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Mobile payment ventures must make progress quickly--or opportunity may be lost

Analysts say operators must move within the next 6-9 months
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Collaborations between European operators to drive the launch of contactless payments and other mobile services based on near field communications (NFC) technology sprang up all over Europe in 2011, as operators spooked by the announcement of Google Wallet stepped up efforts to secure their piece of the pie.

A year later and progress so far can only be described as "limited."  The Sixpack alliance in the Netherlands no longer exists, and the UK venture with the working title of "Project Oscar"  has only just gained much-delayed approval from the European Union, to name two recent developments. At the same time, Google Wallet has not yet gained widespread traction in Europe.

"Not many ventures have demonstrated good success so far," said Sandy Shen, research director at Gartner, noting that penetration of NFC smartphones is also still too low to make it meaningful for a wide adoption of the service. She also said the ecosystem in most markets outside of Japan is still under-developed.

For Western Europe as a whole, Gartner forecasts that in 2012 the number of NFC users will be 22.8 million and the transaction value for mobile payments including SMS, WAP and NFC will be $20.3 billion (15.7 billion) in 2012.

Progress comes slowly

However, some progress has been made. The French Cityzi service developed by France Telecom, Bouygues Telecom, SFR and NRJ Mobile has continued to grow, with more than 1 million NFC smartphones sold to French consumers by the end of June. The German mPass service is up and running and available to all German mobile subscribers. Additionally, there are various standalone developments, such as the recent agreements between MasterCard and operators including Deutsche Telekom and Everything Everywhere (now known as "EE") on the development of NFC services, and the existing Quick Tap services provided by Orange and Barclaycard in the UK.

Adoption of NFC for mobile payments has been slow.

Yet analysts warn that operators need increase the momentum soon if they want to take a leading role in the area of NFC-based mobile services, particularly payments.

John Devlin, an analyst at ABI Research who covers autoID and smart cards, said if operators do not move within the next six to nine months, they risk losing the initiative. "The likes of PayPal, Amazon, and alternative means of payment based on QR codes or electronic wallets are starting to gain traction within the retail space, so if people want to push this they are going to have to move fast,"  Devlin said.

Devlin says a key issue is that mobile operators are still not entirely sure how to price the services. Furthermore, retailers want to see a capped or complete removal of the interchange fees that NFC inherently involves. "Retailers are not convinced yet by NFC, it's fairly safe to say," Devlin added.

This is supported by a recent report from NFC Times, which noted that major retail group Tesco has still not committed to rolling out the technology, even though it is continuing to trial NFC technology in 34 UK stores.

"The judges are still out on this from our end," Frans Falize, international director of dotcom for Tesco, told NFC Times. Falize cited security concerns among customers as a key sticking point, and said banks and other service providers need to demonstrate that NFC is secure.

Interestingly, Falize also ruled out QR Codes as a technology with much future potential, and said he did not think the use of 2D barcodes on mobile phones would take off as a means of payment.

Cityzi pushes adoption in France

Other retailers are taking the plunge with NFC, however: NFC Times said Tier 1 merchants that have adopted contactless in the UK are McDonald's, Starbucks and Marks & Spencer. In France, the Cityzi services are already commercially in use in Nice, Strasbourg and Caen, and trials are underway in 12 more cities.

Laurent Jullien, spokesman for the AFSCM (Association Française du Sans Contact Mobile) and director of contactless and payment services at Bouygues Telecom, conceded that Cityzi user numbers are still small in France: "It's still a relatively small number compared with the base, but the number is rapidly increasing because the number of available handsets is increasing," he said.

Laurent Jullien

Indeed, Cityzi is now supports 21 NFC-compatible smartphones, and ABI's Devlin said 50 per cent of all smartphones are expected to have NFC by 2016.

The two main Cityzi services are payments and transport,  Jullien said, adding that between 80 per cent and 90 per cent of POS terminals at large retailers in France are expected to be compatible with contactless technology by the end of 2013.

Nevertheless, operators still have a number of hurdles to overcome, including encouraging banks to make the services more obvious to customers and also developing an automatic way to allow users to take their Cityzi wallet with them should they switch mobile service provider--something that is currently not possible to do.

The objective right now is to get all the 15 cities up and running with NFC services in 2013 and 2014: "When all these projects are rolled out, bingo!" Jullien said.

Obstacles remain

The Cityzi approach is different from the recently approved UK joint venture, which plans to offer an open SIM-based mobile wallet platform spanning numerous smartphones platforms and handsets, and to provide a single contact point for brands, media agencies and retailers for opt-in mobile marketing campaigns, said Natasha Rybak, principal analyst for consumer services in Europe at Current Analysis.

In France, each mobile operator is able to appoint its own trusted service manager (TSM), instead of having a single TSM that is owned and operated by the JV.

"More unusual with regard to the UK joint venture is its additional emphasis on providing a streamlined, large-scale marketing resource for retailers and advertisers, enabling mobile loyalty and promotions initiatives in tandem with mobile payments deployments," Rybak said.

Devlin noted that while it's good news for NFC proponents that the UK did finally get EU approval, the long delay was a key reason behind the decision by Dutch operators to abandon the Sixpack joint venture approach and consider different options. Other ventures will now be closely watching what Project Oscar does next, and the coming year will be critical for mobile NFC services.

"It's not all doom and gloom: there are some green shoots," Devlin said, adding that ABI Research has raised its 2012 forecast for NFC handset shipments to 93 million from 80 million, and is expecting the figure to more than double in 2013. "A year ago I was skeptical,"  Devlin said. "Now I think it could happen."