M-payment: a Threat to Anti-money Laundering
forms but are commonly point of sale payments made through a mobile device such as a cellular phone, a smart phone, or a personal digital assistant (PDA).”
-INCSR, March, 2008
The Virtual Wallet
M-payment (mobile payment) is synonymous with the terms m-commerce, m-accounts, m-wallet, m-banking, e-money, or digital cash. For the sake of this article, the more widely accepted term “m-payment” will be used. The best way to envision this relatively exciting technology is to imagine a time in which your mobile phone or PDA will act like a wallet. Furthermore, it will be a wallet that not only allows you to withdraw money from it to pay for goods and services, but also enables you to deposit money into it—thus making this monetary device even more flexible and useful than a credit card. The widespread adoption of m-payment could eliminate the need to carry cash, visit an ATM machine, send wire transfers, or even use a credit card.
Currently there are two platforms that facilitate the use of m-payment. The first enables your mobile phone to link to m-accounts, such as your bank account, credit card, internet payment service, or other financial institution. The second makes it possible for mobile phone companies to act as banks and allows customers to deposit and withdraw funds using their mobile accounts. Although this service is not yet available in the United States, m-payment has already enjoyed acceptance and success in countries such as Japan, Korea, and the Philippines. M-payment technology is also beginning to thrive in South Africa, the Democratic Republic of the Congo, and Kenya.
At present no special hardware is required to utilize m-payment. A subscriber can surf the Web for an internet-based m-payment service and then download the necessary software onto almost any existing mobile phone. M-payment software uses existing text-messaging technology to send and receive funds, confirm payments and credits, and check balances.
The Virtual ATM
Imagine going to a McDonalds (or nearly any retailer) to buy lunch and then asking the cashier for an extra (or more) in cash. For a small fee, the McDonalds cashier will not only charge a customer’s m-account for the hamburger, soda, and fries, but will also ring up the in cash that he or she requested. Similar to debit cards, there is no need to locate an ATM Machine or pay high banking fees.
Person to Person (PTP) Transfers
Person to person (PTP) transfers are also possible. For example, friends, family, and private parties involved in business transactions can transfer funds to each other via their mobile phones. A mother can send her teenage daughter’s allowance via text message. Employers can text message wages to their employees’ mobile phones. After winning an auction on EBay, a buyer can text the payment to the seller. Or, an individual wanders into a garage sale only to find that beautiful antique he has been seeking, but he has no cash. Moreover, the seller does not accept credit cards. The solution is simple: the buyer text messages the payment directly to the seller’s mobile phone. The possibilities are endless.
Wire Transfers via Mobile Phone
The World Bank estimates that global remittances (i.e. international wire transfers) exceed one quarter of a trillion dollars annually. Increasingly, in many areas, m-payments provide a new option to expatriates and “guest workers” that wish to send part of their wages home to support their families.
In the United States, many migrant workers from Mexico and Central and South America use wire transfer services such as Western Union and Money Gram to send money to their relatives abroad. In 2005 alone, funds transferred to Mexico from the United States totaled more than billion. Unfortunately these wire services come with high fees, and some of the recipient banks also charge fees for the transaction as well. Furthermore, in rural areas abroad many people do not have access to banks. With m-payment technology, a migrant worker can literally text message the payment to his relative’s mobile phone, thus circumventing the exorbitant fees charged by wire transfer services and receiving banks.
Virtual Traveler’s Check
Another amazing feature of m-payment technology is that it allows a mobile phone to act as a virtual traveler’s check. Before leaving on a family vacation, a subscriber can deposit money into his mobile phone’s m-payment account then withdraw the funds as needed during the trip. Consumers will no longer need to purchase travelers checks or travel with significant amounts of cash.
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