NFC payments to go
mainstream?
One of the
most interesting applications Near Field Communication (NFC)
technology enables on a mobile phone is contactless payments. In
the not too distant future, people with NFC-enabled phones will be
able to wave-and-pay with their mobile at the Point of Sale (POS)
in a shop or pay their friends through peer-to-peer payments by
touching phones together.
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The technology behind NFC is the
same as is used in contactless payment cards such as MasterCard
PayPass or Visa PayWave. This means that for POS purchases at
least, exactly the same standards and networks used by contactless
cards can be used for a contactless payment “card” carried in a
phone.
But there are differences. How do
you ensure a contactless payment “card” application works on any
mobile phone’s SIM? This is exactly what smart card standards body
GlobalPlatform has announced it would be working towards, in
partnership with card payments standards body EMVCo, and industry
body GSMA. Securely issuing, moving to another phone and revoking a
contactless payment application are other aspects also being worked
on by GlobalPlatform.
Meanwhile, Barclays and Barclaycard
announced this month that since January there has been a 217% rise
in monthly contactless transactions in the UK, with over 150,000
processed in September alone. But this is still only a tiny
fraction of card payments, or of cash payments – which are the real
prize to be replaced.
Part of the problem is that issuers
will not issue contactless cards if terminals are not already
deployed, and conversely, merchants will not spend money on new
terminals if a significant percentage of their customer base cannot
use them.
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By GlobalDataThis, however, is changing. Many
large banks in Europe in particular have announced this year that
they are moving to issue contactless cards, and a host of UK
retailers such as Subway, Pret A Manger, Boots, and Spar and Ikea,
have announced they are installing contactless terminals. This is
good news for phone-based NFC payments, which can use the same POS
terminals.
Trust in the security of
contactless payments is another factor that will either propel
forward or hold back the market, as highlighted in the UK National
Payments Plan progress report published in June this year, which
said: “[The lack of consumer trust] could only be resolved by
ensuring that security standards are high and that contactless
products deliver a good level of consumer protection.”
Fortunately, security standards
developed for contactless payments at the POS are already in place
and are equally applicable, whether the contactless payment is via
a chip on a card or mobile device. These include a unique card
verification value generated for each contactless transaction, and
limits to the number and value of the transactions that can be made
before you have to enter a PIN, preventing large sums from being
stolen.
The standards to connect NFC into
mobile phones have been around for a couple of years now, but we
haven’t seen the market take off. So what will it take?
At the start of this year, it
seemed that a number of “bridging” technologies could be an
excellent way to enable issuers make mobile payments available
without waiting for consumers to have NFC capable phones. They
included SD Cards with NFC, SIMs with NFC, and contactless card
stickers. Canadian mobile payments company EnStream launched a
trial of its new ZoomPass Tag in March; a device with the same
capabilities and mechanics as a contactless card, but in the form
of a sticker that can be attached to your mobile phone.
More recently however, another
contender has emerged, and one that is renowned for ‘game changing’
the market: Apple. Apple’s interest in NFC technology and mobile
payments, including filing patents, hiring product managers,
working with Gemalto on SIMs and an alleged bidding war with Google
for Boku, all make it seem increasingly likely that the “iPhone 5”
will come with NFC built in.
Apple may well blaze its own trail
and create innovative NFC payment ecosystems, thus capturing a
slice of the transaction revenue too, as it has done with phone
calls and music sales. Whatever it does, let’s hope it takes into
account the growing standards and the security needed to engender
trust in contactless payments.
Apple is number three in smartphone sales behind RIM and
Android, but they grab the headlines, and other phone vendors seem
to follow. So we could see all smartphones enabled with NFC and
mobile payments. Now that would really take NFC payments
mainstream.
