Collaboration starts to pay dividends

Mobile operators in the region follow Japan's lead and embrace near-field communication technology in cooperation with large financial companies. Will consumers and retailers get interested and a viable business model emerge‾

Although mobile contactless payment using near-field communication (NFC) technology has found success in Japan, thanks mainly to NTT DoCoMo's aggressive push with Mobile Felica, it is still an uncertain business model elsewhere in Asia.

However, that may soon change. NFC is expected to move one step closer toward wide-scale commercialization in Asia and worldwide during the next five years, thanks to a concerted push from the mobile operator community and a better understanding among major stakeholders within the technology's ecosystem.

Already, there are more than 25 trials underway in Asia, Europe and North America just since 2005. These early attempts are small-scale and largely driven by credit card companies and NFC supporters. They are centered on testing the infrastructure and the technology itself.

However, the recent focus has shifted to moving these trials into actual commercial deployment.
More significantly, a series of announcements during the last six months indicates that NFC is gaining support from the mobile operator community, giving the technology a much-needed push toward true commercial deployment.

'Mobile operators for a long period of time have been waiting for the right time, the right business model and the right technology to jump into this market,' says Patrick Henzen, regional marketing manager for identification at NXP Semiconductors. 'And now they are in the driver's seat, as the market becomes more mature for commercialization.'

Henzen adds that the Pay-You Mobile initiative, announced by the GSM Association in February, is 'the best news' for the industry since it should help promote the global deployment of the technology. 

Trial program

The initiative, which has gained support from 24 mobile operators including China Mobile, Vodafone and AT&T, as well as handset makers like Nokia, Samsung Electronics and LG Electronics, is intended to develop a standardized solution enabling NFC applications to be stored on the phone's SIM cards.

The initiative, according to the GSMA, will begin with a business-model analysis and include an end-to-end trial in Korea, led by KTF, along with LG Electronics and Samsung Electronics, in October.

The trial will also include other key participants in the value chain, from banks and credit card providers to merchants and universal integrated circuit card (UICC) manufacturers. Similar trials are also scheduled to start in Q3 and Q4 by operators in Europe and Asia, says Dr. Nav Bains, project director at the GSMA.

The initial focus of the program will center on mobile payments like credit/debit cards, he says, adding that the GSMA is also in talks with other financial services companies about how they might participate.

Ovum analyst Vincent Poulbere says the choice of SIM is strategic for the operators because it helps them play an important role in enabling contactless applications.


The operator's requirements, he wrote in a research note, place much weight on the handset makers, as operators are the main purchasing party for phones.

Meanwhile, a number of other initiatives have also developed through partnerships with Master Card and Visa International that will further accelerate commercial deployment. One of the most notable examples is the announcement by SK Telecom and Visa in February to launch what they claim is the industry's first contactless payment application on a universal SIM (USIM) card through over-the-air (OTA) technology.

It enables users to activate their Visa account and install the Wave contactless payment application directly onto their handsets via OTA without having to visit their banks. As part of the partnership, the two partners also launched commercial services in South Korea in April with an OTA solution based on Visa's global payment platform introduced in February.

The SK Telecom-Visa program, touted as the largest of its kind, will allow 30,000 SK Telecom 3G customers use LG-supplied W-CDMA handsets to purchase goods and services at 1,500 merchants and retailers in the initial stage, according to Gordon Cooper, regional head of mobile payment and emerging products for Visa International.

'This is an important component of SK Telecom's 3G's offerings and also the largest mobile payment marketing campaign Visa has ever had,' he says.

In addition to SK Telecom, Visa recently completed a four-month pilot in Malaysia with Maxis Communication, and another with Cingular in the US, using NFC technology [see table on next page].

Low-value transactions

Although NFC can enable a wide range of applications - including contactless payment, account management, OTA personalization, ticketing, balance checking, person-to-person fund transfer and more - analysts believe its biggest potential will be with mobile micropayment services.

Alan Goode, principal analyst at Juniper Research, says NFC is fit for sub-$20 transactions and will become the mobile commerce platform of choice at merchants and retail point of sale.

One driver, not surprisingly, is the fact that credit card penetration and use is relatively low in many Asian markets. Since mobile penetration and use is relatively high in Asia, analysts say this provides a strong opportunity for mobile operators.

Visa's Cooper concurs, noting that the company received a favorable response from both merchants and consumers in its pilot in Malaysia with Maxis last year.

Merchants liked it because of the shorter processing times and the convenience of not having to keep too much cash on hand, he says. Meanwhile, consumers liked being able to use their phone at a wider range of merchants and for transit payments, as well as to pay bills and to access their credit card and debit card balances, he adds.

Juniper Research predicts that the global transaction value of mobile payments (made at both physical retail/merchant location using NFC technology and remotely via SMS or person-to-person) will jump sharply during the next five years, increasing from $2 billion this year to $22 billion in 2011. The user base will expand nearly three times from 79 million to 204 million during the same period. Meanwhile, Juniper says mobile payment users at physical merchants/retail locations will increase from 3 million to 52 million, with revenues generated increasing from $78 million to $12 billion, during the same period.  By 2011 the firm predicts an estimated 12% (or 468 million) of the total handsets will be NFC-enabled.


Better collaboration

Despite recent progress, industry players concede that NFC is still in its infancy, and there are a number of issues to resolve before NFC gains mass adoption.

While issues like standard interoperability and security can be overcome in the near future, industry players agree that the most crucial and complex issue around the commercial deployment of NFC mobile payment services is creating a business model that is mutually beneficial to all stakeholders within the ecosystem, yet appealing to consumers.

This is particular vital for mobile operators striving to extract value from the provisioning of contactless payment services. Indeed, getting all parties to work together is a major challenge, given that key stakeholders, particularly mobile operators and banking organizations, represent different markets with competing interest.

The good news is that there are signs that the relationship between the two industries has improved recently. Unlike a few years ago, notes Goode at Juniper Research, mobile operators (which once feared losing control and customers in the new ecosystem) now are more willing to work with banks and credit card companies. And Cooper cites the partnerships with SK Telecom, Maxis and Cingular as examples of cooperation between the two industries.

'Mobile payment is a long-term investment, and stakeholders in the value chain need to work together,' he says. 'To make anything work, collaboration is going to be essential because the nature of this game is to bring the two worlds together.'