Analysis: NFC gets huge boost -- but is it enough?
NFC is being hyped as the glue that will hold the world of mobile payments together. So why is everyone hedging their bets?
New GSMA director general Anne Bouverot recently announced that 45 of the world’s leading operators, including China Mobile and China Unicom, are now committed to supporting SIM-based NFC technology.
GSM devices and technology have always been considered robustly secure. Many years ago a Nordic country experimented with the idea of putting passports onto mobiles because of the security. As Bouverot points out the role of the SIM card is “key to providing authentication and security” for technologies and standards such as NFC. There are, she noted, commercial deployments already being rolled out in France, Japan and Korea, with “many more commercial deployments coming in 2012.” Singapore is essentially insisting on it.
So, why the cynicism?
The stakes in the mobile game are very high. Recent forecasts put the market at $670 billion by 2015 – and almost every prediction is more than the last.
If SIM-based NFC is adopted by 45 mobile telcos, interoperability issues will be much easier to get right at the start. The GSM world is good at standards and interoperability. The very nature of the market and the opportunities in it has been built on co-operation between potential competitors.
There are several reasons for caution, however, if not cynicism.
The GSMA brings together 800 mobile operators, worldwide, so signing up 45, albeit big names, to NFC SIM cards suddenly looks less than universal. Putting NFC on SIMs is fine, but 50 percent of customers in mature markets are proud to own a smartphone already. Replacing a SIM card, for the sake of doing something that can be done easily enough with a credit card – soon a contactless one – is an irritant and the incentive needs to be greater than the often quoted benefits of ‘convenience’ or ‘speed.’
Most importantly, there are others in this ecosystem. While GSM operators are very good at interoperability among themselves and creating communications systems that are world class, they have never had to really co-operate with other, hungry sectors – such as finance and banking, not to mention the Internet sector.
First, bring on the new giants, whose cultures are based on experimentation and innovation and who are not afraid to kill projects that are not working. Google, having invested heavily in its Checkout for Android has ditched it in favor of developing other billing options (CP: Google says bye bye to Checkout, hello to Wallet in mobile payment move). Apple, by nature a closed, if cool, environment is beginning to extend iTunes so that larger ticket items can be purchased. This will be good news for the credit cards that support Apple 200 million or so iTunes accounts. PayPal, whose very business is innovating in the payments space is not sitting still and almost every day increases its predictions about how much money it will process in 2011. Payments giant Verifone recently bought competitor, Point. Credit card companies are trialing new, cool, contactless cards. Banks, the leviathans of the money world, the institutions that are trusted by Governments and customers alike to manage money – against all odds – are awakening. Slow moving they may be, but big they are, and they are not about to let anyone eat their lunch.
Having considered all that, spare a thought for the merchants. Having just invested in upgrading credit card terminals across the world, they are about to be asked to do it again – and if NFC is not the only game in town – again and again. Plus, quietly and persistently, merchants are being asked to pay commissions – to telcos, Apple, PayPal and others – of up to 30 percent, although ten percent seems to be the level for telcos. Credit card companies have, and always will, charge a maximum of three percent. Merchants are used to paying three percent, and used to paying one provider.
In short, everyone is hedging their bets. And the table stakes are huge. Hundreds of millions of dollars across the board are being invested in everything from NFC, to joint ventures, to startups, to contactless cards – and no-one has a really clear idea of who will win.
The fact is that, in this, there needs to be a winner. Folk may rumble on about customers (aha, we get to customers) wanting choice. This is true, up to a point. Confronted by three terminals and a choice between plastic and phone and key fob with three PIN numbers to remember, the customer might well sigh, smile and hand over a good old fashioned twenty.
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© 2013 Penton Media Inc.
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