Mobile carriers would seem a natural fit for mobile payments in face-to-face sales, but the phone companies may be better suited for a long-distance relationship with retailers.
Carriers' longstanding function as billers of third-party content, a role that pre-dates the app store economy, can expand to new use cases that go beyond paying for downloadable media.
"If you are not directly paying at a cashier or at a ticket agent, and are making your purchase on a phone, why not use carrier billing? It's subject to more of a remote payment flow," said Adam Lee, chief product officer at Boku, a San Francisco-based mobile billing company.
Though carrier billing has long been successful for the sale of ringtones and other phone-related content, it has not caught on in the U.S. with brick and mortar retailers. Carriers' biggest successes in mobile payments have been for very specific use cases, such as M-Pesa in Kenya. By contrast, in-person mobile wallet ventures such as Softcard in the U.S. and Weve in the U.K. struggled to gain a footing.
The growing popularity of ride-sharing apps such as Uber, which made consumers more accustomed to ordering and paying via a mobile device, creates a fresh opportunity for carriers to play a role in handling payments, Lee said.
"Carrier billing is designed to support remote payments as opposed to proximity payments," Lee said. "As more of what had been traditional payments get set up for remote payments, people will get used to paying with their phones."
Boku this month deployed carrier billing at Ueshima Coffee, Japan's largest coffee chain. The launch covers more than 450 locations, with plans to expand into new markets in the coming months. KDDI and Docomo, two Japanese carriers covering more than 100 million subscribers, are the partners on the Ueshima launch.
The coffee deployment is not mobile payments in the strictest sense—the mobile carrier relationship funds a store branded mobile or physical card account. But Lee said the coffee deployment is a gateway to "over the air fulfillment" for mobile carrier billing combined with mobile payment execution at brick and mortar stores, parking lots and other venues that traditionally require a physical card payment.
"We have already seen instances where mobile carrier billing is used for 'on demand' services such as ticketing," Lee said. "I could see it for ordering, paying and delivering from a store, for example."
Carrier billing can also get a boost from order-ahead apps, Lee said, adding the cost of processing carrier billing transactions has come down, and is comparable to credit card payments.
Starbucks has reported early success of its own mobile ordering app, and has outlined plans to expand the throughout the U.S. by the holiday season, and to bring it outside the U.S. as well.
Some mobile payment companies are already using a carrier billing option. SCVNGR's LevelUp, a software-based mobile payment system, recently added Danal's carrier billing service as a funding method.
Carriers will be challenged to take advantage of the rise of on demand payments, said Tim Sloane, vice president of payments innovation at Mercator Advisory Group, who notes his company's research indicates growth for on demand payments.
"The convenience and value-added features this approach implements can be compelling and will continue to drive innovation," Sloane said.
This model has been mostly achieved using the consumer's existing card relationships, or card-on-file, Sloane said. While other business categories would prefer another mode — payment networks would prefer in-app tokens, for example, Sloane said — it will be a hard sell to get businesses to change.
"I doubt many businesses will adopt this migration to tokens or migrate to carrier billing, unless the payments value chain complements something more compelling than the current card-on-file model," Sloane said, adding that could include lower payment costs or tighter integration with feature functions on the handset or operating system.
"This is a large opportunity but I don't see any clear enhanced benefit that would drive adoption of carrier billing and carrier billing must overcome what our surveys identity as strong consumer distrust of mobile carriers," Sloane said.