Mobile communications are
driving the payments industry towards near-field communication. But
is the industry ready? Louise Naughton looks at the energy being
put into bringing NFC payments technology to market, but wonders if
enough consideration is being given to getting merchant acceptance
off the ground.
Go deeper with GlobalData
It seems that
near-field communication (NFC) fever is really gripping the
payments industry as we move into 2011.
We have already seen a flurry of
announcements from influential players in the mobile industry.
In early January,
Bloomberg reported that Google is to launch a mobile
payment service using NFC this year and will use the NFC-enabled
Nexus S phone, developed by electronics company Samsung, to test
the technology.
The same source also revealed
Richard Doherty, director of consulting firm Envisioning Group,
made a claim that electronic giant Apple plans to install NFC into
its iPhone handsets.
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By GlobalDataLG is also trying to keep up with
its competitors in this space by publicly announcing its plan to
develop a swipe payment system in Europe. Jin-Yong Kim,
vice-president for business solutions at LG’s home entertainment
division, told news agency Reuters in early February that
the mobile POS technology is currently in beta testing and hopes to
launch in Europe in 2012.
January also saw an onslaught of
telcos vying for the m-payments crown in Europe. Barclaycard and
Everything Everywhere, a UK-based communications company that
represents wireless phone network Orange announced the UK’s first
commercial launch of NFC contactless payments – with the roll-out
of handsets expected to begin during the early summer months of
2011.
Payments
revolution
The announcement
was dubbed “the biggest payments revolution in payments since
credit cards were introduced in the UK”.
James Anderson, head of mobile
product development for MasterCard Worldwide believes these
announcements to be the catalytic force to get everyone moving in
the NFC direction – a move that has been waiting to happen for some
time.
“It is challenging bringing the
payment and mobile industries together and at certain points, it
has been frustrating,” says Anderson.
“Right now, it is quite the
opposite and is very exciting. We felt that what we have been
saying for a number of years has, at times, been falling on deaf
ears but it is now being validated.”
It is no wonder people are getting
swept up in the NFC excitement as it was believed a major hurdle in
bringing the technology to market was the lack of handsets
available to consumers.
But for the more cynical and jaded
members of the payments industry, these latest announcements may
have done little more than create a lot of hype around the
technology.
David Wentker,
head of mobile product development for Visa Inc, in part believes
that the recent announcements will do little to change the face of
mobile payments in the short-term, saying that far from being a
stop-gap, accessories may have a long runway before they are made
redundant by integrated NFC handsets.
“Japan is the exception,” says
Wentker. “Significant investment has been made there and there has
been co-ordination between all the operators that has meant it is
difficult to find a phone that doesn’t have NFC. It is the extreme
opposite everywhere else and I think it will be for quite some
time
“If a consumer doesn’t like the
colour, shape or any other feature of the handset, it does not
matter whether it is NFC-enabled – they will not buy it.
“There is not going to be 20
different NFC-enabled handsets on the market next year so there is
a very good market opportunity for accessories to fulfil.”
Visa uses a microSD chip that slots
into the memory slot of a handset to transform a mobile phone into
a payment device. The ‘In2Pay microSD solution’, developed by
technology provider DeviceFidelity, received certification from
Visa for a full commercial roll-out in December 2010.
It was also announced in February
that the technology had been expanded to include a wider variety of
smartphones, including the BlackBerry Tour 9360 and the
Android-based Samsung Epic 4G ‘Samsung Fascinate’.
While the certification of the
solution was hailed as a milestone in m-payments, Wentker and
Visa’s optimism for the microSD technology and accessories in
general may be outdated.
Richard Crone of consultancy firm
Crone Consulting points out that fewer mobile phones now include a
removable memory slot and in many cases the memory card is embedded
beneath the battery in a metal case, which makes the antenna
difficult to access.
In addition to the cynical views
surrounding the launch dates of NFC-embedded handsets, Crone has
cast doubts over the technology itself. He claims, after vigorous
testing, that the Nexus S device, in which Google plans to test its
payment capabilities – although released with an integrated NFC
chip, does not have the ability to access or store payment
credentials.
“It is a read-only chip,” says
Crone.
“You can read an advertisement or a
URL through that chip but it cannot transmit payment credentials.
This is a far cry from NFC as it was originally reported.”
With the noise from various
companies getting close to deafening as they clamber over each
other to be seen and heard, one new start-up has been noticeably
quiet.
Organised
approach
Isis,
an m-payments joint venture set up by US mobile telecom operators
AT&T, T-Mobile and Verizon Wireless, partnered with payment
network Discover and issuing bank Barclays US and exploded onto the
payments scene in November 2010.
CEO Michael Abbott pulled no
punches when he threw down the gauntlet to rival payment networks
Visa and MasterCard, positioning Isis as a “competitive
alternative” to the established schemes.
Since then, there has not been much
to report on the Isis front. Its website is sparse in terms of news
and information and looks to be a far cry from the bolshie network
that Abbott described.
In a bid to
break the silence, CI spoke to Jaymee Johnson, director of
strategic development for T-Mobile and part of the leadership team
responsible for bringing the Isis network to life.
Johnson claims the carriers hold an
advantage in the mobile payments space as they have over 200m
customers within their reach and can exert more control and
influence over the distribution of handsets – advantages he says is
central to the ignition of the overall business model.
Crone agrees and argues that
wireless carriers are the only organisations that store both the
mobile and payment credentials for 100% of their customers. He
claims this alone gives Isis a head-start in the mobile payments
game.
While it may be an important card
Isis can play to get ahead of their competitors, its focus has to
be a lot wider than the issuance of NFC mobile handsets if the
network wants to emerge as a true leader.
Influence over mobile manufacturers
may be a card that makes up part of a winning hand but on its own –
it essentially means nothing.
Merchant
acceptance
So the attention
turns to payment acceptance, an area that seems to be have been
forgotten with the recent furore surrounding NFC technology
integration.
“There hasn’t been an obvious
platform in which to build a mobile payments ecosystem around,”
says Johnson. “Isis gives the market the opportunity to do so in a
way that is almost singular. He says Isis breaks the business model
stalemate that has arisen.”
Isis plans to approach
conversations with merchants in a different way to Visa and
MasterCard and hopes this will lead to a boom in the contactless
acceptance infrastructure in the US.
The current conversation
surrounding the acceptance of contactless payments is one that is
centred on cost, according to Johnson. This is a conversation Isis
wants to change by giving merchants a new set of consumer
engagement tools.
This would include the mobilisation
of any gift cards they have, loyalty schemes, the issuance of
mobile coupons and NFC redemption capabilities at the POS. Johnson
says this then presents merchants with the opportunity to grow or
impact their top line.
“It is a broader conversation than
what they are used to and something they have been very receptive
to,” he says.
Johnson claims he is not worried
about coming into the mobile payments space later than Isis’
competitors as the terminalisation of the technology is moving at
such a slow pace, meaning no party is behind the game at this
point.
When Isis’ plans were relayed to
Anderson, it was clear this was the first he had heard of them.
Almost immediately, he looked to downplay Isis’ advantages over
MasterCard, saying it is a “big claim” Isis makes in saying it
separates its proposition from other networks by adding consumer
engagement tools.
He then makes reference to
MasterCard’s multi-agency transit trial across New York and New
Jersey in 2010, claiming it to be evidence of a ‘critical-use case’
where it was shown how mobile payments can become useful and be
linked to a consumer on a day-to-day basis.
“That is something MasterCard has
done and in New York of all places, not a tiny transit system in
the back of beyond,” says Anderson.
“I do not believe this is something
the shareholders in Isis or indeed the payment network it has
chosen, has any experience or expertise in.”
MasterCard says it
has 245,000 contactless locations set up across the US and plans to
extend that footprint this year. Other important activities
scheduled for expansion this year include: making sure issuing
banks are ready to personalise the secure elements in NFC
integrated handsets for payment processing and getting consumers to
engage with the technology.
Visa’s Wenkler told CI it
does not comment on the number of cards and terminals in any
specific detail but did advise the Smart Card Forum claims there
are 150,000 Visa contactless acceptance locations in the US. He
acknowledges this is not enough to allow the technology to flourish
but insists it is something that is continuing to build.
“For someone analysing the
contactless market in the US, the first thing they would look at is
the number of card readers available,” says Wenkler.
“However, it isn’t about changing
and upgrading every single terminal overnight, it is about focusing
on those locations where upgrading the technology would add value
and not to upgrade for technology’s sake.
“The perception that the acceptance
infrastructure is lacking is not an unfair one, but is an
uninformed one.”
Interactive
dialogue
Johnson claims Isis is not
competing with Visa and MasterCard, saying that they are both
rooted in the plastic world – beginning and ending in payment and
acceptance costs.
“The solution Isis is bringing to
the market is both payment and everything else that is in your
wallet or purse, whether that is loyalty cards, club programmes,
memberships, transit – it is the ability to have interactive
dialogue in-store and in-aisle with product manufacturers and
advertisers,” he says.
“It is a different space we are
working in as our big focus is to dominate the advertising space
and the traditional payment space. Therefore we are not playing
head-to-head with either of those parties.”
Consultant Crone appears baffled
however that Isis do not plan to support private-label credit cards
when its CEO was the head of marketing at GE Money – one of the
world’s largest private label credit companies.
He claims it is important to
promote the merchant tender first when trying to get the merchant
acceptance of a new payment method off the ground. He told
CI this could serve to be a big hurdle for Isis.
So what is next for the
carrier-backed network? It certainly is not giving much away,
preferring to be mysterious in its push to challenge Visa and
MasterCard for a slice of the mobile payments pie. Isis has,
however, committed to bring their offering to market in the next 18
months with a “complete service in both the terminalisation side
and the product road-maps”.
“We are eyes wide open in that the
payments world is extraordinarily difficult to break into,” says
Johnson.
“There aren’t a lot of new entrants
in the payments world, full stop. We are under no illusions that
this is going to be a lay-up or that the road ahead is going to be
an easy one. It is going to be hard to execute and it will take a
lot of time for the dust to settle and for the winners to
emerge.
“However, I am optimistic that Isis
will be among those winners. The market is certainly not going to
concede anything to us.”
It is clear that both the payments
and mobile industries cannot afford to get blinded by the recent
announcements as they still face an uphill struggle to dramatically
increase the number of location points of merchant acceptance.
Isis is trying to approach
merchants in a different way and should be applauded for doing so
but is this all a smokescreen to hide that it is as clueless as its
competitors in thinking up a way for mobile payments to become
cost-effective for merchants?
You do not need CI to tell
you that the payments industry is based on a two party model and
that you cannot have issuance without acceptance.
However, acceptance seems to be taking a back seat when it comes
to NFC and launching an integrated NFC handset too early may risk
millions of dollars of investment and render the technology
unusable.
