[Anthony Pickup] Watching TV can sometimes spark interesting payments-related thoughts. The other night, it struck me how many live news broadcasts are now being performed via Internet services like Skype, at both local and national level, according to Skype. Compared to using a camera man and a dedicated transmission link, the quality is somewhat degraded but the cost is much, much lower.

The degradation is not only in terms of picture quality and sound but also in the unreliability of the connection, with lines dropping out either prior to or during the transmission. The thing is, none of that really matters. Sometimes there are other benefits too:

Monday night saw the first council meeting since the decision had been taken by local politicians in December. That meeting had been marred by disorder and disruption to proceedings by protesters who’d reached the back door of the building. Due to concerns over a repeat of the trouble, the decision was taken not to deploy a satellite truck, but instead to cover the meeting live for BBC Newsline using the Skype app on an iPad.

[From BBC Academy Blogs – Live Skype Broadcast on iPad hits Belfast Deadline]

The cost savings and the resulting access to more content are making these services becoming more and more the norm for news broadcasting, and as the above shows not just for user generated content from Joe Public wielding his mobile phone at accidents.

There’s a parallel with payments.

• EMV is equivalent to the previous norm in broadcasting – each person (payee) is given a card that reliably and securely provides the service at a high cost using dedicated infrastructure. These costs are things like integration and scheme certification.
• Bar codes, QR codes and mobile apps are like Internet broadcasting – each person provides their own infrastructure to make a payment. This may sometimes be less reliable but it’s reliable enough for consumers, both payers and payees to think it’s worth it for the added convenience.

Now, there are still people out there who say we don’t need these new systems because the dedicated card system works just fine. But to extend the metaphor from broadcast cameras to regular cameras, think about that famous business school case study about Kodak. Kodak invented digital photography but shelved the idea, partly because it looked like a threat to what they viewed as their core business and partly because the quality wasn’t good enough. But for consumers it turned out that the lower quality was plenty good enough and the benefits of flexibility, cheapness and convenience far outweighed any initial image quality issues, leading to entirely new social phenomena and businesses. And look what happened to Kodak.

In just the same way as digital photography and Skype is good enough for many consumers and TV watchers, so are lower quality payments. Yes, EMV is more secure, more reliable and so on but for the great majority of low value payments it’s as much an overkill as using an entire film crew and a satellite to send a greeting to Granny.

These are personal opinions and should not be misunderstood as representing the opinions of�
Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Updated 4th March 2013. Please add any comments to 13th March post “NFC Aftershocks“.

[Dave Birch] There was a lot of talk about NFC at this year’s Mobile World Congress in Barcelona, but I can’t say that the opinions I heard were wholly positive. One of the most common opinions was that people were sick of hearing about it, since it’s been talked about for years. Rory Cellan-Jones, the BBC’s Technology Correspondent, put it like this:

In 2007 I was involved in a trial where I used an early NFC phone to get access to London’s transport system and pay for a coffee or a sandwich. The experiment was hailed a success by the companies involved, but although you can now use NFC credit cards on London buses, there is no sign yet of travellers being allowed to swipe in via their phones.

[From BBC News - NFC - not for consumers?]

As it happens, Consult Hyperion were the consultants for that trial so I know rather a lot about it. I would point out that not only was the experiment hailed a success by Visa, O2 and TfL it was also hailed a success by the members of the public who used it.

Nine out of ten participants were happy using NFC technology on a mobile phone and 78% said they would be interested in using contactless services. Perhaps unsurprisingly, given the pervasive use of Oyster cards in London, almost nine in ten of the trial participants said that the availability of the Oyster application would influence their future choice of mobile phones.

[From Digital Money: NFC drivers]

So how is it that nothing has happened in the last few years? It could be that one reason is that the industry as a whole chose an incredibly complicated and expensive mechanism for implementing payments and ticketing in mobile phones, a mechanism based on the presence of tamper-resistant Secure Elements (SEs) in the handsets. (Forum friend Roy Vella used to refer to this, rather amusingly, as the “nine party model”.)

In addition to the complexity was the issue of control. The mobile operators wanted to have the SEs co-located with SIMs on the same UICC, which held things up while the new “Single Wire Protocol” (SWP) was developed and that handsets redesigned. Access to the SE has also been restricted in various ways, and this means that it’s hard for developers to create great new NFC applications. I don’t think it is particularly controversial of me to say that, with the wisdom of hindsight, there were mistakes made. And the consequence is that, as Rory says, there is not a single mobile handset on sale in the UK today that you can use to get on a London bus.

I’m not saying that these technical details are the only problem, although a better understanding of the business implications of those technical decisions might have helped some of the organisations trying to deal with the consequences from making some less-than-optimal decisions about the path through the roadmap. I wonder, for example, if another problem might be that the people looking at business implications today don’t really understand how NFC works.

Whether it’s NFC, a QR code, a smoke signal, passing a note to a friend, it doesn’t matter.” – Paul Galant, Citi

[From Mobile World Congress 2013 - MasterCard’s Mobile World Symposium: mPayments Around The Globe | PYMNTS.com]

I don’t want to make a fuss, but Paul is wrong about this. Yes, NFC is a bit like a QR code in that it can read by a phone, and yes it’s a bit like smoke signal in that it is interactive (albeit over a much shorter range) and yes it’s a bit like passing a note to a friend in that it facilitates private conversations. But to say that it doesn’t matter is a big step. Studies have shown that consumers much prefer a simple tap to messing about with QR codes and while the current “card emulation” implementations of ticketing and payment applications do not take advantage of (or even use) NFC’s interactive peer-to-peer capabilities, they could do and they could use it to delver great customer experiences. I don’t want to use my phone camera to scan a QR code to get on the bus, I want to tap. I don’t want a paper receipt that takes a minute to print, I want the receipt sent via NFC when I tap to buy a coffee.

But back to the technical point about SEs. There were lots of announcements at MWC, but they all hinged on trying to animate the existing “value” chain.

All NFC-enabled digital wallets require access to a secure element on the device

[From Visa's plan to spur NFC mobile wallet adoption may hit a snag | Mobile World Congress - CNET Reviews]

This is not true, but it has been taken as read by the industry. Hence I was surprised that one announcement didn’t attract more attention.

Spanish banking group Bankinter has developed an NFC payments solution that works without a secure element, potentially cutting out both mobile network operators and over-the-top players like Google from the NFC payments business.

[From Bankinter develops NFC payments service that eliminates need for secure elements • NFC World]

This is huge. They have announced an app that doesn’t use the handset manufacturer’s SE or the mobile operator’s SE or indeed an attached SE. It’s just an app that uses NFC, but that uses NFC to make secure transactions that are interoperable with the installed terminal estate. This ail radically reduces the cost of development, deployment and use, so it’s goodbye to the Trusted Service Manager (TSM) and the operator’s “apartment model” of renting SIM space. This is why the announcement of “no secure element” NFC is so important for banks. It means no more having to negotiate with operators and handset manufacturers and no more expensive over-the-air application provisioning. So long as a phone has NFC, it can be used to make payments at a standard, contactless EMV terminal. The next time that a bank sits down across the table to negotiate with an operator, it has a much, much stronger hand..

These are personal opinions and should not be misunderstood as representing the opinions of�
Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.