Time Is Right for IrFM to Go Beyond Checkout Stand

B y H.R. Damon González Jr., Dover Court Consulting

This is the fourth in a series of articles that review the concept, creation, evolution and potential future of a project to standardize an important component of payment initiation systems. This segment of the story explores the near-term application as well as the longer view of a universal wireless payment infrastructure.

IrFM: More than Meets the Eye

As you've read through the installments in this series, it has probably not escaped your attention that most of the Infrared Financial Messaging (IrFM) work group's efforts to standardize wireless payment initiation have centered on consumers and retail merchants.

Initial specification development has focused on using the major consumer credit card data formatting standards. Most of the prototype systems (with the exception of one based on check system protocols) are constructed around settlements made in the credit card authorization networks. And, finally, preliminary market testing will be done in retail settings.

Collectively, these "in-person" transactions are referred to as proximity payments and, while concentrating only on an event that takes place within a few feet of a store clerk is narrow in scope, the specification itself anticipates many different payment scenarios.

In short, the messaging specification was designed with more than just checking out of the grocery store in mind. Read on.

Beyond the Checkout Stand

Over the last few years we've seen several previews of methods for doing wireless purchases of consumer goods and services. It is an idea that not only seems to have appeared suddenly out of nowhere but also is showing up in many places, and in many forms, around the world.

Likewise, the momentum for this way of paying has built up rapidly. Here are a few examples of some of the payment schemes designed for different kinds of person-to-person (P2P) transactions. These go beyond a simple transaction at the checkout stand. It is a litany of innovative, if not always workable, ideas.

Infrared Experiments

Among the first of the wireless payment ideas was a scheme from the developers of PayPal. Their method used the infrared communications capability of a Palm handheld to set up a P2P payment system that worked somewhat like interpersonal cash transactions.

In this model, representations of value were stored in the handheld and could be transferred back and forth at will between handhelds in a "closed system." When convenient, a single participant had the option of reconciling to his or her bank depository for final settlement.

The idea enjoyed short-lived initial success in the P2P market. Ultimately, however, it found its true place as a part of the backbone of the eBay online auction site's payment system, and by so doing it dropped out of the P2P space.

However, the PayPal solution sparked quite a lot of interest among major manufacturers of point-of-sale (POS) terminals as well as among the smaller players in the financial services software and hardware developer community.

A number of groups began to experiment with things like "mobile merchant solutions" based on infrared communications. Typically, the tests have been clever assemblages of handheld computers equipped with a magnetic stripe card reader. At transaction time, the devices communicate with a host system through the infrared port to transmit consumer payment data.

In a unique synchronicity of idea and execution, Harex IT, a Korean company, and the Infrared Data Association (IrDA), as separate efforts, simultaneously began to develop a working model of a proximity payment system as well as the groundwork for a standardized financial messaging system.

By January 2001, after having joined IrDA, Harex IT committed to developing its solution around the IrFM standard and moved on to building a citywide payment program in Seoul. It also has submitted bids to build part of the national payment infrastructure in Singapore.

Most recently, the company has presented proposals to the University of Southern California in the U.S. and Cambridge University in Great Britain to enable on-campus payments systems for the respective student bodies.

Radio Frequency Experiments

Another early experiment in wireless proximity payments was assembled in Finland. This one was based on telephone radio waves.

Nokia, one of the world's largest mobile phone manufacturers, joined with a mobile telecommunication services provider to create a system that made it possible to buy a soft drink from a vending machine by using a cell phone to make payment. The price of the soda, or a number of other products, appeared later on the user's telephone bill.

Several similar telecommunications prototypes have made it possible for people in Europe and in places throughout the Pacific Rim to buy groceries, movie tickets and golf balls with a few simple key presses on their portable phones.

In a case of life imitating art, Hewlett-Packard is working on a unique project with Swatch. Trials are being held in Switzerland to show that Swatch wearers can pass through a train station turnstile and leave it to their watch to charge their bank accounts for the fare. This is something even Dick Tracy couldn't do.

The Road to the Future

Prolific efforts to devise wireless payment mechanisms in places around the world underscore an important point: Whatever the geography or stakeholder group, it is nearly unanimously agreed that wireless proximity payments are a good thing. The idea that making binding and reconcilable payments could be as simple as "pointing and paying" resonates with everyone who hears it.

Accordingly, a basic tenet of the IrFM project has been to design a practical and extensible architecture. The task is simple and difficult at the same time. It must:

+ Be a protocol that can be adopted worldwide.

+ Support ease-of-use at the consumer and merchant level.

+ Add little or no additional complexity.

+ Combine cost effectiveness with value-added capabilities.

Closing Thoughts

This and the previous three articles on the IrFM protocol were meant to be a fairly high-level overview of the origin and the evolution of a standardization project. We've not gotten into the specifics of the protocol itself largely because it has yet to be published.

However, the final draft of the project will be completed in late November 2001 and, upon approval from the IrDA Board of Directors, the specification will be made public at its quarterly meeting, scheduled for January 2002. From that moment, the standard will enter the public domain, where it will get ongoing review and constant effort to improve and extend its relevance.

If you've read all four of these segments, you will have gotten a foundational glimpse at IrFM's guiding principles, an abbreviated look at some of the planned tests and, finally, a short survey of innovative attempts to build a paperless payment environment.

Maybe most important, you will have gotten a sense of the potential electronic-payments future that arises from having defined a universally functional tool for standardized proximity payments.