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This story appears in the November 2008 issue of Cards&Payments.
The mobile-payment trial held in London earlier this year involved a dozen partners, including a major mobile operator, a bank and a transit provider. But it was essentially a simple test.
Users could pay transit fares and make retail purchases by tapping their phones on readers, but they could not recharge value over the mobile network, or view their balances or transaction histories on the handset screens. In fact, they could do nothing more with the phones than they could with the contactless cards most already carried in their wallets.
The phones, containing Near Field Communication chips, were surprisingly popular with users, some of whom took to calling it the "Oyster Phone," dubbed for the preloaded transit application they used to pay fares on London's underground trains and buses. Nearly eight out of 10 trial participants said they would take up phone-based contactless ticketing and retail payment if available. Some "begged" to keep their phones after the six-month trial, according to the trial's main organizer, mobile telco O2.
Buoyed by the results, backers called for rollouts as soon as possible. They also predicted the technology would make a splash at the 2012 Olympic Games in London by enabling visitors to download their stadium tickets, transit passes and payment services even before leaving home, then to tap to spend throughout the Games (
But at the rate things are going, NFC may not be ready for the opening ceremonies.
In London and around the world, mobile operators, banks and other service providers are finding that turning the buzz behind NFC and other mobile-payment technologies into real rollouts is taking longer than they expected. And unlike the next-big-thing years of mobile payment in the late 1990s and early 2000s, today the technology exists to enable consumers to swiftly and easily pay with their phones.
"When somebody walks up with a phone and buys a cup of coffee, it's fantastically simple and easy. But to get that to be simple and easy, it's complicated," says Dave Birch, a director for UK-based Consult Hyperion, an adviser to organizers of the London NFC trial.
The latest forecasts now call for major NFC mobile-payment rollouts in 2010, two years behind original projections and no sure thing at that.
How much an expected sustained global economic slowdown will affect the launch of mobile payment remains to be seen. Suffice it to say, it will not help if consumers cut back on spending or avoid replacing their phones with models supporting NFC.
Besides the complexity of bringing so many parties together to launch mobile payment, including banks, telecommunication companies, merchants and handset makers, another problem is holding back NFC and other types of mobile payment at the physical point of sale-the nagging problem of the business case. There has to be enough revenue to spread around the NFC "ecosystem"-the telcos, service providers and vendors.
Among the consequences: Virtually no phones have yet hit the market supporting NFC.
"There are a lot of mouths to feed," says Dion Lisle, senior vice president for growth ventures and innovation at U.S.-based Citigroup's global consumer group.
Citi has been among the most aggressive banks in the United States in offering mobile-banking services, which some observers believe will clear the way for mobile payment. Mobile banking has been a priority for banks around the developed world that view it as a way to stay competitive and keep customers loyal.
M-Banking A Prelude?
Mobile-banking users will soar to nearly 35 million in 2010 from fewer than 2 million last year, predicts U.S.-based-research and consulting firm Aite Group. The picture is the same in Europe, where the Paris office of U.S.-based research-and-consulting firm Celent LLC predicts the percentage of mobile-banking subscribers compared with the adult population in the big five economies of Germany, the United Kingdom, France, Italy and Spain will triple to roughly 19% in 2010 from 6.3% in 2007.
Banks hope to move consumers to more payment-oriented mobile-banking services, such as funds transfers, bill payments, remittances and person-to-person payments, then to mobile retail payments, which most observers agree offer the best possibilities for revenue.
But in the U.S. and Europe, while a small, but growing, base of consumers bank using their mobile phones, most use them only for information services, such as verifying checking account, credit card and reward balances, looking up transaction histories, and receiving text messages when they owe payments.
For other transactions, most consumers keep their phones in their pockets and use their home computers instead, says Perrine Fiorina, a Celent research associate.
"Customers are used to Internet banking, and if they want to transfer funds they do it by the Internet," says Fiorina. "Globally, this could be more interesting for emerging countries that do not have the same infrastructure for ATMs and the Internet."
Emerging Funds-Transfer Market
About the only place where mobile funds transfers have taken off is in such developing markets as the Philippines, South Africa and Kenya. There, broad swaths of the population have mobile phones but no bank accounts or access to bank branches or ATMs.
Analysts, who remain optimistic about the prospects for NFC mobile payment, are sanguine about continued growth of mobile funds transfers as well. One of the latest forecasts is from UK-based Juniper Research, which projects 100 million subscribers will use their handsets to transfer funds by 2013. The funds mainly will take such well-worn remittance routes as the Middle East to the Philippines, and Western Europe and North America to Mexico, India and China.
But U.S. payments players see a promising business for domestic funds transfers and other person-to-person mobile payments.
Among the first banks to hold trials on mobile P2P is Citibank, which last year began using a system from U.S.-based Obopay Inc. in Chicago and Boston. The bank expanded the trial this summer.
Payment card networks Visa Inc. and MasterCard Worldwide, which have experimented with the mobile channel to enable consumers to remit funds mainly in developing countries, seem increasingly interested in offering the service in the U.S. Both card companies recently announced plans to test P2P services there.
For example, Visa in late September said it would launch mobile phones for P2P pilots with up to 6,000 Visa accountholders from U.S. Bancorp and other issuers. The cardholders also would be able to transfer funds to their friends and families over the Internet with their computers.
Like MasterCard, Visa already supports domestic funds transfers in other countries, through branches and ATMs of participating banks and over the Internet. Both brands more recently added mobile phones to the mix. In India, for example, this has provided Visa potential access to more than 300 million subscribers.
It is not difficult to see why the card companies are keen on the U.S. market. The problem with enabling card-to-card transfers in developing countries is the relative scarcity of ATMs and payment terminals. No such problem exists in the United States. And, after all, the real object of the funds transfers for the bankcard brands is to encourage more spending on Visa and MasterCard-branded accounts.
Mobile funds transfers also would help the schemes and banks defend against such nonbank competitors as PayPal and mobile operators, which are launching their own P2P mobile funds-transfer services.
iPhones And Androids
And the banks and card companies are starting to make use of more-advanced mobile-banking software and more-appealing handsets and platforms, which increasingly are designed not in the mobile-phone labs of Europe or Asia but in Silicon Valley.
A survey by U.S.-based Javelin Strategy and Research Inc. last January found that of 23 top financial institutions offering full mobile-banking services, 70% were using mobile Web browsers, another 26% relied on text messaging only, and just five banks delivered mobile banking with downloadable applications.
But this may be changing. Bank of America Corp., which signed up more than 1 million mobile-banking customers in just 13 months after launching in May 2007, is expected to offer a downloadable application that can run on Apple's iPhone, among other handsets. It now offers the service exclusively through mobile browsers found on all but cheap handsets.
The bank invested in U.S.-based m-banking software developer mFoundry Inc., joining PayPal and handset maker Motorola as financial backers. "It gives a pretty good perspective of what their intention is," says John Pizzi, mFoundry chief operating officer.
Downloadable applications generally offer more features and faster response times than do Web applications, which must send and receive data over the network frequently. Besides this, handset applications provide a clearer path to payment, contends Pizzi.
"It's difficult for a WAP (Wireless Application Protocol) browser to get access to an NFC chip or an address book," he says. "The address book is not just a means for making a phone call in the future. It's a means for making person-to-person payments."
One drawback to downloadable applications is they do not necessarily work on all handsets in consumers' pockets, and banks often have to work directly with mobile operators to ensure smooth delivery of the applications. U.S.-based Firethorn Holdings, an mFoundry rival, has made partnerships with some mobile operators, including AT&T and Verizon Wireless, to preload the applications.
Visa in September announced it would offer its mobile applications for download to Google Inc.'s new Android platform for handsets. Among the new services the card company is promoting is the sending of merchant coupons or other promotions over the air and targeting them according to the consumers' purchasing behavior.
Using Google Maps and other location-based technology on the phones, consumers could find the merchants to redeem the coupons or ATMs that accept Visa cards. And the users also could get transaction alerts on their accounts.
Visa on Android could provide an important glimpse into what is possible for mobile commerce because it uses the unique characteristics of the phone for sending targeted offers and helps consumers locate the merchants who sent them. But after those consumers arrive at the store, Visa wants them to pay for the purchase with one of its accounts. For that, it plans to tap NFC technology. Alternatives for purchases in physical stores, such as network-based payment, usually are not quick enough.
NFC Complexities
But laying the groundwork for NFC payment has been difficult. The applications in the NFC phones will use the same base of readers that accept contactless banking cards-except this reader deployment has progressed more slowly than expected in the U.S., UK and some other countries.
Many more players are involved in launching NFC-based payment than contactless cards, and those players have been fighting for turf the past couple of years.
Major mobile operators are insisting that banks and other service providers put their secure applications on the SIM cards the telcos issue to subscribers for network access. This would enable the operators to collect monthly or yearly "rental" fees from the banks for downloading and managing the applications. This SIM model also would make it more difficult for subscribers to move to competitors because it might be difficult to transfer banking and other applications from one operator's SIMs to another's.
But putting the applications onto the SIM card, which in turn communicates with the NFC chip in the phones, required new standards, and that took time. Standards makers only finalized their work this year.
Though most banks have accepted they will have to play the mobile operators' game and use the SIM card for their applications, not all are convinced. There are alternative places to store applications, including an embedded secure chip that has come with phones from Finland-based Nokia Oy, the only major handset maker yet to offer NFC phones for general sale.
Turkish processor and interbank group BKM is organizing what would perhaps be the world's largest NFC mobile-payment trial and says it will not be bound only to the SIM model for storing its contactless credit applications. Perhaps as many as nine banks and at least 3,000 users will participate in the trial, scheduled for January. BKM, through its technology vendor Cassis International of Singapore, plans to make the trial "operator independent" and "secure-element independent."
All in all, however, mobile operators pretty much have gotten their way in making the SIM card the preferred place for keeping NFC applications in all but the few areas of the world where operators do not issue SIM cards.
Still, mobile operators have yet to place big orders for NFC phones. They want to make sure they can cover the costs of NFC before they commit.
Integrating NFC services into each branch mobile network would cost at least £5 million (US$8.6 million), estimates Stephanie Manning, chief engineer for NFC at giant UK-based Vodafone Group, speaking at the Mobile NFC conference in London in September. That does not count the roughly £5 (US$8.6) per handset overall for supporting NFC, she says, although estimates vary.
Whatever the per-unit cost of putting NFC in phones, it adds up when applied to millions of phones needed for a successful mobile-payment service. And it could take years for the costs to drop substantially, Manning predicts.
But the SIM-rental model is not the only way operators could recoup their investments, says Mary Carol Harris, head of mobile for Visa Europe and formerly in charge of NFC for UK operator O2.
For example, mobile operator Orange in France and large bank BNP Paribas early this year launched a cobranded prepaid card for consumers ages 12 to 18. The telco and bank could move the same application to mobile phones and retain the business model they adopted for the card, which also carries the Visa brand, suggests Harris.
"It's showing individual banks and operators are working together," says Harris, who helped organize the NFC mobile-payment and ticketing trial in London. "That's something we haven't seen."
In addition, consumers might be willing to pay extra for NFC services. Surveys following an NFC transit-ticketing trial in France showed consumers would pay 1 to 2 euros (US$1.35 to $2.70) per month for "transport in my pocket," says Laurent Jullien, director of contactless and payment services at France-based Bouygues Telecom. The transit operator could pass on at least part of the consumer fee to the mobile operator.
For some, the business case is not the biggest hurdle delaying NFC rollouts. There just are too many players involved in the so-called ecosystem. It will take time to get all of them working together, they say.
France's Orange, a strong NFC backer, found this out the hard way. To showcase the technology, it was prepared to go ahead with a small commercial launch of NFC payment, ticketing and mobile advertising in the city of Bordeaux without first locking up the business case. But a big merchant involved with the project had problems integrating contactless readers into its payment-terminal system. Then the transit operator planning to offer mobile ticketing had to postpone its participation because its contract with the city's transit authority came up for renewal. There also reportedly were problems putting applications onto one of the few NFC phone models available for the launch, now scheduled for early next year, one year behind schedule.
Other mobile operators eager to launch NFC, such as those in Taiwan, have encountered their own delays.
"(As) we have seen in Bordeaux and Taiwan, it's not easy to manage the complexity," says Jean-Philippe Betoin, vice president of strategy and device marketing at Inside Contactless, a France-based supplier of NFC chips.
But the phones eventually will arrive in sufficient variety and volume, he says. About a dozen phone manufactures are working with Inside's chip, which already supports a connection to the SIM, he says. Other handset makers, including Nokia, have been counting on chipmaker NXP Semiconductors for their SIM-based NFC chips.
Most observers now expect a range of NFC models to hit the market in 2010. UK-based Juniper Research believes NFC-phone availability will begin to climb steeply then and by 2013 will account for one in five phones sold.
French mobile operators and banks hope to commercially launch NFC-based mobile payment together in 2010, expanding what is currently the largest trial of NFC payment, involving seven major banks and four telcos.
The results of that trial echo those in London, with overall satisfaction rates running more than 90%.
"We never have those kinds of figures," says Christian Sere-Annichini, head of new business in the strategy and innovation department at France's No. 2 mobile operator SFR. "Reaching 90%; it's absolutely unusual."
Given its popularity with users and continued interest by mobile operators and banks, the rollout of NFC-based mobile payment and ticketing in London in time for the 2012 games looks like a good bet.
In fact, Claire Maslen, head of NFC for O2, is just about ready to stake her job on it.
"There's lots of talk about the Olympics being contactless," she tells Cards&Payments. "(Launching in) six months is unrealistic. But if it's not launched by the Olympics, I need another job." CP
