VeriFone’s Tony Saunders provides insight into how near field communications looks set to transform mobile phones into handy contactless payment devices that open the way to rapid PoS payments – and also herald a new era of compelling and innovative loyalty and promotion applications for retailers.
Today’s consumers are increasingly receptive to services or features they perceive as convenient and ‘useful to me’. The popularity of Apple’s iPhone, and acceptance that mobile phones are now devices hosting multiple applications, means that the public are ready to accept near field communications (NFC) as a method of payment.
Now, billions of mobile phones worldwide are being enhanced with NFC technology to enable a host of near-proximity applications, including mobile payments, or m-payments. The latest step in the evolution of payments is giving consumers access to fast, secure and cashless payments at the physical point of sale (PoS).
The NFC wireless connectivity standard provides intuitive, simple and safe communication between electronic devices. When two NFC-enabled devices – such as a mobile phone and contactless payment device – are brought within approximately four inches of one another, a connection is made. With a simple wave or touch of a mobile phone, electronic payment transactions can be processed quickly and securely.
The unprecedented possibilities of this technology to deliver fast, ubiquitous payment is creating a rapidly emerging market, one that research firm Juniper Research predicted in a study published in November 2009 will reach $110 billion by 2014.
The addition of NFC technology to mobile phones opens the way to a variety of new applications, including ticketing and access control, where a mobile phone functions as an electronic key to a hotel room or home. However, it is a technology ideally suited to transform mobile phones into next generation m-payment devices and could make the much vaunted vision of the ‘cashless society’ an achievable reality.
M-payment is particularly applicable for low-value cash transactions not currently being captured by electronic payment providers, including those made at vending machines, parking meters, turnstiles and small purchases in retail stores and fast food restaurants.
Mobile payment pilot projects have demonstrated that consumers value the convenience of being able to use their mobile phone to purchase goods and services, identifying faster check-out transactions, queue avoidance and the ability to undertake a cashless transaction among the perceived primary benefits. But fast, on-the-move payment is just one aspect of how NFC technologies will enable a changing retail landscape.
Around the world, implementations of NFC-enabled contactless m-payments are growing. Since 2005, Japanese mobile network operator (MNO) NTT DoCoMo, in conjunction with Sumitomo Mitsui Card and Sumitomo Mitsui Banking Corporation, has offered a popular credit-payment service using DoCoMo NFC-enabled “mobile wallet” phones equipped with smart-card functions for cashless payment.
In China, China Mobile, the world’s largest MNO, is revisiting NFC and has plans for a commercial roll-out of mobile contactless payments. The deployment will commence with a large-scale pilot to be held alongside the 2010 World Expo in Shanghai. In this case, it is expected that the operators will opt for a cheaper version of NFC which will allow handsets to be retrofitted with the technology, rather than requiring users to upgrade their devices.
Tapping into competitive advantage
The level of security afforded by NFC-enabled mobile phones is attractive for retailers and consumers alike. Contactless payment relies on variations of dynamic card validation value, or DCVV; meaning that every time the phone is waved or tapped, an internal counter rolls over – a feature that eliminates a common card-skimming practice known as ‘replay fraud’.
Multiple additional security features are also being built into the latest NFC-enabled m-payment phones, which promise extra robustness and an advantage even over EMV-approved smart cards. Added to this, end-users appear highly receptive to m-payment.
In a recent US survey, 57 percent of those polled said they were interested in a mobile phone that could handle m-payments, and approximately 6 in 10 would switch banks or mobile phone carriers to get the service.
NFC contactless mobile payment represents a very significant market opportunity for the entire payment value chain. As momentum for NFC solutions accelerates, retailers will be looking to payment solution providers that can minimise costs and time-to-market for deploying contactless devices.
The mass market roll-out of mobile-initiated payment is just around the corner. French retail giant Carrefour recently announced it has teamed up with three MNOs to initiate large-scale NFC payment trials. Under the scheme, consumers will be able to store and redeem mobile coupons, and replace existing store cards with loyalty cards that are held and updated on their phones.
Marketing and loyalty discount schemes are seen as key to ensuring swift adoption of NFC by consumers. MasterCard is currently running a m-payments trial in India which is seeing 5,000 consumers using their NFC-enabled devices to make purchases at about 400 retailers in Bangalore. Users are enjoying benefits, such as 20 percent discounts with booksellers, as part of the scheme.
Asia in the lead
As with many new mobile technologies, Asia is leading the way. And, while the eyes of the world are watching and learning, there is also an acceptance that the market conditions differ greatly to those in the West. In India, for example, the payment card infrastructure is underdeveloped compared to Europe and the US. While millions of Indians have access to mobile phones, relatively few use (or have access to) payment cards, so there is little competition for NFC payments. In some markets, m-payments are delivering previously unavailable financial services to the unbanked masses, whereas in others, it is bringing convenience.
NFC-enabled payments offer real opportunities for retailers to increase the number of customers making contactless payment transactions, deliver services that improve customer convenience and loyalty, and enhance the shopping experience. As mobile phones evolve into lifestyle devices, the next evolution in electronic payment is already in our hands.