Money in your mobile

Arsenal has signed up to Vodafone's mobile payment system

By BBC News Online technology correspondent Mark Ward

Vodafone customers could soon be using their handsets to settle online bills.

In March Vodafone will launch a service in the UK that allows its customers to add charges they rack up online to their phone bill.

The charging system is designed to handle small charges - up to £5 - that could be attractive to many websites wanting to levy micropayments for services that were formerly free.

Already Vodafone has signed up 50 websites that will use the system to pay for ring tones, phone icons, and video clips.

Small bill, big charge

Web shopping is popular with lots of consumers and most still use a credit card to settle their online bills.

However, credit cards work best for big purchases, and their associated processing costs make them unsuitable for small payments of a few pence or pounds.

In an attempt to bridge this gap, Vodafone is planning to launch its m-pay bill system that lets charges of up to £5 per transaction be added to a subscriber's phone bill.

How are merchants going to make the choice between all the payment systems that are out there?

Charles Cohen, founder of Beenz

Vodafone is planning to start promoting the service to consumers in March and already has signed up over 50 websites that are happy to use it.

One of the first is Arsenal Football Club which will use it to let fans watch video clips of goals and match highlights via its website.

Others sites will offer pay-per-play classic games such as Asteroids and Pac Man, and others will offer cinema and theatre tickets or ring tones and icons.

Vodafone hopes the system will prove popular with young phone owners who do not have a credit card.

When a consumer signed up to the Vodafone system wants to pay for online goods, they will be directed to an authentication page that asks them for identification details. For Wap sites this will be a PIN, on the web a user name and password.

The bill for whatever the customer has bought is added to their phone bill. Both prepay and contract customers can use the service.

Vodafone said using this system consumers could buy either goods, services or access to events. It will work alongside the reverse SMS billing and premium rate number charging systems Vodafone already operates.

Competing services

But Vodafone faces stiff competition from other payment systems, such as Paybox, that are not tied to a particular network.

Cohen: "customers will stick with credit cards"

When Paybox members use their mobile to pay for goods or services online and offline, they are contacted using SMS. By replying to the message with their PIN they authorise the transaction and the amount is debited from their bank account.

London restaurant Circus was one of the first to sign up to the Paybox system.

Signing up to Paybox costs £14.99 per year and the company already claims to have 500,000 customers.

However, the problem at the moment is that there are too many separate payment systems said Charles Cohen, founder of Beenz. He is now developing an online voucher system for web retailers called My Instant Reward.

"How are merchants going to make the choice between all the payment systems that are out there?" he said.

Mr Cohen said clearing houses are starting to spring up that give merchants one way to use all the different payment systems, but the transaction fees these organisations demand can bump up costs and make micropayments less profitable.

"It all starts to get very top heavy," said Mr Cohen. "Customers will probably stick with their credit cards."