| At the forefront of these initiatives is the use of | | | | network operators, it may be short lived. A revolution is |
| chip-enabled cards with, in particular, the adoption of | | | | already underway, and the network operators are at |
| the EMV standard promoted by Europay, MasterCard, | | | | risk of losing their de-facto monopoly of the mobile |
| and Visa. But EMV has made little progress since its | | | | phone market. The consumer devices are becoming |
| announcement in 1996. Chip-based systems have | | | | smarter and their operational capabilities growing |
| proven expensive to deploy and their actual | | | | beyond the control of the wireless carriers. |
| effectiveness seriously criticized. | | | | Leading this phenomenon is the Java enabled phone, |
| According to APACS, the U.K card association, the | | | | which allows independent solution providers to develop |
| conversion to chip-enabled cards will cost over $1.6 | | | | and deploy their own mobile applications. In the year |
| billion for the U.K alone. And the problem is even | | | | 2001, mobile manufacturers have shipped over 10 |
| worse when it comes to adopting chip-based solutions | | | | million Java phones, principally to the Japanese market. |
| for securing online transactions. Every major online pilot | | | | Nokia alone predicts world-wide shipments over 50 |
| involving chip-enabled cards has failed, unable to | | | | million units for 2002, and nearly 100 million units for |
| absorb the cost to deploy and support the necessary | | | | 2003. According to the ARC Group, there will be over |
| consumer infrastructures. | | | | 1.1 billion Java phones worldwide by year-end 2006. At |
| Chip-based systems do not provide a panacea | | | | this time, there will be as many consumers carrying a |
| against card fraud either. Despite ten years of | | | | Java phone as there will be distinct cardholders. |
| consumers entering a PIN at the point of sale, France | | | | But Mobile Java is only an application platform and, by |
| reported card fraud doubled in the year 2000, blaming | | | | itself, would have a limited impact on the mobile phone |
| the cloning of the so-called smart cards for the $1.5 | | | | market. Its present capabilities actually fall short in |
| billion in fraudulent cash withdrawals. Realizing the | | | | comparison to other mobile development platforms |
| difficulties in rolling out chip-based solutions in the home | | | | such as Symbian OS, Brew, Palm OS, or Windows |
| market, the card associations have recently proposed | | | | CE. |
| new alternatives to securing online transactions. | | | | BlueTooth is the technology that will transform the |
| Known as SPA-UCAF at MasterCard and 3D-Secure | | | | entire mobile phone market. When equipped with a |
| at Visa, these solutions have definitively drawn on the | | | | BlueTooth transceiver, mobile phones are capable of |
| lessons learned from the failure of SET, even though | | | | interacting with neighboring devices independently of |
| they still appear far more complicated than necessary. | | | | the cellular networks. Wireless interactions take place |
| Unfortunately, SPA and 3D-secure are incompatible. | | | | free of any line-of-sight or close proximity constraint. |
| This only adds to the burden of merchants, issuers, | | | | Instructions can be communicated directly from the |
| and cardholders who are already required to adopt | | | | mobile phone to any radio-enabled point of service |
| multiple solutions to solve these problems. Moreover, | | | | over a local communication link. |
| recent experiments have shown that these solutions | | | | Already several mobile payment initiatives have |
| have been narrowly designed for the Internet market, | | | | experimented BlueTooth-enabled mobile phones for |
| and neither one seems to offer a practical alternative | | | | transactions conducted at a point of sale. These pilots |
| to securing the growing number of mobile transactions. | | | | have however met a limited success with the |
| And it may get worse as the industry waits for | | | | consumers, having failed to find a practical solution to |
| American Express, Discover, and JCB to introduce | | | | enable transient associations between a mobile phone |
| their respective solutions. | | | | and the point of sales terminal. In one these pilots, |
| While the card industry struggles to devise practical | | | | Europay and Ericsson required consumers to swap |
| solutions and dedicate its resources to demonstrate | | | | the batteries of their mobile phones before making a |
| the benefits of a large-scale roll-out of chip-enabled | | | | payment. |
| systems, wireless carriers have come to realize the | | | | Still, practical solutions are coming to light. Unlike |
| potential of mobile phones as trusted user agents in | | | | chip-enabled card systems, mobile payment solutions |
| the origination of payment instructions. | | | | significantly reduce the overall cost of the |
| Leveraging the messaging and identification capabilities | | | | infrastructure necessary for acceptance of card |
| of millions of cellular phones, wireless carriers have | | | | transactions. The point of sale terminals can be |
| found ways to enable and secure proximity payments, | | | | stripped of their secure PIN-PAD and other |
| positioning themselves as the trusted intermediaries | | | | cryptographic capacities necessary today to establish |
| through which secure payment transactions will | | | | trust between the consumer device and the terminal. |
| happen. Mobipay in Spain, Paybox in Germany, and | | | | These solutions also save financial institutions the cost |
| Orange in Denmark have already enrolled several | | | | of providing their cardholders with a smart card. Mobile |
| thousand of merchants and consumers, collecting fees | | | | payment solutions use virtual smart cards that can be |
| on every payment transactions whether they originate | | | | downloaded over the Internet, and the cryptographic |
| over the Internet or at a point of sale. | | | | capacity is already built into the mobile phones. |
| Although the opportunity seems tremendous for the | | | | |