Operators are pinning high hopes on NFC-enabled mobile payments. If the handset, whose SIM card they control, can be turned into a payment card, they believe they can generate revenues, in the form of transaction fees. But the road to that goal is a tough one. Consumers have to become accustomed to using their phones to buy goods, and to trust the process; merchants have to support the infrastructure; and cellcos have to find common cause with financial institutions and other members of the value chain.
The latest casualty of this complex process is a Dutch joint venture called Sixpack, which was to have seen KPN and Vodafone joining forces with three banks (ABN Amro, ING and Rabobank) to provide a national mobile wallet service. But the project has been halted because it was “too costly and taking too long”, according to the group.
Wim Westerhof of Rabobank, who had been the project’s program director, told NFC World that there were also complex legal and competitive issues. “It was far more complex than we originally thought it would be,” he said. He said the participants still planned to cooperate, but without a formal joint venture.
Sixpack had suffered various setbacks before calling it quits last week. It had postponed its launch target from 2012 to the first half of next year, and the third Dutch cellco, T-Mobile, left the group at the end of last year, saying it would develop its own m-wallet.
The Netherlands is certainly not the only market where m-payments initiatives have fallen into trouble. While in Japanese cellcos, the frontrunners in m-wallets, have pursued their own strategies and achieved massive uptake, in western economies operators have often felt there would be safety in numbers. They argued that, by agreeing on a common platform for transactions and security, they would reduce fragmentation, encourage consumer and developer acceptance, and strengthen their position vis-a-vis the web players and the banks when negotiating the revenue share.
But such ventures in the US, UK, France, Sweden and many other countries have acknowledged the complexity of the task. The UK’s effort has come up against legal challenges from the country’s fourth cellco, 3UK, which is not included in the JV created by the other three (Everything Everywhere, Vodafone and O2). And the US’s Isis partnership, between Verizon, AT&T and T-Mobile, had to compromise on its initial ambitious strategy to sideline the powerful card processors like Visa, and has now welcomed such powerhouses into the fold.
Isis, which is trialling its services, faces competition from Google Wallet, which reduces the role of the operator in the payments chain ‘ but also highlights the challenges for any NFC-based plan, whoever leads it. Uptake has been slow because of several key factors ‘ a shortage of supporting devices and operators; the effort and expense of getting terminals adopted by merchants; security scares; and hostility from rival providers, in this case Verizon (which offers the Galaxy Nexus, the main handset to support Google Wallet, but does not activate the application).
The risks surrounding NFC payments, and the rise of alternative mobile money solutions like those of PayPal or Square, mean that many device and component makers are more heavily focused on other uses for the near-range contactless technology. Samsung has announced NFC TechTile stickers, which interact with the phone to support a variety of data transfer applications, and Nokia is also primarily focused on contact exchange by tapping handsets together. Apple is wary of NFC altogether. Broadcom is one chip supplier which sees NFC as an important way to integrate the smartphone into the home media network, allowing for instant sign-on or content exchange with NFC-enabled TVs.
However, there is no obvious revenue for the cellcos from such applications, so they continue to chase payments, and some analyst firms believe they will be proved right in the end. According to a new report by Juniper Research, NFC-based retail payments will exceed $180bn globally by 2017, a sevenfold increase over 2012. And although, outside Japan, early m-payments have mainly been driven by emerging economies and the ‘unbanked’, by 2017 90% of the transactions value will be in North America, western Europe and the Far East, including China.
Juniper says several milestones were reached in 2011, including the finalization of infrastructure standards, broader cellco commitment and a range of pilots.
The report found that 2011 was a watershed year for NFC payments. Major technology infrastructure standards were finalized, many mobile network operators committed to the market and pilots began, and many handset makers incorporated NFC in their platforms, notably Google. However, the report does warn that retailers are cautious about investing in further new infrastructure so soon after many implemented ‘chip & PIN’ payments.
Report co-author Windsor Holden commented: “This is a critical time for the NFC retail payments market. Despite the significant progress being made today, the full potential of the market can only be fulfilled if all ecosystem players are equally committed and mobile wallet consortia remain in place.’
Visa itself is remaining cautious about m-payments. Its head of mobile, Bill Gajda, told CNet that he does not expect phone-based NFC payments to enter the mainstream in the US for another 2-3 years. “We’re seeing momentum in 2013,” he said. “But it’s really about commercial launches and scale.” This is despite some high profile trials in which Visa has taken the lead, s,uch as setting up 140,000 NFC terminals to support the London Olympic Games.