Smart money

Earlier this year, when Everything Everywhere, the parent company of Orange and T-Mobile in the UK, unveiled plans to launch a nationwide mobile payment system in conjunction with Barclaycard, chief development officer Gerry McQuade did not hold back in his claims for its potential.  

“This is the beginning of a revolution in how we pay for things on the high street,” he boasted. “It’s a cultural shift that is as important as the launch of the personal credit card or ATMs.” When the system launches (before the start of July, the company says) Orange customers will be able to pay for goods by simply passing their mobile phone close to a reader in a shop, cafe or other outlet.

The technology enabling that transaction will be a chip embedded in the phone that communicates with the reader using near-field communications (NFC) – the same technology that is used in London’s Oyster ticket system for public transport, among other applications.

Proponents of the technology argue that it is a faster and more convenient alternative to cash, because shoppers do not need to enter a PIN to complete the transaction. Some even say that contactless payments will kill off cash altogether.

“We’re making something that’s been talked about for many years a reality, and very soon, using your mobile to buy a sandwich, a cinema ticket or, in time, even something bigger like a computer will simply be the norm,” said McQuade.

But before the British public get swept up in McQuade’s excitement, they might be wise to consider that statement more closely. Mobile payments using NFC have indeed been talked about for many years, but uptake to date has been hampered by what looks like a severe case of arrested development.  

There are many reasons for that, including the restrictions that most pilot trials have imposed on users. In this respect, the Orange/Barclaycard scheme looks to be no different: in its initial stages, at least, it will be available only to joint customers of the two companies and can only be used to make low-value payments of less than £15 from retailers with compatible readers installed. Right now, that is just Pret A Manger, EAT and Little Chef, soon to be joined by the Co-op. 

Perhaps more significantly in a society seemingly obsessed with its mobile phones, these customers will also be limited in the choice of handset they can use. Orange and Barclaycard have not yet confirmed which NFC-enabled models they will offer, but until recently such devices have only been produced in low volumes, mainly for trial purposes by manufacturers such as Nokia and Samsung.

However, that may now be changing.


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Near-field communications was the main topic of conversation among manufacturers and operators at this year’s Mobile World Congress conference, held in Barcelona in February.

Google CEO Eric Schmidt described NFC as a “mega-scale opportunity” in his keynote address, while Research In Motion CEO Jim Balsillie confirmed at the event that the company will embed the technology into “many, if not most” BlackBerry handsets in 2011.

Google’s self-built Nexus S smartphone already sports NFC kit, as do Samsung’s recently launched Galaxy S II and Wave 578 models. Nokia is busy rolling out NFC-enabled handsets, too, and the new BlackBerry Bold 9000 and 9930 models will support it when they debut over the summer months.  

“After so many years of trials, NFC can no longer be considered a new technology,” says Thomas Husson, an analyst with IT market research company Forrester Research. “However, 2011 is finally the year in which we will see significant volumes of NFC devices shipped from the largest handset manufacturers.” Several OEMs (original equipment manufacturers) that Husson and his team have spoken to confirm that they expect manufacturers to ship between 40 million and 50 million NFC-enabled devices in 2011.

“The volume effect will help manufacturers absorb the cost of NFC by reducing the price of chipsets. Such volumes will accelerate change in countries like the US and the UK, where NFC-enabled point-of-sale devices are already present in the market,” he predicts.  

But there are still many hurdles to overcome. Apple, for example, is staying mute on its plans for NFC adoption. Industry speculation mounted mid-last year when the company hired NFC expert Benjamin Vigier as its new product manager for mobile commerce. The company has also filed a number of patents that seem to suggest that it is at least thinking about NFC-enabled apps on the iPhone.  

However, in March this year, UK newspaper The Independent reported that, according to sources at “several of the largest mobile operators in the UK”, Apple has already informed mobile carriers that it will not include NFC in its next-generation iPhone and some analysts believe it is working instead on its own ‘NFC-like’ payment system that would route payments through its iTunes Store.  

If Apple decides to ignore NFC in favour of its own approach, it could well take the wind out of the sails of the entire ecosystem. There is still a lot of work to do on the standards surrounding NFC, warns Jean Diop, vice president in the telecoms consulting practice at IT services company Capgemini, and ample risk of disruption.

“There are many different sub-standards seen in NFC implementations today and a risk of competing technologies emerging,” he says. “The real drivers behind NFC are the leading phone manufacturers, because they have the volumes it will take for mobile payments to be adopted. But if just one of those companies chooses another technology [over NFC] and embeds it in their phones, that could lead to the emergence of a competing standard and further delays,” he says.


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Whether NFC should be embedded in a device or on the SIM card is a matter that phone manufacturers and mobile operators have yet to settle.

Operators have a vested interest in the latter option, because it gives them the opportunity to take a slice of every transaction made through NFC payment. Any attempt by Google, for example, to cut operators out of transactions with a competing direct payment offering (based, perhaps, on credit-card apps from a financial services provider and downloaded to a smartphone) would cause serious industry ructions. But from Google’s perspective, appending real-world purchase information to its existing stores of online behavioural data is an attractive prospect that would allow it to drive “significant transactional and advertising revenues”, says Forrester’s Husson.

This may be the eye of a brewing storm. “While we welcome any development in the NFC space that raises awareness of the technology, we really believe it’s important that NFC services reside on the SIM, using the SWP [single wire protocol] standard,” says Claire Maslen, head of NFC at mobile operator O2. “This is widely agreed to be the most secure standard for NFC and provides the best experience for the customer.” Not meeting this standard, she argues, will result in a “fragmented market and customer confusion, which will only add delay to the mass roll-out of NFC technology”. At O2, NFC is a key component of the operator’s Mobile Wallet service, which it plans to launch in the second half of 2011.  

But there are other stakeholders involved in a mobile transaction, too – not least the banks and payment system operators and retailers “who often squabble over how to divide the profits,” points out Forrester’s Husson. “Adding new players, such as handset manufacturers and mobile operators, to an already complex value chain makes it all the more difficult to reach a consensus.” Retailers require “significant motivation”, he adds: mobile contactless payments have taken off in Japan, because Sony FeliCa and mobile operators jointly subsidise the necessary upgrades to merchants’ point-of-sale systems.

“Consumers won’t adopt a payment system until a wide range of merchants accept it,” Husson comments. As yet, no mobile payment trial in Europe has convinced significant numbers of leading high street retailers to invest in upgrading their point-of-sale infrastructure.   Consumers may take even more convincing than merchants, Husson adds.

“Consumer interest in mobile payments remains low,” he explains. “That’s hardly a surprise, given that consumers rarely encounter merchants that can’t accept at least one of the forms of payment they already have,” he says. Overall, just 6% of European and 12% of US online adults with a mobile phone have ever made a mobile transaction.

“For most transactions, consumers already have a choice of several different payment methods – cash, plastic cards and bank transfers. To succeed, mobile payment systems have to provide a clear improvement over existing payment methods, drive consumer and merchant adoption and develop a viable business model for all the parties in the value chain.”

It is a huge, multi-dimensional challenge. But in a statement about Barclaycard’s forthcoming collaboration with Everything Everywhere, David Chen, CEO of Barclaycard Consumer Europe, seemed resolutely upbeat. “I believe that future generations will find it surprising that, early this century, we were still carrying separate items to buy goods and to communicate with each other.”

Others are rather more scathing. “This clamour that cash is dead, the wallet is dead or that credit cards are toast is complete nonsense, now and for the forseeable future,” wrote Dean Bubley of research company Disruptive Analysis in a recent blog on mobile payments. “I’d be more willing to believe that retina scans, DNA authentication, telepathy or a William Gibson-style direct neural interface for payments will happen first.”

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