NFC trials are growing but business model is still uncertain
It has been a long time coming, but the momentum behind the provision of near-field communication services by European mobile operators is gathering pace thanks to a number of recent collaborations between operators and banks in different markets.
Mobile operators have realised that the provision of NFC payment services on mobile phones requires a huge amount of cooperation between operators, banks, technology providers and other service providers such as retailers and transport providers, to name just a few.
And although NFC means contactless mobile payments to many, the technology can be applied to numerous services beyond the mobile wallet, such as couponing, loyalty cards, transport tickets, information tags and others.
NFC partnerships are proliferating
Recent mobile operator collaborations in Europe this year include the German mPass joint venture set up in August by Vodafone Germany, Deutsche Telekom and Telefónica Germany and a yet-to-be-named UK venture that was established in June by Everything Everywhere, Vodafone UK and O2 UK. Both ventures will create centralised platforms that will provide services to their respective operator shareholders and other partners and service providers.
In Denmark, TDC, Telenor, TeliaSonera and 3 formed a joint venture in July to provide a common platform and a common brand for NFC services with the aim of ensuring consumers get a safe and smooth experience, regardless of which mobile network operator they subscribe to. The telcos plan to launch this venture by the end of 2012, followed by larger rollouts in 2013.
Meanwhile, Magyar Telekom, Telenor and Vodafone have joined with MasterCard, OTP Bank and loyalty programme operator SuperShop to establish the Hungarian Mobile Wallet Association with the aim of developing a technical and operational infrastructure for NFC services in Hungary. This venture plans to be commercial next year.
Mobile payment joint ventures have proliferated in 2011.
In 2010, Orange France, SFR and Bouygues Telecom launched the Cityzi service in Nice, France, and Dutch operators KPN, Vodafone and T-Mobile Netherlands got together with Dutch banks ING, Rabobank and ABN to form the "Six-pack" Dutch initiative on mobile contactless payments. All these ventures expect to have some services up and running in 2012.
Numerous mobile operators have also launched trial services in individual markets. Cityzi in France and Orange and Barclaycard's Quick Tap initiative in the UK are examples of two European services that have launched commercially.
"I think any of those strategies are viable as they try to create a common platform across various parties to reduce market fragmentation so as to speed adoption," said Sandy Shen, research director at Gartner.
Business model is still unclear
However, Shen noted that there are still considerable challenges ahead that these ventures will have to overcome. "There are quite a number of initiatives in terms of trials, partnership and standardisation," she said. "But they are for the most part a technology push by the solution and service providers. The biggest challenge is that users don't see big benefits in using NFC since cash and cards work well for them. There needs to be incentives for users to change their behaviour."
Phil Sealy, research analyst at ABI Research, agreed that the joint ventures are a good way to provide to drive awareness of NFC and educate users. But mobile operators have not yet identified a clear revenue stream. "In the next six to 12 months they need a clear business model to generate some clear revenue streams," he noted, adding that operators do have some time to figure this out because there are not yet that many NFC-capable handsets available on the market. However, that may soon change, and Sealy said ABI estimates there are currently about 60 NFC handsets in development now.
For example, Cityzi currently uses just one handset from Samsung, but Orange France has said it will be selling a contactless version of the Samsung Galaxy S II beginning in October, and by year-end it expects to be selling eight NFC-enabled handsets in France, including a Research in Motion BlackBerry device. It is currently selling four NFC phones in France: one from LG and three from Samsung.
"The handset issue maybe has slowed down the deployment of NFC," said Laurent Londeix, who is responsible for Orange mobile services in the Cote D'Azur region. "We expect that now to ramp up."
Multiple standards are likely
It's also clear that the SIM-based approach using the Single-Wire Protocol (SWP) will not be the only mobile wallet solution on the market, as Google's recent unveiling of its mobile wallet has demonstrated.
"There will be different standards out there," said Tony Moretta, Everything Everywhere's director of mobile commerce. "There will be other solutions, but we are trying to be the most successful and we believe the customer relationship is very important."
Mobile operators firmly believe that the SIM-based approach is the most secure solution from a customer standpoint: "We can kill the SIM," if the phone gets lost, for example, Moretta added.
The UK joint venture was established two months before the mPass initiative in Germany, and both ventures are planning to be commercially available next year. Vodafone Germany declined to be interviewed for this article, and the operator said that it would be willing to answer more questions once the consortium has reached its next milestone: to roll out mPass within the physical retail market in the first quarter of 2012.
Everything Everywhere is also unable to talk much about business models as yet: the UK venture is still awaiting regulatory clearance at UK and European level, and hopes to achieve this by year-end. Once approved, the three operator partners will agree upon a name and will also decide how the existing Quick Tap venture will be utilised within the venture. "We will carry on the Quick Tap services in the joint venture," Moretta said. "But the intent will be to expand it to all banks and retailers."
He was unable to confirm if the Quick Tap brand will be retained within the venture, saying that all branding issues will be decided following a successful outcome of the regulatory procedure.
Moretta emphasized that the UK joint venture will be about more than just mobile wallet services and NFC. He said the venture will also focus on mobile marketing and advertising and other types of online payments, and he expects these kinds of services to launch very quickly. Contactless payments based on NFC technology are expected to start rolling out next year as more handsets come onto the market, he said.
"We think next year will be a good year for NFC," ABI's Sealy noted. "It is progressing. People are starting to be more realistic now."