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Mobile payments and NFC: Who will get paid, and how?
|15 декабря 2010|
A host of players are gearing up to try and turn what has for years been a concept--mobile payments enabled by Near Field Communications technology--into a business reality.Carriers, platform providers and financial services companies have indicated their interest in commercializing mobile payments, yet challenges remain to getting systems off the ground. Furthermore, the complex and interlocking set of relationships among the parties involved mean business models are still being tested, and it is far from certain that any such effort will find mass-market acceptance.
One way or another, they are all looking to cash in on what is projected to be a large opportunity. The worldwide mobile payments market--including purchases of digital and physical goods, money transfers and NFC transactions--will grow from $170 billion in 2010 to almost $630 billion in 2014, according to a recent forecast from Juniper Research.
CCS Insight analyst Geoff Blaber said the mobile payments via NFC market is on the cusp of reality, but the business model remains fuzzy. "It's one thing talking about it," he said. "But it's very different in creating a relationship and platform that links all of these different parties--banks, credit card [companies] and merchants--and creating a consistent platform they can all hook into."
NFC technology is nothing new; it's a communications-based network that allows users to make mobile payments by placing a radio microchip-equipped smartphone in front of a corresponding point-of-sale (POS) unit at a merchant. Nokia has been testing the technology since 2005.
Gerhard Romen, Nokia's director of alliances and communications, said NFC has numerous advantages over existing magnetic strip technology used by most credit cards. Mainly, he said, NFC on phones allows users to "use that mini-computer that you call a mobile phone to help you interact with your environment." Proponents of NFC for mobile payments argue it is fast, simple to understand, secure and allows customers to interact more closely with the places they shop.
MasterCard has been deploying its contactless PayPass POS terminals since 2005, and currently has them installed at an array of merchants, including 7-11, Best Buy, Home Depot and McDonald's. The program mainly works via credit cards or debit cards with RFID chips in them, and MasterCard currently counts 83 million PayPass-capable devices in the market. The service is active in 36 countries and 265,000 merchant locations.
Of course, interoperability also is a key component of NFC, which is where the NFC Forum comes in. The Forum, whose standards help facilitate global interoperability, published four new specifications last week for NFC interoperability, and it also launched a certification program that gives device makers a way to ensure compliance with the Forum's technical specifications.
James Anderson, a board member of the NFC Forum and the head of mobile product development at MasterCard, said that, just like with credit cards, NFC interoperability is crucial to creating a global ecosystem.
"I don't think there's any one reason why it takes a long time to change payments within the U.S. It is a complex ecosystem," said Gloria Colgan, senior vice president of emerging payments at Discover Financial Services. "There's any number of different form factors and different point-of-sale systems. You have complexity up and down the stream. So getting change through that system is not easy."
The best way
to understand how mobile payments actually work--and to understand how the
various players are involved--is to view the system through the lens of an
actual user's progress through an NFC purchase.
A customer buys an NFC-enabled smartphone from a carrier.
The customer links their phone to their bank or credit card account through a secure, over-the-air provisioning process provided by their carrier. Then, that customer's personal profile is generated, and is loaded onto their phone.
When that customer finds something to buy in a store, they wave their phone over an NFC-capable POS terminal that is connected to a payment network operated, for example, by Discover.
The customer's account information, along with other dynamic data, is securely passed to the terminal. Then the terminal performs a "challenge," asking the phone if it is OK to accept the amount.
That command then gets routed from the merchant to an acquiring bank affiliated with the payment network. Then the payment goes through the secure payment network to the customer's issuing bank to determine if the payment can be authorized.
The process goes back through system in an instant, and a customer can walk out and go home with their purchase.
All along this route, various players are trying to get a piece of the value of the customer's transaction. Carriers, in large part, are catalysts for the process since they work with handset makers to enable NFC, and, at least in the U.S., largely control handset distribution. They also have built up strong relationships with customers, and provide merchants and payment systems with large potential customer bases.
"They can play a valuable role in bringing a new service to the market," said MasterCard's Anderson, referring to carriers. "What I've always asked them to do is define what it is they want to do and name a price for doing it. There's a very good chance that banks who I work with would be willing to pay that price."
One possible stumbling block is ensuring that NFC-capable POS terminals are installed where shoppers can use them. Some worry that wireless carriers will have to foot that bill, while others note that merchants could jump on NFC terminals--which go for $100 or less--if the terminals increase customer loyalty and cut down on time in line.
Isis leads the way
The latest, biggest push for mobile payments in the U.S. comes in the form of Isis, the joint venture among Verizon Wireless, AT&T Mobility and T-Mobile USA announced in mid-November. The carriers plan to leverage Discover's payment network, and Barclaycard U.S. will be the first issuer on the network.
The three carriers combined have over 200 million subscribers, and give the initiative scale and market power. "What merchants told us very clearly was, ‘We love the idea of mobile, but we need one standard. What we can't have is a bunch of different standards where it works differently on every carrier,'" said Jaymee Johnson, the director of strategic development for T-Mobile. "That's how we want to see payments really take off. It is the reason why we are going to market this way."
Under Isis' model, customers can walk into their carrier store and purchase a prepaid, debit or credit card linked to the Isis platform. Isis will essentially serve as the "trusted service manager" and as the single platform for over-the-air provisioning of payment credentials, Johnson said.
Johnson said the fundamental relationship between banks and consumers won't change, and that the carriers participating with Isis are not interested in using the platform for carrier billing of purchases.
Isis plans to introduce NFC payment services in key geographic markets within the next 18 months, but Johnson said Isis wants to expand beyond just simple mobile payments to an m-commerce solution. The initiative plans to mobilize loyalty card programs, at grocery stores for instance, so that customers can announce themselves when they walk in and stores can send them personalized offers. If loyalty cards are mobilized, Johnson explained, they would be more convenient for customers to carry and could help stores push their offerings.
Johnson also envisions making different displays and parts of stores NFC-enabled, not just POS terminals at the register. For instance, an end-cap display in a retail store could be NFC-enabled so that customers could purchase goods placed there.
Interestingly, Johnson argued that NFC security is actually more stringent than on credit cards since a customer's CCV number--the three-digit number found on the back of credit cards--can be dynamically created in a mobile environment. Furthermore, he said, phones can be remotely disabled from making payments if they are lost or stolen.
The biggest hurdle right now, Johnson said, is effectively marketing NFC and mobile payments in a crowded mobile services market. The initiative also is trying to attract more banks to something that has yet to fully get off the ground.
"Until you can get out there, it's a little tough know how quick the adoption curve will be," said Discover Financial Services' Colgan. "You're predicting consumer adoption and merchant adoption at the same time, and that's what we have to get out and do simultaneously."
Nor is Isis' model the only one for mobile payments. Sprint Nextel is mulling its own mobile payment options outside of the network.
MasterCard's Anderson said MasterCard is partnering with Orange and Barclaycard in the United Kingdom on its own plan. He sees the end state of mobile payments as an open model where a customer can bring their existing payment relationship to their existing mobile relationship.
What does the future hold?
Other players in the mobile industry also are ramping up their own potential mobile payment solutions. Nokia, which currently has four commercial NFC-enabled handsets, plans to bring NFC capabilities to more of its Symbian phones next year, said Nokia's Romen.
Further, Google integrated NFC support into Android 2.3, and analysts speculate it could start its own mobile payments initiative. Research In Motion has made similar comments about its BlackBerry platform.
A bigger push could come from Apple, analysts said. Apple named NFC veteran Benjamin Vigier as product manager of its mobile commerce unit in August, and also filed for several NFC-related patents earlier this year.
ABI Research analyst Mark Beccue called Apple's mobile payment aspirations a "legitimate threat." Such a service, which would come in the form of an application, would search through a customer's digital wallet and make a payment suggestion based on a variety of factors, including how many loyalty or bonus points a customer might get with the purchase, Beccue said. Indeed, Apple already has a great deal of customer payment information via iTunes.
Isis' Johnson said such a system would bring in only one side of the market. "For this thing to work, for mobile payments in general to have scale and be viable, you need consumers and merchants together," he said. "Anything that doesn't create a really compelling case for merchants is kind of DOA."
What's clear is that the market is still in flux. "I think there's always a lot of different models for the commercialization of a new technology," Anderson said, adding: "There's going to be a period where there's a proliferation of models, and the ones that works for all the parties will win out."
By Phil Goldstein