For Now, NFC Payment Hindered by Skeptical Carriers, Expert Says

Consumers who participated in a recently ended test in Atlanta of contactless payment on mobile phones may have warmed to the technology (Digital Transactions News, Sept. 8), but banks, transaction processors, independent sales organizations, and other players looking to cash in could now face a formidable hurdle: the wireless phone companies. Some observers point to struggles within these mobile operators to justify investments in near-field communication (NFC), the technology that allows seamless two-way links between handsets and receivers and forms the basis for contactless payment via cell phone. As a result of this and other factors, ABI Research, an Oyster Bay, N.Y.-based firm that follows NFC, recently forecast NFC-enabled handset shipments would drop to 450 million units worldwide in 2011 from 500 million in 2010. “There's still an extremely large potential for NFC, it's just taking more time,” says Stuart Carlaw, London-based principal analyst for the firm. Indeed, the forecast for 2011 would represent almost 30% of handset shipments, ABI points out. But for now, the carriers are looking at contactless payments enabled by NFC as the only way to pay for investments in NFC phones and infrastructure, and they're not convinced payments would generate the returns they're looking for, Carlaw says. This seems to be the case even though the technology would enable other services that could be popular, such as mobile provisioning of everything from tickets to coupons and new credit cards. “We think [that point of view] is a little nearsighted,” says Carlaw. This issue is crucial because mobile operators are the entities that specify technology for phones and supply the handsets to consumers. While the operators aren't involved in contactless payments at the point of sale, their networks are used when subscribers' phones link with media, such as posters or signs, that contain NFC chips to download digital content and Internet links. The networks are also necessary for over-the-air downloads of cards and other payment data from issuers. With the links to signs and posters, a process known as “service discovery,” operators can sell on- and off-deck content and charge fees for providing billing services. But establishing the infrastructure for this is something carriers aren't eager to plunge into. “Service discovery is a little more difficult,” says Carlaw. “It's a little harder for them to get their heads around how to make money from that. It's location specific, as well. You have to coordinate those posters with the location.” (In related news, the NFC Forum, a group set up to develop technical standards, announced on Thursday a specification for content on NFC chips embedded in signs?so-called smart posters). A related issue is where the NFC technology will reside on phones. In the Atlanta contactless payment pilot, concluded this summer, it was a chip embedded in the cover of a Nokia model 3220 handset (Digital Transactions News, Dec. 23, 2005). Carriers want NFC capability to be built into the so-called SIM card, the network chip that identifies subscribers and runs other key functions on the phone. But banks aren't convinced SIM cards are secure, Carlaw says. This sets up a potential battle over control of the customer. “Wireless networks like to have the primary relationship with the customer,” Carlaw says. “Anything that erodes that creates institutional inertia.” What might break the impasse sooner rather than later is a major move into NFC by a mobile virtual network operator (MVNO), typically a high-profile consumer brand that resells wireless service and content from the carriers. MVNOs have no vested interest in the network itself, Carlaw points out, and might see potential in selling NFC services. “Anything that would give them a market-leading position would be looked upon favorably,” he says. “That's where we'll see the first hint of movement.” For all the current wrangling over economics, Carlaw remains optimistic about the long-run potential for NFC-enabled contactless payment. “There's no evidence there's a deal-breaker” that would stop NFC in its tracks, he says.