On my desk sits one of the first contactless credit cards. It dates back to 1926 when it worked in exactly the same way as its modern NFC successor - you present
it to buy goods or services. If they had mobile phones back in 1926, with a piece of Scotch tape that card could have been turned into the equivalent of Barclays
PayTag and used for "mobile payments".
The term "mobile payment" is often greatly misunderstood. Investopedia offers the following definition of "mobile payments": Money rendered for a product or service through a portable electronic device such as a cell phone, smartphone or PDA. Mobile
payment technology can also be used to send money to friends or family members.
That definition is wrong on two counts. When it comes to mobile payments, there is no money involved. Money is a "medium that can be exchanged for goods and services". Money started to disappear in the early 1920s when some stores and petrol stations
in the USA introduced credit/charge cards which required no physical exchange of any "medium". One simply had to demonstrate ownership of money without showing the money itself. That simple concept is the cornerstone of modern payment systems, and anyone
involved in mobile payments needs to grasp it.
With non-cash payments, money means data. When you have £1,000 sitting in your bank account, those £1,000 are nothing more than a record in bank's database. Thus, when you pay someone £100 that simply means that your and payee's data records are amended
accordingly. Hence, you can only "send money" if you stuff some banknotes into an envelope and mail it to the payee. You cannot "send money" using a mobile phone.
The importance of the above was explained well by Dave Birch of Consult Hyperion: since mobile payments are not based on any physical
exchange of money, and since money is data, mobile payments are all about your entitlement to permit for that data to be used/modified. That means mobile payments are about secure ID, i.e. who you are and what you are entitled to.
M-Pesa is known as an "SMS-based payment system". Payment means "transfer of value". The payment part of M-Pesa has nothing to do with SMS: text messaging is only used to communicate payment confirmation - pigeon
post could have been used instead for that purpose, if one was not in a hurry. M-PESA is based on Safaricom's ability to authenticate the payer and the payee using a "secure element" (i.e. phone's SIM card). M-PESA is about secure ID, not about SMS.
The same logic applies to all mobile payments: mobile phone is used to (a) authenticate the user and (b) to send payment instructions and confirmations. The first step can only be performed using a "secure element". The latter step can be performed via a
number of interfaces: SMS, NFC, Bluetooth, barcodes, Bump, ultrasound, etc.
Money = Data. Mobile Payments = Secure ID. The big winners in mobile payments will be those companies that understand that well (and those who control "secure element" because Secure Element = Secure ID).