The carriers are putting some real impetus behind NFC-based mobile payments before the year is out. Earlier this month, the US venture Isis went live with its digital wallet service, and now Vodafone is rolling out a similar offering across all its European markets. Operators are trying to inject new momentum into NFC, which has seen slow uptake, but which cellcos prefer because it gives them a high level of control via the SIM card. However, Google’s latest moves may rob cellcos of that advantage even where NFC is deployed.
Seeking to build a head of steam before negative forces can build, Vodafone will, over the coming months, provide smartphone-based wallet services in Spain ‘ which goes live this week ‘ followed by Germany in mid-December and the Netherlands, the UK and Italy in the spring. Other markets should follow later.
Vodafone Wallet is based around SmartPass, a mobile payments application co-developed with Visa, and also holds loyalty cards, gift vouchers, travel tickets and other such items in digital form. Other payments apps may be supported in future to encourage partnerships with different financial institutions.
In Europe, Vodafone Wallet and Vodafone SmartPass will be able to tap into about 1.2m NFC-enabled terminals around Europe and will be available initially on certain smartphones from Samsung, Sony and HTC, with more to come next year.
Vodafone has high ambitions for its wallet, aiming to leverage its geographical reach and scale to establish an international platform. It is working with major European banks to integrate their cards into its wallet and says its system is the first in Europe to support the GlobalPlatform open standard, which will help it to build a developer ecosystem and see its wallet integrated into third party services.
Christian Wirtz, group m-commerce director at the operator, said in a statement: “By building our service on the latest GlobalPlatform standard as opposed to a proprietary system, our mobile wallet is open to all third party service providers, including banks and financial institutions, and we are focused on delivering the broadest service portfolio possible.”
Success in this area is important to cellcos because NFC is generally implemented tightly integrated with the SIM card, and therefore is under the operator’s control, giving them a more important role in the payments value chain than web-based solutions like mobile PayPal. But carriers will have to compete with those alternatives – which are often more natural to customers, because they already use them online. Also they do not require new equipment to be adopted by merchants or particular devices by users ‘ key reasons why PayPal itself has defocus on NFC in its various m-payments trials.
In a recent study, research group Gartner predicted that mobile payment transactions would hit $235.4bn in value this year, up 44% on 2012, but the firm slashed the forecast value of NFC transactions by more than 40% in the same period. It blamed ‘disappointing adoption of NFC technology in all markets in 2012 and the fact that some high profile services, such as Google Wallet and Isis, are struggling to gain traction.’
Vodafone is addressing that to some extent because SmartPass does not have to work with NFC, although the operator will certainly be encouraging uptake of the contactless payment standard. But customers without NFC handsets can download the SmartPass app and apply for an ‘NFC tag’ to attach to their device ‘ if they are featurephone users, they can use the tag but will have to fund the account via a website.
Services like Vodafone Wallet will also be competing with other NFC wallet offerings branded by the platform providers, though in Europe, the cellcos have led the way and are getting in ahead of Google Wallet ‘ which is only available in the US so far ‘ and Apple, which is cool on NFC and whose wallet so far holds tickets and loyalty but not cash. However, Samsung is likely to push its own wallet worldwide, so Vodafone has a small window of opportunity, and in some of its markets will face rival services from other operators.
Success in this area will depend on the whole payments experience, not specifically on the wallet. Despite the work with MasterPass, MasterCard is cautious about the digital wallet hype. The aim is to create a platform on which merchants and financial institutions can innovate and create experiences that consumers love ‘ the wallet is not an end in itself, despite often being presented that way by the warring device makers and operators. Edward Olebe, group head of MasterPass, told Mobile World that the wallet itself is just a place to store things securely, and MasterPass aims to go well beyond that to enable the development of ‘cool shopping experiences in an easy and secure manner’.
Vodafone has extensive experience of m-payments, particularly in its African and Indian territories, where its M-Pesa system enjoys high growth rates. However, this is mainly SMS-based and is targeted at the unbanked populations rather than at plastic card replacement. M-Pesa does reveal the right way to approach m-commerce ‘ rather than getting hung up on a single technology or brand, it provides genuinely useful and usable services which do tie consumers into an operator platform, but in a transparent way. Carriers will need to learn these lessons in their developed market activities, or risk another hefty investment in a technology to which consumers are indifferent.
Even if they can stir up enthusiasm for NFC-based services, Google may put a spanner in the works by sidelining the carrier’s role in this standard. The search giant gave NFC a boost in the latest Android release, KitKat, by making it easier for developers to include it in their apps. But it does this by moving personal credentials off the secure element in mobile devices, in other words the carrier-controlled SIM card or equivalent.
Focusing security here makes it hard for developers to access the technology, so Google is offering an alternative approach, which will, of course, have the side-effect of reducing operators’ status in the value chain. This is called Host Card Emulation (HCE) and it ties the NFC chip into the application, which in turn connects to the cloud for payment processing ‘ bypassing the secure element. Of course, that raises concerns about security and card networks may be nervous of certifying such a solution ‘ it may be that HCE is used to harness non-payments aspects of NFC functionality, such as rewards programs, ticketing, or the exchange of data, such as contacts, by ‘bumping’ handsets together. Many of the early NFC pioneers, such as Nokia, have seen greater potential for these types of uses than for payments.
Jordan McKee, an analyst at Yankee Group, told WirelessWeek: ‘Hopefully we’ll see a bit of a renaissance happen where NFC moves out of niche status and starts to go more mainstream’, but he doesn’t see a big role for cellcos in that process. He believes they ‘try to find a place in the value chain and they’re really clutching at straws when they do. All the sudden the opportunity kind of evaporates and they’re relegated again to a dumb pipe.’