Consumers like the idea of smartphone transactions but are wary of putting their banking in the hands of telcos, writes Lesley Parker.

Imagine just swiping your mobile phone over a "reader" in the supermarket or at the train station to pay for groceries or tickets.

To buy theatre tickets, you send a text message and the seating details come back in an SMS. At the venue, wave your smartphone at the door to get in. The cost shows up on your next phone bill.

Having registered with a mobile payments company, you pay the plumber by phone.You enter the amount owed and the tradie's phone number into your handset and the money transfers immediately.

It's banking on the run - turning your phone into a payment device. But are Australian telecommunications companies up to being financial intermediaries? New research has found that while Australians quite like the idea of "mobile money", they'd be disinclined to take it up if it meant relying on a telco.

Paying this way is close enough for Australia's telecommunications regulator, the Australian Communications and Media Authority (ACMA) to study the potential ramifications of "wave and pay", person-to-person transfers and payments via SMS. Such services are available in Japan; one estimate puts mobile payments at $70 billion globally last year.

Market researcher Gartner recently nominated money transfers via mobiles as likely to be the most important phone application by 2012, ahead of web searches, browsing, music and instant messaging. It's a step ahead of having account balances sent via SMS (for which you'll pay both the bank and your telco) or using a so-called third-generation "smartphone" with internet access to go online and do your banking or pay the bills.

If you're currently checking balances, transferring money or making payments via internet banking services on a smartphone, you should be considering issues such as phone security, fraud and viruses (see separate story). One of ACMA's aims for its research was to anticipate "the possible need for consumer safeguards" including protections for children, in light of the problems experienced with mobile premium services (MPS).

With it, the consumer is charged a "premium" beyond the cost of an ordinary phone call or text message to access content such as ringtones, games and news.

The new research coincides with a review of the Mobile Premium Services (MPS) Code upon the first anniversary of its operation this month.

The chairman of the ACMA, Chris Chapman, recently identified premium SMS as the "straw that broke the camel's back". "The myriad of consumer complaints and problems that has bedevilled these services is something none of us can be proud of," he told the CommsDay Summit earlier this year.

The code and, as of July 1, a new option for consumers to bar MPS completely (see separate story) are attempts to resolve these issues.

ACMA's preparations for the advent of mobile money also coincide with the launch of a major public inquiry into customer service in the telco industry that Chapman says is being undertaken "with the intention to significantly improve outcomes for telecommunications customers".

The Telecommunications Industry Ombudsman receives about 900 complaints every working day about complaint handling and customer service alone.

The release of the research also corresponds with the launch of Apple's iPhone 4 in Australia this week; smartphones such as the Apple device have allowed telcos and other parties to provide the more complex products and services that have led to "bill shock".

ACMA's research found that Australians don't trust telcos to have the necessary safeguards in place for secure mobile payments and are worried about the fees they'd charge. "Respondents expressed strong concerns about mobile payment methods that rely on a telco or mobile payment services company, whom they trust less than a bank to have in place the same level of guarantees against fraud and protection of personal and financial information," the report says. "Another factor ... was their previous negative customer experiences over billing and extra charges. They felt there would almost certainly be extra charges ... people assumed that fees similar to those charged for mobile premium services would apply for payments involving SMS."

People were also concerned that adding payments directly to a mobile phone bill would, in effect, turn their phone into a credit card with no limit (mobile payments can be linked to a debit card, credit card or phone account); the potential access to funds in the event of phone loss or theft; that it may not be as easy to freeze/close an account as it currently is with bank accounts and credit cards; and that telcos would not be accountable for their actions should any fraudulent activities take place.

The director of policy and campaigns for the Australian Communications Consumer Action Network, Elissa Freeman, says it is impossible to talk about more sophisticated mobile phone payments without talking about the problems with mobile premium services. She notes that ACMA's research found people didn't recognise MPS as a payment system. "That starts to get to the heart of why MPS have been such a problem - that people don't necessarily realise their mobile phone account is a billing mechanism."

People clearly don't trust telcos to handle financial-type services, she says of the report. "People aren't comfortable with telcos themselves handling these sorts of payment services," she says. "Clearly, telcos aren't doing a great job of providing telco services so, as far as taking on the far greater challenge of being a financial intermediary, people recognise telcos just aren't ready."

Another message is that consumers are uncomfortable with their mobile phone becoming just another way to rack up debt when premium services already cause issues with unexpectedly high costs despite supposedly "capped" and "unlimited" phone plans.

"We've been calling for some time ... to have customers able to nominate the level of credit on their accounts," Freeman says. If the new services take off "the need will be even greater to have some more protection around it".

Key points

Mobile phones are becoming payment devices.

Take-up in Australia could be limited by distrust of telcos.

People are worried phones will become de facto credit cards.

There’s also concern about children accessing such services.

Already, people need to consider the financial security of their smartphones.

Children at risk of impulse spending with latest technology

With young people already running up big bills on premium services such as ringtones, there's concern about the potential for children to have access to mobile money.

ACMA recently estimated that nearly a third of Australian children aged 5 to 14 have their own mobile phone. One parent was quoted in its research report as saying: "Teenagers need to see money to understand the value of it. To me, it's very dangerous."

The research respondents felt mobile payment service providers already deliberately targeted vulnerable groups such as teenagers and "tweenies". "The services are seen to make money very quickly through the proliferation of messages sent during sign-up, before a user fully understands what they have committed to," the report says. "They also recognised that teenagers and young people are more likely to act on impulse and may not read the terms and conditions."

The report suggests that ACMA consider whether there should be parental controls on mobile payment services for users under the age of 18.

Internet banking — keep it safe and secure

The growing use of mobile phones for activities such as internet banking means it's more important than ever to protect your privacy and security, especially when handsets are so easily lost or stolen.

Federal government agencies have acted jointly to come up with a set of guidelines.

"Mobile phones are used for so many different things and the amount of personal information that we store on them can be significant," said the Australian Privacy Commissioner, Karen Curtis, when releasing the guidelines in conjunction with the Australian Communications and Media Authority and the Department of Broadband, Communications and the Digital Economy (see http://www.privacy.gov.au/topics/technologies). It provides the following advice:

Always know where your phone is — don't leave it unattended. Treat it like your wallet.

Turn on your security features. These are generally under "settings" or "options" in the main menu.

Set a password or PIN. Locking your phone can stop someone else tampering with it.

Report a lost or stolen phone to your telco immediately. Each phone has an International Mobile Equipment Identity number (many display the IMEI if you key in #06#). You can request the IMEI be blocked.

Turn off Bluetooth/GPS when not in use. Bluetooth can be used to transmit viruses and intercept data.

Be careful when opening multimedia message attachments in emails and clicking links in emails and text messages. These can contain viruses and links to dodgy websites containing malware.

Check for software updates regularly to address any phone security vulnerabilities.

Don't conduct sensitive transactions such as internet banking on public wireless networks.

Don't save passwords or PINs as contacts in your phone. This is the first place a thief will look.

Permanently delete all data from your phone when you recycle or replace it (don't just press "delete"). Follow the manufacturer's instructions to fully wipe your phone. Also remove your SIM card and any memory card.

Raising the bar

Mobile phone users can now request a bar on premium SMS services such as ringtones, games and competitions to limit "bill shock".

Since July 1, consumers have been able to ask their telco to block premium SMS or MMS services so they no longer receive, or are charged for, such services. This option is expected to appeal to parents seeking to control their children's phone costs.

However, the chief executive of the Australian Communications Consumers Action Network (ACCAN), Allan Asher, says he would prefer the premium SMS bar be automatic on all phones, so that people have to consciously "opt in" to these services. Under the Australian Communications and Media Authority model, people receive the services unless they opt out. Asher says: "They're really complicated services that are designed to trick people into spending a lot of money ... protect people first then let them expose themselves to the risks."

To stop one service, rather than all premium services, reply "STOP" to a message from that service. Alternatively, check your telco's monthly limit on premium SMS.