Contenders in the nascent mobile payments market are beginning to roll out services to support a product that does not yet exist — configuring the near field communication, or NFC, chips inside mobile phones so they can be used to make payments.
The card network MasterCard Inc. and the mobile banking software vendor Monitise PLC have introduced in the past two weeks over-the-air provisioning services, as this capability is known, though only a smattering of NFC handsets are available today and the best industry guesses are that it will be two to three years, at the least, before enough devices are in consumers' hands to support a viable mobile payments business.
"We need to be ahead of the market. We are leading our banks into this market," said James Anderson, a vice president at MasterCard in Purchase, N.Y., and senior business leader at its Center of Excellence for Mobile.
MasterCard, which announced its service last month, is talking to several issuers about using it, though Mr. Anderson said it was too soon to name them. The company also did not name the third-party companies, called "trusted service managers," or TSMs, that it plans to use to deliver card data to the handsets.
The provisioning service will simplify for issuers the process of configuring customers' phones for making payments, he said.
"When a bank is doing mobile payments," he said, "it's already a project that has a number of layers to it. This will eliminate a burden on the banks, which otherwise would have to do it for themselves. Our service is bank-facing because those are our customers. The TSMs are mobile network operator-facing. That's how the sandwich gets created."
The Dutch smart card company Bell Identification BV announced last week that it would provide the NFC provisioning for financial companies that use the Monitise mobile banking application, both in the United Kingdom, where the company is based, and in North America, where it has a joint venture, Monitise Americas LLC, with Metavante Technologies Inc.
Lisa Stanton, Monitise Americas' chief executive, said that Bell ID would play a key role as mobile payments become a reality. "I think we're on the cusp of this becoming more mainstream," she said. "It feels like it may be more imminent than it has in the past."
But some observers are skeptical. Richard K. Crone, the founder of Crone Consulting, said it could be as long as 10 years before wireless carriers have delivered enough NFC-capable handsets to their customers to make the market viable and could cost the carriers up to $600 million each to do so, according to one forecast.
"In that case, though, it was the carrier itself that was shouldering the responsibility for developing the channel," said Mr. Crone, who tracks mobile financial issues. In that study, the carrier not only handled the provisioning but also underwrote the cost of subsidizing NFC handsets for customers, maintaining call centers, and managing the infrastructure.
This, however, is not how the market seems to be evolving, he said. With financial companies taking on the provisioning, and with other applications being developed for NFC devices, providing the capability in the handsets could become a more attractive proposition for carriers.
Still, considering the wireless market's complex dynamics, Mr. Crone said that banks might be better advised to push ahead with contactless cards, which many consumers are already using.
Merchant acceptance of contactless payment devices, either cards or phones, is also a major issue, he said. "Merchants have been unwilling to make the investment to put in the readers because of the cost."
And in the absence of a large base of merchants that can accept contactless payments, having the capability in the handsets serves little purpose, Mr. Crone said.
"It all starts with merchant acceptance," he said. "Banks would be well served to deploy it first in cards because that would give them a better negotiating position with the carriers."
Others believe the market will develop more quickly.
Mohammad Khan, the founder and president of Vivotech Inc., the largest maker of contactless point of sale terminals, said the biggest stumbling block for network operators has been the business model for the NFC handsets.
The carriers "wanted to get a piece of the transaction fee when somebody uses the mobile phone at the point of sale," Mr. Khan said. "But the card associations are not willing to share that."
NFC, however, is proving to have other applications, such as a wallet that can store points in merchant loyalty programs, he said. The technology could also be used for nonfinancial purposes, such as uploading pictures from phone-cams to digital picture frames.
"There are enough revenue streams for the operator to make money," Mr. Khan said. "I believe they are beginning to see the light at the end of the tunnel."
Carriers are preparing for commercial introduction of NFC handsets, probably next year, he said. "I call it limited commercial enablement."
He predicted millions of NFC phones will be in use by early 2010 and tens of millions or hundreds of millions by 2011.
Mr. Anderson of MasterCard said the trusted service managers will support services other than purchases, such as transit and building access, and multiple card accounts could be stored on a phone, he said.
For something like building access, a credential could rest on the surface of the device, he said, but for a consumer who might have a credit card, a debit card, and even an employer's payment card on the same chip, "you would have to go in and select it and tell the phone which credential to use."
Ms. Stanton said the devices also could improve convenience and security for their users.
"It's a bad day when you lose your mobile device. It's a very bad day today when you lose your wallet," she said.
Having more of those capabilities in a single electronic device would simplify the user's life, she said. "You could disable it all with one phone call. Plus, you realize you lost it a lot sooner."
