Banking: The Next Microsoft Frontier

European Wireless Editor Guy Kewney sees Microsoft's plans to manage mobile phone micropayments as a trojan horse. Citibank beware!

Its been assumed that Microsofts devotion to "wireless industry standards" makes its White Paper on Mobile Web Services a good thing. Ill bet the Trojans felt the same warm, comfortable glow about the Greeks and their Trojan Standard horse.

Its far, far too early to speculate on all the places where Microsoft is going with its obsession on intellectual property protection, or what it honestly expects "location based" services to comprise over the next decade - but the two subjects come together neatly in the Vodafone/Microsoft white paper - as a currency replacement idea.

Ive long held the view that Microsofts strategy will always be what it has been - to find a business that is 30% bigger than Microsoft currently is, and move into that business. It was, I think, about 40% smaller than Oracle when it moved into the database business, for example. When it first got into MS-Dos, it was about 30% smaller than Digital Research. And in the last few years, it has been rather hard for Microsoft to find a nice, successful, growing market that is actually big enough to incent this predator to attack.

I think the next target would be a medium sized banking business, or credit card operation. And there simply isnt a better bet for getting a share of that than converting the phone SIM (subscriber identity module) into a universal customer directory service and payment device.

Vodafone was one of the first phone companies to realize that the salami principle could make them an awful lot of money – that is if they took a slice of every mobile transaction authorized through the personal SIM chip inside every GSM phone.

The business of being a Payment Solution Provider (PSP) is currently a hobby-horse of people selling ring-tones to teenager phone users. They work on commission rates, asking between 14% and 40% of the sale price. Its a small market, and people cant make it work any other way. That

s because no nickel-and-dime customer is going to consider subscribing to any one PSP for a fee that would make it profitable. Nor can the typical retailer cope with that sort of margin.

Vodafone pioneered a scheme called m-pay, which was supposed to replace cash. You could in theory spend trivially small amounts by giving the trader your m-pay details. Theyd register the sale, which would send a text message to your phone. Youd reply by authorizing the payment. No reason this wouldnt work, except that Vodafone was the only phone provider that supported m-pay, and it simply wasnt worth the effort for most retailers (or Web traders) to install the system.

Other efforts were made to make this more universal: and the Mobile Payments Services Association and the Mobey Forum

were two of the attempts to get a system going with more momentum and weight. You might also look at Bangos bright idea - not yet shown to be unworkable, but not yet looking global, either. And there are dozens of other hopeful PSP startups, too.

The problem with all these systems is simple; not enough subscribers for critical mass -- even after Orange, Telefonica Moviles, T-Mobile and Vodafone announced Simpay in June. The problem isnt solely that these phone companies dont control the bulk of the worlds phone users. A bigger snag is the fact that these people all have other ways of verifying their credit, which are easier and more accepted.

And theres no quick prospect of that changing, because the current mobile platform is too cumbersome, too slow and too unreliable. GPRS may be a prototyping tool for the future of mobile data, but its never going to be the basis of any business-grade solution on a global scale.

Microsoft and Vodafone are being "standards compliant" because they need to carry the rest of the mobile world with them. But the plan isnt to give this all away for no return.

In the end Microsoft will attempt to manage the identity security of all mobile payments. Its .NET Compact Framework and its growing digital rights and information rights platforms will put it in a position to take a small slice of every transaction that is based on the Subscriber Identity Module.

Its ironic, really - because the Microsoft Windows Mobile 2003 smartphone - at this moment - happens to be the only GSM phone in the world which cant write data to the SIM. It wasnt seen as important to the corporations phone plans a year ago. Now, theyve seen the light.

Theyre going to be a bank. A location-based service bank. And the location will be everywhere.