The Boston-based company urges financial institutions to make inroads into "m-payments" now if they want to reap significant rewards in the years to come.

Mobile payments, which TowerGroup defines as a subset of mobile or m-commerce, are payments conducted via an end-user's mobile telecommunications network. A mobile payment may be charged to a user's debit/credit card, drafted from a user's bank account, charged directly to a user's telephone bill or deducted from a pre-stored value on a user's mobile device.

The study, "Global Trends on the Moblile Payments Horizon: Cash, Check or Cell?", reports progress to date in the development of mobile transaction capabilities such as payments has been sluggish, encumbered by such issues as security, connectivity and device limitations. These limitations have been more pronounced in the United States, where mobile infrastructure and consumer device adoption still significantly lag Europe and Asia.

Over the next 18 months these obstacles will begin to be relegated to a backseat position, says TowerGroup. This will generate an opportunity for financial services institutions to leverage their strong consumer relationships and satisfy a growing demand for innovative payments-related mobile services.

By 2005, TowerGroup expects the number of mobile payments users in Europe and Asia to rise to 26.2 million and 28.8 million respectively.

The U.S. will not boast comparable levels, with mobile payments still seriously hampered by the market effects of standards and network fragmentation. There were only 38,000 US users of mobile payment services in 2000 - mainly early adopters in beta test groups. TowerGroup expects that by 2005 the number of U.S. mobile payments users to rise to 3.5 million. The challenge for U.S. banks will be to position themselves to participate in wireless payments without making irrevocable commitments in a market that is still in very early stages - and therefore unpredictable.

"Unquestionably, mobile payments will soon form an important hub in the bank-to-consumer relationship," says Frank Caruana, leader of TowerGroup's mobile financial strategies and e-banking research and advisory services. "Financial services institutions that are not prepared for the emerging wave of demand will forfeit their role in a burgeoning market that represents not just another channel, but a cultural shift specific to one of history's most common human interactions-paying for goods and services," he says.