumers  to receive only the promotional offers  and product information they are interested in receiving

These are features that make up an electronic wallet, and while most of these  capabilities are available today, they have not yet been combined into one package with the behind-the-scenes services necessary to support them. For instance,  client mobile banking applications  typically support  basic banking functions but often  do not have other electronic wallet features. At the other end of the spectrum are electronic wallet applications that have many wallet features and attractive user interfaces, but possess relatively less robust back-end data management systems.

There is one other critically important service  missing from the mix today.  Somehow all the personal  account information associated with each  mobile device must be  collected, stored  and sent  to individual handsets. This is a provisioning process similar to storing and transferring  secure  account information to the  magnetic strips on credit cards. However,  the process of provisioning mobile devices is considerably more complex  than provisioning  plastic  credit  cards.  That’s  because mobile  devices that  are  truly ready  for mobile  commerce contain  multiple accounts, loyalty  programs,  stored-value accounts and  other  payment instruments,  often distributed by fierce  competitors. If consumers  enroll in opt-in marketing programs,  it’s necessary to securely store their information and preferences as well.

Gathering all this personalized account information and preparing it for loading onto individual handsets requires a specialized data  management role called  Trusted Services  Management (TSM). Right now, there  is no TSM serving the mobile commerce environment, though  many think they are up to the task. But are they really?

Who Should Be the Trusted Services Manager?
There  are  two  big  challenges for  the  TSM. First of  all, a  TSM must  gather all the  personalized  account information from all the different independent merchant  and financial entities  that  possess it. Secondly, the TSM must store and handle all of this individual account data  according to PCI DSS standards of compliance.

Current mobile banking solutions deal with this in various ways, some of which are not very scalable, and none of which support  the diversity of account types that a thriving mobile commerce environment  will ultimately require. Other types of service  providers in the mobile commerce environment may feel they can perform the TSM role. For instance,  consider these  possibilities:

• Telecommunications Carriers already control access to the mobile device. Some of these organizations see the TSM role as a logical extension of their current position within the infrastructure. However,  the TSM role would force  carriers to build capabilities they do not currently have and that go far beyond their core business competencies. To support mobile devices with broad mobile commerce capabilities, carriers would need  to establish thousands  of new relationships with financial account holders, develop complex data centers that comply with industry security standards, and reach reciprocal agreements with competitors so that account access can travel as easily from device to device as phone numbers do currently. These are not things the carriers are likely to do, at least in the foreseeable future
• Credit Card Associations have existing infrastructures  for the credit and debit parts of the mobile accounts equation, but they lack access to a complete set of banking data,  and they may not be able or willing to reach agreements about sharing data  between competing entities. So, if associations  take on the TSM role, consumers  may be left to choose between, for example,  a Visa account mobile phone or a MasterCard® account mobile phone,  but not one that supports  both, and certainly not one that offers  special merchant accounts that do not rely on an association. Such a solution would stifle the growth of mobile commerce, which by its very nature is likely to encourage the proliferation of specialty accounts

• Financial Institutions (FI) would benefit by fulfilling the TSM role because this would give them a firmer hold on their customer  relationships. Also, banks already have access to their own customer data  as well as secure  data  center capabilities that allow them to directly serve  existing clients. But with thousands  of independent banks all competing for customers, it is unlikely the partnerships  and alliances necessary to adequately serve  multiple accounts across multiple carrier networks  could ever work on a large enough scale to effectively sustain a healthy mobile commerce environment
• Transaction Processors, like First Data and others, may be best  suited to fulfill the TSM role. These companies provide  multiple-account payment processing services  and also perform credit and debit card provisioning. Because of this, they already possess some of the basic qualifications  that a TSM needs, including:
  • Existing, extensive relationships with banks, merchants,  credit card associations,  and stored-value account service  providers
  • A robust infrastructure  for securely  handling large amounts of financial and transactional  data
  • Agnostic service  of various credit and debit  instruments—they come closest to being  able to offer a TSM “free  trade” zone in the mobile commerce economy

But transaction processors, too, need  to forge new relationships, specially with mobile carriers, and to develop expanded relationships with banks if they are to fully service  consumer account management.

So how will all the companies currently vying for a foothold in the mobile commerce environment find enough common ground  to bring mobile commerce to every  consumer’s  pocket? The answer  lies in how the industry decides to deliver mobile account management services.  Let’s see  why.

Building Tomorrow’s Mobile Account  Management
Infrastructure
We began this paper  with the  scenario  of a young  couple  in the  home  improvement  store  reviewing  their accounts and moving funds so they could finance an impulse purchase.

In that example,  they touched multiple accounts from a variety of entities through their mobile handset. Their ability to  do  that  quickly and  spontaneously enabled their purchase. Without  that  capability, there  would have been no bank transactions, the merchant would not have registered a sale, transaction  processors would have no transaction  to process, and carriers would not have passed any transaction  data.

This illustrates how mobile account management enables transactions that trigger  revenue opportunities for all participants in the  mobile commerce environment.  In fact,  the  greater the  volume  of  mobile commerce transactions, the better it is for everyone. So what’s needed to maximize mobile commerce?

There are really only two basic requirements:

• Easy-to-use, feature-rich electronic wallet: This electronic wallet should support  total account management, including merchant  accounts, card association accounts, bank accounts, stored-value accounts and account types that have not yet been invented. It needs to support  various kinds of payments, including point-of-sale transactions, person-to-person transfers and remittances. In addition, the electronic wallet must support  enrollment in marketing programs  so consumers can opt-in for product messaging and promotions of specific interest. It needs to support  other features like geolocation functionality related to commerce (i.e., where  is the best  price nearby  for an item) and text  notifications regarding account balances or unusual account activity. Perhaps most important of all, the interface needs to be fast and easy to use. Every carrier, and possibly each consumer, could have its own customized wallet depending upon its needs;  the TSM will require interoperability with many wallet applications
• Market-Neutral TSM entity: The availability of the electronic wallet features described above will depend on a back-end process that has access to a wide  variety of personal account data  and individual preferences. Right now, there is a natural tendency for different entities like banks, associations,  carriers and even  hardware manufacturers to offer solutions favorable to their own individual market positions. This tendency risks fragmenting the total mobile commerce market and limiting the commerce potential  of any given mobile device; reducing the power of mobile devices as instruments for making purchases consequently reduces their value as vehicles  of distributing targeted marketing—which will, in turn, dampen  the potential  of mobile commerce for everyone: merchants,  carriers, associations  and banks, handset manufacturers, and consumers It’s likely the industry will eventually work toward a market-neutral TSM fulfilled by a selected group of service  providers capable of handling personal account and preference data  according to PCI DSS standards, who have extensive merchant, bank and association relationships who can provide  provisioning services  to mobile devices; and who can manage access to mobile devices. The best  way to maximize mobile commerce to everyone’s benefit will be to provide  all mobile commerce infrastructure  providers with equal opportunity to use the TSM services.  Banks, merchants, associations and carriers would all be able to reach their own customers (and potential  new customers) with innovative product offerings.  Consumers will benefit with products and services  that make purchase decisions easier for them, and a ubiquitous mobile commerce environment will provide larger revenue opportunities for everyone

Conclusion

In many ways,  the  electronic wallet  and mobile banking  applications  appearing today  are  bridge  technologies to  the  true  mobile account management functionality   needed to  support   mobile  commerce.  They  represent  essential steps  toward building an account management infrastructure, and they introduce consumers  to the idea of managing  money with their mobile devices.

Some current electronic wallet applications  support accounts associated with contactless stickers.  A contactless sticker  is a payment form factor  with a Near Field Communications (NFC) chip inside (First Data offers one of the most popular sticker chips, under the  GO-Tag™ solution brand  name). Consumers  use them to make purchases at points-of-sale equipped with contactless readers.  When the customer  taps  their sticker on a reader,  an account associated with the sticker is debited by the amount of the purchase.

Contactless stickers frequently come  in formats suitable  for sticking to the back of  mobile  phones  or other  convenient personal  items.  Phones  equipped  with mobile banking and one or more contactless stickers bring consumers a step  closer to true mobile commerce. Now they  can use their mobile banking  application to transfer  money into an account that  is debited when they make a purchase using the contactless sticker.

Most  of  the   technologies needed  to  support   full  mobile  account  management  and  a  vibrant  mobile commerce environment  exist  today.  The greatest obstacles to putting  a mobile commerce-enabled device in every  consumer’s  pocket are the still-emerging business models between mobile commerce infrastructure providers.  Partnerships,  alliances  and  acquisitions  happening right  now  will define  the  next  generation of mobile commerce solutions.

Although  many players  will be  tempted to carve  out exclusive  solutions for specific market segments, and perhaps  some will try to dominate  the mobile commerce environment with their proprietary  solutions, these efforts  will more  likely fragment  the  market  and  reduce  the  revenue  potential  for mobile  commerce.  Our industry stands to gain the most by working toward infrastructure solutions that support the broadest possible purchasing  power within each  mobile device.

I’m always  interested in your thoughts on this or any other  mobile commerce topic.  So please, contact me or any member  of my team. We not only want  to help, we  want  to listen. I can be  reached directly  at: barry. mccarthy@firstdata.com.

For more information, check  out the full mobile commerce white paper  series at www.FirstData.com:

• The Risks and Opportunities in a Mobile Commerce Economy
• Mobile Payment: The Linchpin of the Mobile Commerce Economy
• Going Direct with Mobile Marketing

About The Author

Barry McCarthy was appointed to lead the newly formed Mobile Commerce Solutions business unit of First Data in January 2008. He has responsibility for commercializing all First Data assets  globally for use in mobile commerce. In this role, McCarthy  and his team  work closely  with a variety of industry partners, from the largest wireless carriers to young  start-ups, financial institutions, technology providers and terminal manufacturers.

Previously, McCarthy led Global Product and Business Development for  First Data  and  before that,  product development for the Commercial Services  business unit. Prior to joining First Data, McCarthy was Vice President and  General  Manager  of  VeriSign’s  Internet  Payments
& Risk Management business  unit, a NASDAQ 100 technology company.
Before  VeriSign, McCarthy co-founded and later sold MagnaCash, a Silicon Valley micro-payments company that is currently owned by Digital River (NASDAQ: DRV). Previously serving  Wells Fargo (NYSE: WFC) as Vice President  and  General  Manager  of  the  ATM business, McCarthy had P&L responsibility for $110 billion in annual transaction   volume  and  14  million active  ATM cards. McCarthy   started  his  career   at  Procter   and  Gamble (NYSE: PG), where he spent 12 years in roles of increasing responsibility,  first in sales  and sales  management and later  in customer   marketing  and  brand  management. He earned   a  Masters  in Business  Administration  from the Kellogg School of Management at Northwestern University and completed his undergraduate studies  at the University of Illinois, Urbana.