Before the mobile contactless payments race has even kicked off, First Data and Visa have grabbed the wheels of the pace car to move the pack faster. Tired of waiting for phone makers and carriers to embrace the concept, both firms have teamed with tech firms to develop products that allow customers to place NFC chips into mobile phones that accept microSD cards.

"We think this can be a promising pathway to seeing NFC make its way into the mobile market rather than waiting on the current path of NFC being integrated into the mobile handset," says Dom Morea, division manager for mobile commerce for First Data.

The effort is a technological advance over the stickers and other devices that have been piloted by MasterCard, Visa, First Data and others in the past, in that microSD chips embedded inside the handset are considered more secure than devices that are placed on the phones, and can contain more memory and the ability to upgrade and add apps, as well as host multiple payment accounts. MasterCard, which has deployed its PayPass in about 200,000 merchant locations in 32 countries including the U.S., said in a 2009 release of a mobile sticker product with Blaze Mobile and MetaBank that stickers are a "bridge" to chips embedded in phones (MasterCard did not answer an inquiry on its current plans regarding microSD). Other earlier sticker pilots included First Data's partnering with Inside Contactless to market payment stickers as "Go-Tag" products. And Visa's prior mobile payment releases in the U.S. have included partnerships with Chase, Wells Fargo, PNC, SunTrust, US Bank, and others.

The new microSD pilots are considered a prelude to mobile handsets containing native apps, an evolution that may take several years as older mobile phones give way to newer models. Forrester Research says NFC handset rollouts will only begin in late 2010, with 2 million units from Malaysian handset maker Fonelabs and multiple devices from Nokia.

"We're quite clear that eventually these [contactless payments enabled] phones will come into the market. We're doing our product development work to make sure our ecosystem can support that when these devices do come," says David Wentker, head of mobile contactless initiatives at Visa.

At Visa, its payWave and DeviceFidelity's In2Pay are in the early stages of a trial that combines the two products to enable mobile phones with a microSD memory slot to be used at merchants that accept contactless payments. In2Pay uses an onboard software- controlled antenna and a dual interface contactless smart card chip that supports Visa payWave. The pilots will take place in markets in which payWave is available, though Visa did not disclose merchant locations or identify which banks will pilot microSD. "It's like back in the days before WiFi was widely available. You bought a WiFi card and put it into a slip. It's the same kind of accessory sharing," says Wentker.

Meanwhile, First Data recently entered an agreement with mobile contactless provider Tyfone to provide SideTap microSD memory cards equipped with Tyfone's technology that can transform mobile phones with memory slots into contactless payment devices.

The cards can contain financial information and secure identification from multiple sources such as retailers or banks in both open loop and closed loop scenarios. The SideTap card's onboard controller manages over-the-air access in conjunction with its u4ia mobile platform, and is expandable. "We don't see this as a competitor (to mobile carriers). We see it as an accelerator. From First Data's perspective, we want to accelerate the innovative work," says Morea, who says First Data will focus on building adoption among banks and merchants (the firm didn't disclose bank or specific merchant participation) while it continues discussions with mobile network operators. Mobile carriers are not currently offering microSD cards with contactless payment capabilities, making them a possible distribution channel for such cards.

Both Visa and First Data said it is too early to know adoption of their products. But both firms hope the market will grow well beyond its current levels-JupiterResearch (owned by Forrester) in late 2009 projected NFC contactless payments will reach $30 billion globally by 2012, and predicts 20 million people in North America will make contactless payments over the next two years. In other research from early 2010, Forrester suggests there's still work to do to convince consumers, noting that only 14 percent of US online users are interested in using mobile phones for payments. "The contactless payments market is a laboratory right now, we're in an incubation period. A lot of people are trying different technology out to see what works," says Red Gillen, senior analyst, Celent. "The direct to consumer [via First Data and Visa rollouts] method is a way to get the mobile technology out there until we wait to see who will bear the cost."

Beth Robertson, director of payments research for Javelin Strategy & Research, says the flexibility of microSD could attract new consumers to mobile payments, more than cutting into other payment forms. "It's not on the outside of the phone, so it appears to be more integrated to the device. It ads to the perception of maturity," she says.

There are still challenges in getting banks, carriers or consumers to pay the cost of chips (about $10 to $15). Banks will be reluctant to pay for a piece of technology that can also be used for other applications, while carriers will be reluctant to absorb the cost of deployment over an entire network. As for consumers, Holland says it won't be just pure payment technology that will drive adoption, but a variety of CRM initiatives and other offerings in addition to mobile payments.

"The front lines will be the banks and mobile carriers, but Visa and First Data would help them with that marketing," Gillen says. "I'm a little less convinced that banks will be interested [in selling chips] because they don't handle the delivery of physical goods that well. So it will probably be the carriers that will sell the chips." Visa and First Data did not express a preference of distribution models, with Visa predicting a mix of solutions.

Wentker says that while it's early to make predictions on how mobile carriers or banks will respond, the early response has been positive. "People are signaling that anything that moves the market forward is a good thing."

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