Mobile phone becomes credit card

Docomo launched a prepaid electronic money service last year using the Osaifu-Keitai mobile phone, which came equipped with virtual wallet functions. Since then, Docomo has offered 12 models of the wallet phones and has signed up about 7 million subscribers for the service. But, although the wallet phone expanded the role of mobile phones into everyday life, the revenue the company derived from this service was not significant.

Now Docomo has moved one step ahead in the cashless payment business to become a credit card issuer that will add the credit card charges paid by card member stores to its revenue.

The company considers the launch of its credit card business a turning point in its effort to move away from a business model that depends on communications traffic charges.

Docomo will launch the credit card brand, called iD, on Dec. 1. At that time, Docomo's mobile phone users will be able to make credit card payments using the Osaifu-Keitai mobile phone.

Docomo expects the number of users for its wallet phone handset will grow to 10 million by the end of the company's fiscal year in March 2006.

In preparation for its entry into the credit card business, Docomo partnered with Sumitomo Mitsui Card Co. Ltd. in April, acquiring 34 percent of its common shares. Sumitomo is the second-largest credit card company in Japan.

Sumitomo will be the first credit card company to issue the iD card, making it an addition to its regular plastic card. Docomo will issue the iD card by itself by next September.

"Credit card payments accounted for only about 9 percent of total payments for shopping in Japan in a 2003 survey, which is less compared to other countries," said Manabu Moriya, director of credit service and credit brand at Docomo. For example, in the same survey, credit card payments in the United States accounted for 24 percent of the total. "If Japanese consumers used credit cards more often, like in the United States, credit card payments would increase by about 50 trillion yen [nearly $423 billion]. Assuming that the charge for the credit card service is about 2 percent, that's a charge market of about 1 trillion yen [more than $8 billion]," he argued. Docomo is aiming to increase its share to about 10 percent in the future.

Docomo intends to open the iD platform to such international credit card companies as Visa and MasterCard. For holders of those existing brands, the iD card will function as an additional card that's linked to the user's credit card. Credit card owners, including those holding Docomo's iD card, will be able to make payments via a Docomo wallet phone that's linked to their card, or they will be able to pay with their conventional credit card.

To sign up for the card, consumers will send an application for iD service to their credit card company. Once the application is accepted, users will download an "i-appli" application into their handset.

The payment procedure will be simple: Users will wave the phones in front of dedicated reader/writers at stores. No signature will be required for purchases under a certain amount — in most cases, 10,000 yen (or about $85). If purchases exceed this amount, the user will be required to enter a four-digit pin number via a device linked to the reader/writer.

Competing offers
Aiming to make its credit card platform a de facto standard, Docomo is opening the technology to rival companies. "We want to offer the iD card platform as an open platform to expand the service, and we are talking to existing credit card issuers," said Moriya. Docomo intends to open the platform even to competing carriers such as KDDI Corp. and Vodafone. But other companies that are offering or that plan to offer cashless payment services by mobile phones may have a different idea.

JCB Co. Ltd, the largest credit card issuer in Japan, launched a service named the Quick Pay on Docomo's wallet phones using its proprietary application program last August. And companies including JCB, KDDI and Vodafone formed an initiative last month to establish a standard for credit card payment on mobile phones based on JCB's Quick Pay system.

So, for the time being, stores and restaurants in Japan have to worry about setting up multiple reader/writers for different systems.

"We understand that stores are strongly demanding a common reader/writer. How to solve this problem is a challenge," said Moriya of Docomo.