O2 breaks ranks, gets its wallet out and goes OTT

The Telefonica-owned UK operator today launched O2 Wallet, an online payments system which operates 'over the top' as a mobile Internet service and is available to all mobile phone users in the UK.

The system doesn't rely on NFC, (although this can and will be used with the service) but is designed to be essentially an online mobile payments system (like Paypal) rather than perform point-of-sale electronic cash payments, at least in the first instance.

Users (any user, remember, not just O2 subscribers) can use the app for money transfers and can link their credit/debit cards to the account along with prepaid options. The business model for O2 leans towards making money from price comparison services, offers and promotions and no doubt draws on the experience and commercial relationships O2 has built up with its Priority Moments service.

According to industry expert Fred Huet, the MD of Greenwich Consulting, O2 has also cleverly devised a new way of monetising the service by initially charging retailers a transaction fee. With further plans to charge consumers 15p per money message sent by text this will not only net more revenues from messaging but could also cut down on the amount paid by merchants, he maintains.

O2 is pushing the 'cloud' aspects of the service to users and claims that PINs, passwords, personal details and financial data are all held on remote servers rather than on the mobile in the interests of security. The apps are available on all the major smartphones (including iPhone of course, since O2 was the leading Apple distributor).

The move comes only 10 days after Project Oscar, the UK operators' joint venture to provide mobile wallet services, was referred to the European competition authorities for suspected collusion (see - Authorities flag down UK telco wallet vehicle - questions asked).

It seems unlikely that O2 has decided in that timescale to go it alone - clearly it was planning this for some time. Probably it has long felt that it's waited long enough and that mounting competition (from Paypal, Barclays Bank and Barclaycard, not to mention Google) meant that it had to get a foot into the market before the shutters started coming down. It still has the ability to fashion alliances and joint ventures within some sort of loose federation at a later date when the competition authorities sort themselves out.

In any case, O2's move must be considered a serious development, not just for the further buzz it will create around mobile payments, but because it has decided to go OTT in both technical and business model terms. 

This is significant. For a mobile operator to tap the scale needed to take on the global Googles of the world it either has to form some sort of alliance or go over the top itself and have a crack at the entire national market. Whatever else it may do, O2 has decided to go over the top.

Even if Project Oscar were to get the go-ahead on competition grounds most observers are skeptical that a federated approach by mobile operators to beat off the OTT players will work anyway. 

Eden Zoller, principal analyst at Ovum and author of a recent report on the area, says Ovum's research indicates that the majority of operators are exploring collaborative mobile payment ventures, but while there is logic to this approach, the track record on operator collaborative ventures is not always impressive. “The danger is that operator mobile payment ventures will not move quickly enough, hampered by lack of consensus and slow decision making,” notes Zoller.

This is advice that O2 appears to have taken on board.