Telefónica introduces phone-to-phone payments in Germany

Smartphone users can transfer money using only a phone number, Telefónica said

German smartphone users will be able to make smartphone-to-smartphone payments using only an account and a phone number from mid-February, Telefónica Germany announced.

When Telefónica introduces the phone-to-phone payments, it will allow money to be transferred between smartphones with the "mpass" app that is available for iOS and Android phones. Users will be able to send money to other smartphone users by only selecting their phone number, Telefónica spokesman Ralf Opalka said in an email.

Mpass is a digital payments service that enables users to avoid revealing sensitive banking data when making a payment. Instead, the amount paid is charged to their mobile phone bill or deducted from prepaid credit loaded on the phone.

"The service can be used by every person who has registered for the service and who has a German mobile number, Opalka wrote. Users will not have to be customers of Telefónica's German network, O2, he said.

To send money with mpass, the user logs in to the service, enters the recipient's phone number, the amount to send and a message explaining the nature of the transaction before completing the payment. The service is free of charge, Telefónica said.

Mpass, a joint mobile payment service from O2, Vodafone and Deutsche Telekom, has been used to make online payments in Germany for a while. Last September, Telefónica introduced mpass for retail payments. This introduction allowed Germans to use phones equipped with NFC (near field communication) or an NFC-sticker to make contactless payments at shops connected to MasterCard's contactless payment card network PayPass. Telefónica uses that network as a payments standard.

NFC technology is not necessary to make smartphone-to-smartphone payments, Opalka said.

"Mpass payments in shops are possible worldwide because we are using the PayPass acceptance network;" Opalka said, adding that there are about 100,000 shops connected in Europe and around 500,000 worldwide.

PayPass is extending its territory in Europe. Last October, two major Dutch banks announced that they will introduce MasterCard PayPass contactless payment cards to their customers by mid-2013. When introduced, the vast majority of Dutch citizens will have access to contactless payments with their debit cards.

Phone-to-phone payments have been very successful in emerging markets like Africa because of the lack of a strong banking infrastructure there, said Digantam Gurung, analyst at CCS Insight. In those countries most phone-to-phone payments are made using SMS or USSD (Unstructured Supplementary Service Data) messages, a protocol that allows two-way exchange of data, Gurung said.

"Services like mpass are gaining some prominence in the European market in the last years," Gurung said. Telefónica introduced the O2 wallet in the U.K. in 2012, a service that allows users to make contactless payments using NFC enabled smartphones in shops. O2 wallet will also be tested in Germany at the same time as mpass hits the market.

This will be a 'friendly user test' though, allowing customers to volunteer to test the service. "The wallet starts with mpass included. In the future the wallet will include further products and services such as credit cards, loyalty programmes and so on," Opalka said.

Similar services are also offered in the U.K. by Barclays. The bank introduced Barclays Pingit in 2012, a service that offers an app for iOS, Android and BlackBerry to make phone-to-phone payments using only a phone number. Another similar mobile payments service is offered in the U.K. by PayPal, that allows users to send money to others using an email address or phone number, Gurung said.

Mobile payment services could eventually generate extra revenue for operators, said Gurung. "Operators realize they need to expand beyond the traditional text and voice business model," he said.

But for now, their mobile payment services are mainly an opportunity to expand their brands and increase customer loyalty, he said. Because the mobile payments market is very young, and operators in contrast to traditional credit card companies often don't charge per transaction, Gurung doesn't expect the mobile payments industry to be a huge revenue driver for operators any time soon.

Loek is Amsterdam Correspondent and covers online privacy, intellectual property, open-source and online payment issues for the IDG News Service. Follow him on Twitter at @loekessers or email tips and comments to loek_essers@idg.com

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