[Dave Birch] Last year, PayPal’s Patrick Gauthier posted some typically accurate analysis about the US retail payments industry in examining the slow progress on NFC. At that time, Patrick highlighted three key roadblocks.
- The economic buyers – i.e. the Mobile Operators and Issuers – have not solved their rivalry: Behind the scene a furious battle has raged on the ownership of the secure element used to secure transactions, a proxy for the question of who will own the customer relationship.
- Consumers have good enough methods of payments as it is: Without prejudice for the vision behind NFC, the need for a new method of payment delivery based on handsets is tenuous… Absent a reason for consumers to want it and a business case for Issuers to support, standalone payments is an unlikely “killer application.”
- No good path has been proposed to reach a critical mass of users: If I had a penny for every time I have heard about “the-chicken-and-egg” problem, I would be retired by now.
Patrick’s analysis explains the paralysis in the operator-handset-bank domain that has allowed Google Wallet (and next year, I’ll wager, the iPhone, despite the 4GS lull) to steal the agenda. Operators were slow to get behind NFC, but customers liked it and they appear to want more services: hence some observers see the action shifting from a consensual evolution at the interface between the mobile industry and the financial industry to a “screw you” revolution where more aggresive service providers (not only in payments) are using stickers (Albert Hein), microSD (Samsung/Visa) and other technologies (Google Wallet) to simply bypass the bank/operator interface. It’s also worth noting that other players are bypassing the banks and operators in other ways, although that’s not the main point of this post.
We certainly live in very interesting times. The traditional players are zigging – away from mag stripe card technologies (with, perhaps, the exception of Citi and its work with Dynamics) toward a world of NFC/contactless payments. Meanwhile, it seems that PayPal isn’t waiting for that world. Instead, it’s zagging toward a speedier implementation of, arguably, a new and convenient way to pay that’s card-less and avoids the requirements of rebuilding so much of the payments ecosystem.
So I’m not saying that the only way forward for mobile phone-based retail payments is NFC, although I do think that the convenience of NFC ought to translate into pretty significant market share. For what it’s worth, and despite the slow start, the latest forecasts are very bullish about NFC, even in North America.
NFCNews also reported that North America will have the biggest chunk of the NFC market by 2016. This will correspond to around $113 billion in mobile transactions. Furthermore, 1 out of every 5 smartphones worldwide will carry NFC technology come 2014, translating to almost 300 million NFC-enabled smartphones.
As an aside, I read that one UK operator is especially keen to get NFC out of the labs and into the mass market as soon as possible!
MOBILE OPERATOR Everything Everywhere is doing a big push on Near Field Communications (NFC) devices, aiming to get most of its customers onto the mobile payments service by 2012.
They’ll have to get their skates on to get “most” of their customers onto NFC in the next three months, but it’s the spirit of Jason’s message that is important: that NFC is going mainstream. Everything in the garden should be rosy then, but there’s a gloomy prediction for the operators from ArcChart and Research & Markets in their latest report, which I happened to read on a plane a couple of weeks ago.
The researchers also believe that internet companies such as Apple, Google, and Yahoo are best placed to take advantage of this technology.. Incumbent players in the telecoms market are at risk of being left out.
It’s difficult to disagree with this given the current state of things, but it’s not a foregone conclusion. It’s true, I think, that the operators in developed markets made a mistake 2-3 years ago by not ordering NFC handsets. At the time, as we all remember, the operators found it very difficult to justify the additional cost of NFC because they couldn’t see a business case in their spreadsheets and they wanted a more detailed exploitation path. So this is how we’ve got to this point, where even the people who do have handsets with NFC aren’t able to play with it for “serious” applications. Remember this?
Nokia’s C7 handset, released some nine months ago, includes NFC hardware but it is currently inactive. This summer, when the phone gets the Symbian Anna operating system upgrade, the NFC chip will be activated and end users will be able to start using their phones to read and write to NFC tags — but won’t be able to use them for secure NFC services.
It’s fair to observe, as I have done before, that there’s a lot more to NFC than secure services (such as payments). But one cannot negate a universal affirmative, as they used to say on Monty Python’s Flying Circus. A mobile proximity payment service must be secure, but not all secure services are mobile proximity payments. There are plenty of interactive services that will still need to have security. The operators need platforms and interfaces for access to secure NFC services for all sorts of applications, including ones we haven’t thought of yet. Yes, this is more complicated than simple interactions, but that’s why there is more value in it. Hence you can understand why industry observers are somewhat puzzled by operator strategies.
Vodafone in the U.K. is already blocking the NFC of the BlackBerry Bold 9900.
I tried to find out what “blocking” means in this context, but no-one in the office has one of these phones and I didn’t want to rely on second hand knowledge. If they mean blocked completely — as in you can’t read or write tags — that’s ridiculous. If they mean blocked as in you can’t write apps that access the NFC interface that’s ridiculous too, because we need people to get out there and play with this stuff. If they mean blocked as in no access to the UICC SE for SWP, I guess that’s tolerable. You can see the argument: the carrier is subsidising, so they want control. But maybe they are wrong. Maybe control isn’t the way to shape this market. I doubt that Google will open up their secure element, or Apple will open up theirs, so surely this is a way for operators to regain some ground. Open up the secure elements with standard APIs and let people play with the technology!
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Consult Hyperion or any of its clients or suppliers
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