Who Owns Mobile Money

It has long been predicted that the digital revolution will transform the way people pay at their point-of-sale transactions. The end of the cash era could indeed have dramatic consequences, not least since it might eventually even lead to the obsolescence of central banks.

While many digital payment media innovations have failed to take off and the paper form of cash has turned out to be surprisingly resilient, many commentators argue that mobile phones and other similar portable electronic devices finally enable digital cash to solve its chicken-and-egg problem.[2] For example, mobile phones can currently be easily equipped with payment features, and since almost all consumers in the developed countries carry mobile phones, shopkeepers are willing to install systems to handle mobile money. The prospects of mobile money are even greater in poorer countries where it often constitutes the only feasible digital payment medium. Moreover, mobile phones’ display and ability to act as a mobile ATM add to mobile money’s utility. But in contrast to the supply of paper cash, which is the monopoly of central banks, it is not clear who owns the property rights over mobile money.

Since the mid-1990s it has been clear that the emergence of new mobile technologies represents an untapped business opportunity. But who has tried to seize the opportunity and invested in the development of mobile payment technologies? What kinds of firms have tried to enter into this new, promising market? Where do these entrants come from?

At least two distinct industries should have had an incentive to innovate in and compete for the market for mobile payments. On the one hand, traditional incumbents in the market for payment media are financial institutions, such as banks and payment card companies, who obviously had a head start in capturing the emerging new market. On the other hand, ICT firms, equipment makers, and telecommunications operators, for example, are specialists of mobile communications technology and have been vying for new applications and revenue sources for their devices and services. Moreover, the economics of payment media markets is quite similar to that of the communications industry: both are two-sided markets characterized by network externalities and platform competition.

It is, of course, equally possible that new entrants could come outside these two main candidate industries. For example, Internet marketplaces and service providers, software and operating system producers (such as Microsoft and its rivals and collaborators), or completely new research-based entrants with unconventional business models could be interested in developing mobile payment media applications and entering the market.

The new mobile and digital payment media markets are emerging. While their eventual landscapes are yet unknown, patent statistics provide a window to the future and potential entry, characterizing innovative activities and intellectual property strategies of potential entrants at the birth of new mobile payment media.

Based on our own preliminary data analyses and Hall, Thoma, and Torrisi’s research, some clear and interesting patterns seem to emerge from the patenting data.[3]

First, as Table 1 shows, patenting activity picked up late 1990s and accelerated after the millennium. This pattern emerges from the world-wide patent data on mobile payment technologies to which we have had access (covering publications from 42 patent offices and coming from Derwent World Patent Index -database). The same pattern can also be extracted from the European Patent Office (EPO) data on European financial patents compiled by Hall, Thoma, and Torrisi. While their study aims at covering a broad range of financial patenting, their data appear to cover a lot of payment methods and technologies. Hence their results could be seen as providing an upper bound for payment innovation patenting in Europe.

Table 1: Average Number of Patent Applications per Year


Second, U.S. firms are the most important source of mobile payment patent applications. In Hall, Thoma, and Torrisi’s research, it is reported that 49.9% of EPO financial patents originate from the U.S. In our technologically targeted but geographically broad data, the U.S. innovators account for 31% of the (global) patent applications.

Third, the involvement of incumbents (financial institutions) is modest. Some payment card platforms figure in the statistics, but banks and other financial intermediaries are nearly absent. In our patent data on mobile payment technologies, traditional financial institutions are virtually entirely absent; among the top 20 patentees, none is coming from the traditional financial sector. From Hall, Thoma, and Torrisi’s research, we can infer that out of 52 top financial patentees in EPO, nine (17%) come from the financial and insurance sector. These nine include four major payment card platforms and service providers (First Data, Mastercard, Visa, and American Express) but only few financial intermediaries.

In contrast, established ICT firms, device manufacturers, and operators in particular, seem to account for most of the mobile payment and European financial patents. In Hall, Thoma, and Torrisi’s data, top five patentees include IMB, Citicorp, NCR, Fujitsu, and Siemens. In our (unweighted) data, they are Ericsson, Siemens, Nokia, Motorola and IBM. This suggests that ICT firms, which are entrants into the financial service sector, have begun to create and compete for a new market.

Interestingly, the patterns of patenting of mobile payment technologies are in stark contrast to some other areas of financial innovation, such as financial exchange systems and infrastructures. In this area, most innovations (according to the patent statistics) arise from the traditional incumbents, such as investment banks and financial exchanges.[4]

There are a couple of potential explanations for the absence of financial institutions and dominance of the ICT firms in the patenting of (mobile) payment technologies.

The first potential explanation is that the different industry backgrounds of the most likely entrants have repercussions for their innovative strategies. Investments in R&D and IPR management have long been the core competitive strategies in telecommunications industry, whereas financial institutions have hardly bothered to document their R&D investments. This view suggests that both incumbents and entrants may innovate equally but use different intellectual property strategies. It is possible that financial institutions waive patent protection, resorting to their traditional appropriability strategies (e.g., lead time and secrecy) to protect their mobile payment innovations, whereas ICT firms just follow their patent-based intellectual property management systems.

However, it is well documented that the Court of Appeals for the Federal Circuit’s landmark 1998 decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc[5] has raised the awareness of intellectual property issues not only in the U.S. but also in the global financial services sector. In some cases the State Street decision is also known to have drastically changed the management of financial innovations in financial services, prompting a large scale use of patents as an appropriability strategy. For instance, the active innovators and patentees in the field of financial exchange systems and infrastructures have been investment banks and exchanges themselves. It therefore seems a bit unlikely that different levels of awareness and interest would account for the difference in the patenting patterns over the past ten years, i.e., over the period when the most of mobile payment patent applications have been filed. Indeed, if one only looked at the overall patenting of payment inventions over time and across regions, one could easily make the misleading conclusion that the State Street decision prompted the U.S financial institutions to patent their payment method and technology innovations, too.

The State Street decision also implies that the research and innovations of financial institutions are hardly unsuitable for patenting. Moreover, many of the (mobile) payment innovations are inherently technological and as such have been always patentable. For example, according to the USPTO, one of the first U.S. patents was granted on March 19, 1799, for an invention used for “Detecting Counterfeit Notes”.[6]

An alternative explanation for the lack of patenting by financial institutions in the area of mobile payment technologies is that they do not innovate. This fits well with the classic argument, associated with Kenneth Arrow, according to which incumbents generally may have weak incentives to innovate since they recognize that the new innovations cannibalize the revenues from their existing products.[7] More recently, Raghuram Rajan and Luigi Zingales emphasize that incumbents may prefer to conspire with the politicians to preserve the status quo and to prevent entry rather than to engage in innovative activities and competition for new markets. This could account for the cross-country variation in the pace of financial development over time.[8]

Whether some firms can eventually create and conquer the market for mobile payments and enforce effective property rights over the mobile money so created is a question on which existing data or research has little to say. Since this is an industry in which network externalities are crucial, it would be tempting to predict that the market will eventually “tip” towards a dominant solution. But politics and regulation creates a particular source of uncertainty, as the global financial industry and therefore a large part of the payment media markets (e.g., deposit services) still operate under extensive regulation. The limited prospects for further deregulation in this area suggest that potential entrants with the most radical mobile payment media innovations face a rocky road ahead.

If we had to bet a euro now on the future of mobile money, we would bet it on a rather fragmented market outcome, with different technological solutions and business models co-existing in different geographical and business areas.

Ari Hyytinen is Professor of Economics at University of Jyväskylä and Associate Research Fellow at the Research Institute of the Finnish Economy (ETLA), Finland. TuomasTakalo is Research Supervisor at the Bank of Finland and Professor of Economics at University of Jyväskylä, Finland. This article has in part been prepared as part of ETLA-BRIE collaborative research program “Networks, Services and Global Competition.” The underlying research has partially been funded by the Jenny and Antti Wihuri Foundation.




[1] Hyytinen is Professor of Economics at University of Jyväskylä and Associate Research Fellow at the Research Institute of the Finnish Economy (ETLA), Finland. Takalo is Research Supervisor at the Bank of Finland and Professor of Economics at University of Jyväskylä, Finland. This article has in part been prepared as part of ETLA-BRIE collaborative research program “Networks, Services and Global Competition.” The underlying research has partially been funded by the Jenny and Antti Wihuri Foundation.

[2] See, e.g., our own work (Ari Hyytinen and Tuomas Takalo, “Consumer Awareness and the Use of Payment Media: Evidence from Young Finnish Consumers,” Review of Network Economics 8 (June 2009): 164-188), and the references therein.

[3] For details, see Bronwyn Hall, Grid Thoma, and Salvatore Torrisi, “Financial Patenting in Europe,” NBER working paper no. 14714 (2009); Bronwyn Hall, Grid Thoma, and Salvatore Torrisi, “Financial Patenting in Europe,” European Management Review 6 (2009): 45-63.

[4] See Mari Komulainen and Tuomas Takalo, “Does State Street Lead to Europe? The Case of Financial Exchange Innovations.” Bank of Finland discussion papers 22/2009 (2009).

[5] 149 F.3d 1368.

[6] Patentability of payment media innovations is discussed further in Robert M. Hunt, Samuli Simojoki, and Tuomas Takalo, “Intellectual Property Rights and Standard Setting in Financial Services: The Case of the Single European Payment Area,” in Financial Innovation in Retail and Corporate Banking, eds. L. Anderloni, D.T. Llewellyn, and R.H. Schmidt (Edward Elgar: Cheltenham, UK, 2009).

[7] Kenneth J. Arrow, “Economic Welfare and the Allocation of Resources for Inventions”, in The Rate and Direction of Inventive Activity: Economic and Social Factors, ed. R.R. Nelson (Princeton University Press: Princeton, 1962).

[8] Raghuram Rajan and Luigi Zingales, Saving Capitalism From the Capitalists (Princeton University Press: Princeton, 2003). As also Rajan and Zingales point out, the notion that in particular (financial) intermediaries have an incentive to lobby for restrictions in competition goes back at least to Adam Smith (see Adam Smith, The Wealth of Nations, Book I, Chapter XI, ed. E. Cannan (1776; Chicago University Press: Chicago, 1976, p. 278).