South Korea set to lead in cellphone payments

South Korea is set to become the first nation in the world to adopt a large-scale mobile electronic payment system that marries credit cards with cellular telephone handsets.

Credit card issuer Visa International Asia-Pacific Ltd. signed a deal on Monday with SK Telecom Co. Ltd., one of the country’s largest cellular telephone operators, to launch a payment system. The deal comes shortly after local company Harex InfoTech Inc. started commercial service of a similar system with KT Freetel Inc. and LG Telecom Co. Ltd., the country’s two other cellular carriers.

The new systems are based around the Infrared for Financial Messaging (IrFM) standard that was published by the Infrared Data Association (IrDA), the standards setting body for infrared systems, in February this year. They use an infrared link to send information from a payment terminal – a cellular handset in this case – to a compatible point-of-sale system.

“What SK Telecom have done is they have come up with a phone which has a chip that stores payment information, whether it is a credit card or debit card, so it is possible to beam your payment information to a payment terminal,” said Florence Fang, a spokeswoman for Visa International in Singapore.

In the SK Telecom handset, the chip is buried inside the telephone and users can input their credit card details though the handset’s menu. The chip, which supports the EMV (EuroPay, Mastercard, Visa) e-payments standard, is capable of storing several card numbers and users will be able to select which card to use at time of payment, she said.

Trials of the system began in April and involved 20 merchants situated at SK Telecom’s headquarters building and the Seoul Financial Center. With the new agreement, the trials will become a commercial service and be expanded nationwide, said Visa.

For its part, Harex InfoTech has already begun rolling out a similar commercial system under the name of Zoop, in Seongnam, a city of around 1 million people just outside of Seoul. The company is working with local merchants to get IrFM compatible terminals installed in shops and hopes to have 50,000 terminals installed in the city and 200,000 nationwide by the end of this year.

Both Visa and Harex InfoTech are predicting 2 million handsets for each of their systems will be in the hands of South Korea’s 46 million people by the end of this year.

Beyond South Korea, Harex is also rolling out trial systems at the University of Southern California in the U.S. and the U.K.’s Cambridge University and hopes to build commercial services in those countries based on the results of the trials.

The IrFM Point and Pay standard on which these systems are based is currently on the verge of becoming an official version 1.0 standard.

“The Point and Pay standard is all the protocols you need within IrDA to implement IrFM,” said Mike Watson, IrDA board president and also senior vice president of international operations at Harex InfoTech. “The first type of card we implemented was the magnetic stripe card and we are working on EMV.”

He added the basic standards work is now complete and the organization published it as a version 0.91 standard to allow for comments from parties that were not involved in writing the specification. “That being said, it is pretty much done,” he added of the first version of IrFM.

Going forward, the IrDA is looking to add enhancements for later versions of the protocol.

“What we are going to be doing with the course of time is adding additional functions to define ticketing and vouchering. We will be adding those formats over the next few months and are working with Visa on adding the EMV standard and extending the capability to express pay. Right now, it’s a very fast pay but was developed to replace swiping a credit card. But when you look at subway ticketing or express tolls, we need to make it possible to walk through toll gates and beam in a payment so you don’t have to stop.”