Who will cash in on the mobile money opportunity?

There's been an impressive amount of action recently on the mobile money front, but instead of making the market's opportunities more clear, I think it has only further complicated an already incredibly complex space.

So where to start? First, the big news: Nokia last week announced its Nokia Money effort, which relies on SMS payment technology from Obopay (Nokia invested something close to $70 million in the company in March) and is aimed at developing markets that don't have widespread banking systems.

But that's not all! Japanese giant DoCoMo also announced last week that it now counts fully 10 million subscribers to its mobile wallet service, which allows users to swipe their phones across a scanner to pay for stuff (using the magic of contactless-payment technology). And finally, mobile payment startup Boku today announced a range of new customers for its SMS-based payment service that allows Internet surfers to make payments via their phones. Ron Hirson, senior vice president of Boku's product and marketing efforts, said that the company's technology allows, for example, the players of Facebook's Mob Wars game to buy digital goodies for their virtual characters using their phone rather than a credit card.

Now I have to admit I've never played Mob Wars and can't imagine using real money to buy fake stuff for an imaginary character, but I can see the massive opportunity that mobile money represents. After all, I would much rather enter my phone number to conduct transactions on eBay or Amazon.com rather than my credit card number, my name, my address, my email address and that "security number" on the back of my credit card. Indeed, the interactive nature of wireless communications presents a built-in confirmation and security mechanism--any potential transaction (either in the real or virtual world) could be confirmed with a simple SMS message: "Do you really want to buy this? Reply ‘yes' or ‘no'."

But of course nothing is that simple. The primary concern, as always, is which player in the value chain controls the customer--and which gets the most revenue. Under Boku's scenario, the operator gets a smashingly good deal--a deal so good that it might squelch the whole shebang. Boku's technology relies on premium SMS messages, so that when you reply "yes" to the purchase question, the cost of the item is moved onto your monthly wireless bill. However, the "premium" part of premium SMS means that the wireless operator typically takes 30 percent to 50 percent of the resulting revenues. Thus, retailers that want to support "pay by phone" services alongside credit card services can either eat those operator charges themselves or, in a much more likely scenario, they can pass the extra charges onto the consumer. So now I'm paying $1.50 because I used my phone to conduct the transaction, whereas I could've paid $1 if I had used my credit card.

Naturally, operators would argue that they're taking on the extra risk of billing me for the item, and therefore they should get paid for their efforts. But that attitude may well knock them out of the mobile money market altogether.

"There's a distinct possibility of that," noted Ed Kountz, an analyst with Forrester Research. Kountz said he's seen no inclination among operators to loosen their stance on these premium SMS charges.

And if they don't, I suspect others will step into that gap. For example, one of my favorite burrito places, Chipotle, recently introduced an iPhone app that allows users to dial in their orders, pay and then drop by a store to pick up their food. In the current version of the app, users must enter their credit card information to complete an order. But what if they could simply push that charge through to their iTunes account? Or, in a similar scenario, what if Android users could use Google Checkout to make payments in both the real and virtual world? The same goes for Research In Motion's BlackBerry App World payment functions.

Indeed, I don't think it's much of a stretch to imagine Apple installing Near Field Communications onto the iPhone, thereby allowing users to swipe their phones to pay for taxis, fast food and other physical items via their device. It would require retailers to install NFC point-of-sale terminals, but that's already happening. (I've seen them at my local 7-11.)

Of course, a play at the mobile money market is a big risk, considering contestants would have to deal with the regulatory and business dangers involved in dealing with people's hard-earned cash. But Nokia and DoCoMo have already put their toes into the water. So perhaps the real questions are: Who will be next? And who will succeed? --Mike