Pay-as-you-go phones

Mobile phones are fast becoming the payment tool of choice.

A mobile phone is used to make a payment.

For Tarek Daouk, cash is not always king. Nor are traditional credit cards, or even a handful of coins.

Instead, the executive vice-president of Starcom Mediavest often turns to his mobile phone as a convenient way to pay for his parking in Dubai.

After a quick SMS message, the money is transferred - all from the palm of Mr Daouk's hand and usually from the comfort of the air-conditioned indoors.

"How many times have you found yourself in Deira and you don't have any coins with you? Or you are in a meeting on the 25th floor of a big building and the [parking meter] time has run out." Mobile payment is very convenient, especially in the summer, he says.

Many UAE residents will soon be able to avoid fumbling for cash or coins. They will be able to pay for their morning coffee or send money to a loved one abroad with the ubiquitous communications device. Some residents have already started using other cash alternatives, such as Visa's contactless cards with the payWave technology, which allows consumers to pay for small-ticket items simply by placing a special card near a payment terminal.

Lindsey McDonald, a consultant who specialises in information and communications technologies at Frost & Sullivan, says the move to paperless payments is a "natural evolution" as technology moves from the physical to the virtual.

"For things such as parking, [the mobile] is just another channel of payment. It's a natural evolution," she says. "We've gone from reading our newspapers on the internet and on our phones. And payments are following the same trend. It's mainly because the mobile phone is so ubiquitous. Every single person has a mobile phone. And if you can facilitate payment through a mobile phone rather than through an ATM or online, then it makes sense."

Mobile phone makers and telecoms operators are jumping on board the new technology.

Etisalat is on the verge of introducing a mobile-payment system at more than 200 outlets across the UAE, which will enable customers to pay for their purchases by placing their mobile phone near a payment terminal.

A new Samsung smartphone, which uses contactless Near Field Communications (NFC) technology, will be sold through Etisalat as early as next week, says Rashed al Abbar, the director of mobile commerce services for Etisalat.

NFC smartphones were also showcased by du at the annual GITEX technology expo in Dubai this month. It's the same technology used by Visa, but it is embedded in a card rather than a communications device. When a phone or device with NFC technology are within four centimetres of a payment terminal, short packets of data are transferred and the payment is processed.

With all the capabilities already available on mobile phones, Mr al Abbar says adding financial services is the next logical step.

Etisalat now offers mParking and mobile payments of phone and internet bills, as well as payments for selected government entities, such as Dubai Police and Salik road tolls. It is also developing a mobile remittance system, which will allow people to send money overseas by using their phones, he says.

"I think more and more we are relying on our mobiles for different services," Mr al Abbar says. "First it was voice[mail], SMS; now e-mail and internet browsing are on your mobile. More services are coming on the mobile because of the convenience and usability. So, financial services overall are also moving to the mobile."

Etisalat planned to launch its mobile payment system for small-ticket items at quick-service retailers, such as Carrefour and Costa Coffee, last week, but it was delayed because of technical difficulties. Mr al Abbar expects to launch the technology in the next two weeks.

Etisalat has also launched a mobile banking browsing service with banks such as Emirates NBD. By dialling *15#, people can check their bank balances and other services at their convenience.

Analysts believe the mobile payment system is a new segment of the market that has massive potential.

Juniper Research, based in the UK, forecasts that the total mobile payment market will be worth some US$630 billion (Dh2.3 trillion) globally by 2014 in terms of gross transaction values.

But how likely is it that people in the Emirates will use the technology? Credit-card penetration is relatively low here and debit cards are just starting to take hold. And many consumers are wary of using their credit cards online because of security concerns.

However, the initial figures are encouraging, says Mr al Abbar. Since mobile parking payments were launched last year, the number of transactions has grown to 10,000 per day. This, Mr al Abbar says, represents 15 per cent of all parking payments received each day.

"I think there are special segments of our consumers who will really be the fast adopters, probably the younger generation and the fast-paced professionals. Those who have a very short break, they want to make a payment but don't want to carry cash. This would be quite attractive for this segment. But there will still be some other segments that will take more time to adopt."

The idea of a cashless transaction has been around for a long time, particularly in Asian countries such as South Korea and Japan, says Ms McDonald. It was introduced about a decade ago, initially as an easy payment method for public transport. About five years later, this was slowly applied to restaurants and other retail shops.

In recent years, the technology has started to roll out to the rest of the world, including North America, the UK and the Middle East.

The contactless cards are also relatively new to the market. Visa introduced them to the UAE in April last year with the National Bank of Abu Dhabi. Now, there are more than 100 merchants who use the "pay and wave" system in the UAE, says Shankar Ram, Visa's head of products in the Middle East, North Africa and Pakistan.

The technology is aimed at making it easier for people to go through queues and it allows merchants, particularly quick-service operations such as Burger King or McDonalds, to process payments quicker, he says.

"You get into a much more convenient way of paying," Mr Ram says. "One of the objectives is to [avoid] the hassles of change. From a merchant-partner perspective, they don't have to deal with the currency ... and people aren't limited to what's in their wallet."

Mr Ram estimates that between 5,000 and 10,000 consumers are using the technology in the UAE. Visa is also testing out mobile phone payments in the region, including Kuwait and the UAE.

Mr Ram says more and more people will transition to the new payment methods, but not right away.

"I think it will happen over time. There is always resistance to change. People are very comfortable with the way they pay today. It has to happen over time and has to happen with the support of the banks."

Mr Daouk says he is willing to trade in his cards and cash for his mobile phone.

"I would probably use it and see how it goes. But the only big barrier is if there are any hidden costs that you are not aware of," he says.

When Mr Daouk pays for parking, he says, there is an additional cost paid to the operator, which he didn't discover until after he'd received his mobile bill.

"In this case, it's fine with me because of the ease of paying through the mobile, compared with having to leave a meeting. But when you buy small items, it's going to be tricky."

Mr al Abbar says the charges would be about 30 fils for each parking SMS, while remitting money would cost the same amount as any exchange house.

The fees for mobile payments are yet to be finalised, he said, but Etisalat is not expecting to charge fees for the transactions. The cost incurred would relate to the credit card stored on the mobile, he says.

Still, cash continues to be the payment method of choice for the bulk of UAE shoppers, says Mr al Abbar.

Based on market research by Etisalat, only 27 per cent of transactions are conducted with credit cards, he says. But he believes there is opportunity for growth.

Ms McDonald says UAE consumers will not trade in their wallets anytime soon. "At the end of the day, cash will remain king, certainly in the UAE," she says. "And I don't see that changing until we get to the point where there is no cost, or very little cost."