There’s been a lot of buzzes lately about mobile payments and the next killer app that will suddenly have Americans using their mobile phone to buy everything from their next latte to their next Lexus. There appears to be no doubt that we’re well on this path to financial mobility. The cell phone has already evolved from a basic communication tool to a complete lifestyle device integral to a person’s messaging, information, and entertainment needs. Extending the mobile phone to act as a wallet and ultimately turning it into a payment instrument is the next logical step in this evolutionary process; however, how and when it gets there is still anyone’s guess.
While there’s a lot of debate about which mobile payment solution will ultimately succeed in the marketplace, one fact is indisputable: the solution must allow any mobile phone to participate in the payment transaction. A service that allows users to exchange funds using only a specific phone or that’s restricted to a specific carrier immediately excludes itself from the vast population of users not using that device or mobile operator. That will disincentive business owners from accepting that particular technology which, in turn, will ultimately hinder its mass adoption.

Currently, the U.S. has approximately 280 million mobile phones – only 45 million of which are “smart” – that operate on a number of different carriers. To succeed, a mobile payment solution must be able to function on the majority of these devices. Since currently the only technology that’s common across all mobile phones is text messaging (a.k.a. Short Messaging Service or SMS), the solution must use SMS on some level. There are 3 intrinsic features of SMS that make it a natural fit for a mobile payment solution:

It’s a native “application” that’s already pre-installed on basically every mobile phone in use today.
It’s a universal service, meaning that a text message sent from one phone on one carrier can be received on a different phone on a different carrier.
It’s a push technology, meaning that a text message can be sent to a user without the user first contacting you. Since a payment solution requires some type of authorization and notification mechanism, being able to “push” messages to the payer and/or payee is absolutely critical in building a secure and robust service.



If a mobile payment solution is to utilize text messaging, then it should conform to the guidelines established by the Mobile Marketing Associations (MMA) and use a commercial short code. A short code is a special telephone number that is usually 5 or 6 digits long. They were created to be easier to remember than regular phone numbers, especially when sending and receiving text messages to businesses. If you’ve ever texted a vote to American Idol or texted a donation to the Red Cross, the number to which you sent that text message was a short code.

Obtaining and enabling a short code is a rigorous process that requires strict adherence to industry best practices and individual certification by every U.S. Carrier. Therefore, messages sent to and received from a short code provide a measure of assurance that you are in fact communicating with a legitimate enterprise and not a fly-by-night operation.

Aside from compliance, however, the greatest benefits of using a short code are security, speed and volume. Since by using a short code a business is essentially directly connected to the carriers, it greatly reduces the risk that a text message sent to one of its customers is intercepted or tampered with in some way. The direct connection also increases the speed that messages are delivered to both the business and the end user, which provides a better user experience for the customer. Finally, any service that uses a regular 10-digit phone number for text messaging is going to be limited in the number of messages it can process at any given time. A short code, on the other hand, allows a business to process potentially thousands of messages a second which would enable them to service a large and growing customer base.

In summary, a short code is a necessary component of any mobile payment solution that hopes to service the majority of the population. If a company offers a mobile payment service that utilizes text messaging but does not use a short code, the caveat emptor (let the buyer beware).