Mobile Payments Grows Worldwide, But Business Issues Remain

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Many consumers don't know what near-field communication is, but the services the technology enables are becoming quite popular. That puts an onus on mobile payments projects that use NFC to move beyond disputes over revenue and other issues.

"At present the consumer is not looking that far ahead, but once the initial services are established, that will be the next thing the consumer will start demanding — mobile banking/payment ubiquity," says David Snow, a senior analyst at Juniper Research.

A new report from Juniper says the total value of mobile payments for digital and physical goods, money transfers and NFC transactions will reach $670 billion by 2015, up from $240 billion in 2001. The company says all three segments will grow by at least 200% over that time frame, driven by the rapid adoption of global ticketing, NFC contactless payments, physical goods purchases and money transfers.

Juniper's research is backed up by findings from the Yankee Group. That company says mobile transactions are expected to surpass $1 trillion by 2015, up from about $241 billion in 2011 — a compound annual growth rate of 56% that will be driven by the introduction of 500 million new mobile banking users.

PayPal Inc. has increased its mobile payment projections for 2011 to $3 billion from $2 billion. That projection includes more than just NFC-enabled point of sale payments, but it still demonstrates the popularity of the mobile phone as a payments enabler.

Juniper says Asia, Western Europe and North America will account for about 75% of the global payments transaction market, though about 20 countries are expected to launch NFC services in the next 18 months. In developing countries, the need for access to financial services will cause mobile money use to double over the next two years.

Various partnerships are advancing globally between telecoms and other stakeholders in the payments industry to take advantage of the surging demand. These initiatives are racing against time, since cashing in on the fast growth will rely on building a usable payments ecosystem.

In addition to Isis, a consortium of telecom providers that is adding Austin, Texas, to Salt Lake City as a test market for its NFC payments initiative, there are a number of other contactless trials around the world that will test payments executed by NFC and SIM cards. SIM, or "subscriber identity module," places a circuit onto phone cards that stores a key that's used to identify a user on a mobile device for authentication purposes. The SIM cards also store the cardholder's name, number, information related to the local network, a list of the services that the user can access, PIN and other password data. SIM cards have become smaller as mobile devices have become smaller, and are a vital piece of many of the contactless payment projects.

In Norway, for example, DnB Nor, one of that country's largest banks, is testing mobile payments in Oslo alongside the telecom company Telenor and MasterCard. This summer 250 Telenor and DnB Nor customers will be given Samsung mobile phones with built-in NFC technology and an adapted SIM card. Users will be able to make low value payments by waving handsets against MasterCard PayPass readers in national retailer chains. It's part of an "NFC City" project that is partly funded by the government.

In Turkey, SmartSoft, a provider of card technologies such as NFC and EMV chips, has partnered with Turkcell, a mobile operator, and Plastkart, a Turkish smart card manufacturer, to develop a Trusted Service Manager mobile system for NFC payments approved by MasterCard. The partnership will allow mobile phones to be used as a wallet, enabling users to load bank card information into SIM cards from participating banks. SmartSoft says the partnership is part of an effort to expand NFC payment systems into other parts of Europe and the U.S. via partners in those regions.

In Germany, Deutsche Telecom has commissioned Giesecke & Devrient to develop a SIM card-based mobile contactless payment system, which it plans to use as part of several NFC ventures in a number of countries by 2012.

But these varied initiatives are primarily driven by "co-opetition," so revenue sharing and processing details are still elusive in most markets, which could hinder development. As with credit cards and ATMs, a global mobile payments system is reliant on interoperability between institutions and processing systems locally and internationally — and a standard technology and business blueprint has yet to emerge.

"The business model between the two sectors [telecoms and financial institutions] has to be agreed before a commercial service can be launched and subsequently both financial and mobile network interoperability is necessary if the service is to cross national and financial/regulatory boundaries, which is the ultimate goal," Snow says.

Rick Oglesby, a senior analyst at Aite Group, says initiatives such as a mobile payments partnership between Google Inc. (which recently introduced its mobile wallet) and SKCC, a Korean IT outsourcing firm, are examples of how use cases and experiences in a local market can be applied to build best practices internationally. "There will be opportunities for learning in one country that can transfer to another," Oglesby says.

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