Today’s announcement of a ground-breaking JV on mobile payments (m-payments) by UK operators will only intensify the frenzy of excitement in recent months around Near-Field Communications (NFC). This makes it all the more important to examine whether all the ingredients are in place for NFC to take off anytime soon in North America or Europe or whether should we expect more deployment, more quickly, from Asian nations. This article discusses those essential ingredients and compares the lie of the land in US, UK, France, Germany, China, South Korea and Japan.
NFC is a wireless or contactless technology that enables the cell phone to be used as a travel pass, an event ticket, an office pass, to pay for goods instore, redeem vouchers or interact with tourist information or outdoor media by placing the device near to an NFC terminal. It works in a similar way to contactless smartcards used for travel in some cities or to access workplaces.
The news of the joint venture company from Telefónica/O2, Vodafone and Everything Everywhere (T-Mobile and Orange) follows a series of announcements in recent months about plans for NFC. Each one has further fanned media excitement. These have included announcements from: Google, Sprint, AT&T, Verizon, T-Mobile, Vodafone, O2, Orange, Movistar/Telefonica, Deutsche Telekom/T-Mobile, NTT DoCoMo, China Unicom, TATA DoCoMo, Airtel Africa, Samsung, ZTE, RIM, Motorola, LG Electronics, Barclaycard, PayPal, Crédit Agricole, Visa, MasterCard, Bank of America, J.P. Morgan Chase, Wells Fargo, La Caixa, Amazon.com, Microsoft, Foursquare, Starbucks, Coupons.com, VeriFone, Gemalto – you get the idea. And also a lot of – apparently baseless – speculation about Apple.
This has all been fuelled by some optimistic-sounding predictions by analysts:
• Global NFC m-payment transactions will be almost US $50 billion worldwide by 2014 (Juniper Research, June 2011).
• Almost 300 million or 1 in 5 or smartphones worldwide will be NFC-enabled by 2014 (Juniper Research, April 2011).
• NFC will be 32.8 percent of global m-payments transactions – estimated at US $1.13 trillion – in 2014. Volume shipments of NFC phones are expected in Western Europe and North America in 2011 ( IE Market Research, July 2010).
• 863 million units or 53 percent of new handsets will be NFC-enabled in 2015. The total payment value for NFC globally will exceed €110 billion in 2015 (Frost & Sullivan, Feb 2011).
• There will be 169 million users of mobile contactless payment in China in 2013. Total number of m-payment users will be 410 million, making China the largest m-payments market in the world (Celent, Nov 2010).
• NFC Chip Makers predict there will be at least 40-50 million NFC phones on the market by 2011, based on orders for NFC chip sets (NFC Times, Oct, 2010).
• 47 million Japanese have adopted tap-and-go phones in three years – this is one of the fastest roll outs of electronic products in human history. East Asians will continue lead this market because governments and industry stop inter-industry haggling enabling projects that benefit the nation go ahead. (IDTechEx, R&M, Feb 2011).
The essential ingredients for NFC to go mainstream
The question is: are North America and Europe ready for NFC? Looking at Japan, where tap-and-go mobile payments have been mainstream for years, and other countries where conditions favor NFC, mobiThinking suggests that it is the following ingredients that make a country suitable for widespread deployment of NFC (feel free to suggest more):
1. One or two strong and innovative companies that can lead the NFC charge;
2. Government backing for NFC;
3. Consumer willingness to embrace new mobile technologies;
4. Consumer willingness to use the mobile phone to make payments;
5. Lack of other payment methods, making NFC an attractive option for consumers and retailers etc.
6. Existing NFC systems, such as smartcard travel cards or loyalty cards;
7. The ease of extending other accepted payment methods, including mobile wallets (m-wallets), to NFC;
8. Local chipset, handset and terminal manufacturers that can mass-produce affordable NFC handsets and terminals.
Putting NFC in perspective
All this enthusiasm has yet to permeate far beyond the mobile business and the press to mainstream business and consumers. If NFC is to succeed, retailers, travel and all other types of business need to be persuaded that NFC will revolutionize the way they engage their customers, employees etc, in an affordable way, and they need to be convinced that NFC will be widely adopted by all businesses and by consumers. Meanwhile, consumers need to be persuaded that they should use their mobile as their wallet, travel pass, event tickets, coupons, loyalty card etc. This massive educational process hasn’t even begun. Few of the recent press articles have really articulated what the technology will actually do for real-world business and consumers – unless I understand what NFC will do for my business or my lifestyle, why should I care if Apple may or may not bring out an NFC handset?
The NFC Forum – the global standards organization for NFC, with 140 members – provides the following examples of how Joe Public could use his NFC-enabled phone in everyday life, by touching it against an NFC-enabled terminal at the station or retailer, or smart tag in a poster or another NFC enabled phone:
• At the station: pass gate; get information from a smart poster; get information from information kiosk, pay bus/taxi fare.
• Vehicle: adjust seat position; open door; pay parking fee.
• Office: enter/exit office; exchange business cards; log in to PC; print using copier machine.
• Store restaurant: pay by credit card; get loyalty points; get and use coupons; share information and coupons among users.
• Theatre or stadium: pass entrance; get event information.
• Anywhere: download and personalize application; check usage history; download ticket; lock phone remotely.
This is just a glimpse of the type of situations where NFC can be used. Disappointingly, the NFC Forum does not then go on to explore each of these uses in more detail, though elsewhere on the site, you find some useful white papers on smart posters, for example. But what is really needed is a series of basic guides that make the case for NFC for each industry – travel, retail, entertainment, sports, facilities management, automobile etc.
NFC isn’t the magic pill
NFC doesn’t miraculously do any of the tasks highlighted by the NFC Forum (though much of the media coverage suggests it might). It simply performs the handshake that allows one device to identify/authenticate another, which allows all these processes to take place. Behind the scenes, unseen by the consumer, are complex networks – ticketing, payment, loyalty card and mobile operator – that make it all work. Often these are pre-existing networks, which NFC – together with considerable development effort from the provider – will enable the travel pass, payment card or loyalty card to be loaded onto the phone.
Similarly NFC scenarios will use or enable other media and technologies. Data-intensive interactions such as providing tourist, travel, product information via mobile Web or downloading a mobile app, game or coupon, when a consumer interacts with an information point or smart poster – will require a Bluetooth, WiFi and/or mobile network session.
In mobiThinking’s opinion, NFC should be seen as an enabler of existing services, processes, networks and technologies, rather than a replacement. Talk of NFC replacing cash, tickets, bank cards, loyalty cards; displacing any of the existing providers of payment, travel, loyalty; or technologies commonly used to deliver those services, such as smartcards, mobile Web, shortcodes, QR codes, Bluetooth etc, is naïve. This approach not only misses the point of NFC, it also alienates businesses and consumers, and NFC needs the support of all, if it is going to succeed.
An important aside on permission and opt-in:
One headache that NFC eases is permission – by placing the handset close to the terminal, poster, the consumer is expressly opting-in to receive a coupon or an application, go to the mobile site for more info, handover personal details, buy a ticket or product, consent to abide by the rules of the office, transport network etc.
What, no real-world examples of NFC?
No one likes being a killjoy, but despite all the recent hype about NFC, none of this is new. The NFC Forum was formed in 2004 – that’s seven years ago, and while mobile companies have announced NFC plans and have run lots fascinating pilots (e.g. Nice, France, New York, USA, or plan to run pilots (e.g. Sitges, Spain; New York and San Francisco, USA) – in the meantime, not a lot of real substance has actually happened since then. NFC is exciting and offers huge potential for an array of businesses, but a lot needs to happen if it has any chance of taking off.
To date there is only one country where people use their mobile phones to tap-and-go or wave-and-pay for travel or in store, and that is Japan. The Mobile FeliCa system set up by NTT DoCoMo and Sony back in 2004 was based on the existing FeliCa smartcard system. It has been a huge success – it has been widely adopted by all major players in mobile/payment in Japan and as many as 57million customers – 80 percent of new phones in Japan ship with a FeliCa chip on board and accepted by up to (1.5 million outlets. Mobile FeliCa looks and smells a lot like NFC and is used in similar ways, but unfortunately it isn’t actually NFC – it is based on a different type of Radio-frequency identification (RFID). And until recently NTT DoCoMo has resisted a move to NFC, but that is changing -read more (here and here).
So how many mobile operators have committed to launch NFC?
In February 2010 the GSMA, the mobile telecoms association, announced that the following mobile operators had committed to implementing NFC and intended to launch commercial NFC services in select markets by 2012: América Móvil, Axiata Group Berhad, Bharti, China Unicom, Deutsche Telekom, KT Corporation, MTS, Orange, Qtel Group, SK Telecom, Softbank Mobile, Telecom Italia, Telefónica, Telekom Austria Group, Telenor and Vodafone. That is 16 operators. The GSMA boasts that it’s membership includes nearly 800 of the world’s mobile operators. Even taking into acount that the 800 includes the same group double-counted several times, global operator commitment to NFC looks weak.
What no handsets?
The main problem with NFC is that the virtually every handset in anyone’s pocket today does not contain the very NFC chip that makes it all work. Ok, so there’s the Samsung S5230, the newly announced Samsung Wave 578 and the Samsung/Google Nexus S… but how many others? Lack of handsets have hampered trials of NFC around the world – ironically this has made Samsung (with its one handset) a hero of NFC – but many trials have had to go ahead using non-NFC handsets modified using a microSD card.
For some reason, which is beyond the comprehension of mobiThinking, the world’s three largest handset manufacturers by volume – Nokia, Samsung (with the exception the handset above) and LG – have failed to deliver NFC handsets in large volumes. This is in spite of the GSMA’s call in 2008 on all handset manufacturers to make NFC (with the newly ratified Single Wire Protocol) standard in the vast majority of commercially available handsets from mid 2009. The most surprising is Nokia: not only is it the world’s number one mobile-phone and smartphone manufacturer, but it was also one of the founders, with Philips and Sony, of the NFC Forum back in 2004. In the Finnish capital Helsinki, which has had a pioneering contactless mass-transit ticketing system for 10 years, Finns are still traveling by touching in with smartcards – ask why they aren’t using their phones, and they shrug and say that their Nokia contacts have been promising them every year that next year will be the year NFC phones ship in volume.
You have to wonder how different things would look for NFC today if the manufacturer had committed to make NFC standard across its handset range two or three years back. How different would things look for Nokia today if it had combined this NFC push with a m-wallet with local providers in every country?
While all the recent announcements from handset manufacturers, e.g. RIM, Motorola and ZTE are encouraging, however until all the manufacturers commit to making NFC standard across all new handsets, it’s hard to see mobile companies, retailers, travel companies etc putting significant investment into NFC. Remember, in Japan 80 percent of cell phones ship with the FeliCa chip on board today – the mobile FeliCa joint venture was formed seven years ago. What percentage of mobile phones ship with NFC in the seven years since the NFC Forum was formed?
What about NFC terminals?
The terminal story is a prettier picture than the handset story, as many smartcard travel, coupon or ticketing systems use NFC terminals. So in some cities, there are NFC-based transport systems and a handful of retailers have NFC-based loyalty-card systems. It would be interesting to know how many of these pre-existing systems are compatible with the standard adopted for NFC phones.
The average credit card terminal or chip and pin machine found in your local store is not NFC compliant. Crone Consulting estimates that in the US there are currently only 150,000 merchant locations enabled for NFC payments today, compared with about 6 million that accept traditional credit-card payments. According to Barclaycard, there are currently 40,000 stores in the UK equipped to handle mobile contactless transactions.
Consumer adoption of NFC-based payments requires ubiquitous deployment of NFC terminals, in every place they wish to make a payment. As mentioned previously FeliCia is accepted in 1.5 million outlets in Japan. The main barrier to this monumental task is who pays for the millions or billions of terminals necessary. Is it fair to expect retailers, restaurants and other outlets – already blighted by churn of new technology – to invest in the terminals? Or should it be the providers of the payment networks? Will any be willing to make the investment while there are only a handful of NFC phones on the market?
Retailers et al will become more receptive to NFC once enough of their customers have NFC phones and have shown a willingness to use this new payment method, if the payment providers are prepared to share the investment, and as it fits into the natural cycle of technology upgrade. This all means that NFC will not happen anytime soon. However the announcement from Verifone that NFC will be included in all new Point of Sale (PoS) terminals (that’s a cash register to you and me) is particularly encouraging.
What no leadership?
While the FeliCa system in Japan is not, strictly speaking, NFC, it serves as a very useful model for the roll-out of a successful tap-and-go and m-wallet system. The main reason that mobile payments (in common with all other mobile innovation e.g. mobile Web, mobile email, QR codes etc) took off in Japan so much earlier than in the West is that innovation and standards are driven and strictly controlled by the mobile operators – led by NTT DoCoMo, but this was done in a fair and open way that encouraged all operators, handset manufacturers, software makers, payment providers, banks, transport, shops and restaurants to participate. FeliCa in Japan works whatever the operator, handset, terminal, shop, transport, bank etc.
A secondary ingredient is the willingness of the Japanese population to embrace new mobile technologies.
NFC requires all the participants in the mobile ecosystem to work together fairly and openly and to stick rigidly to standards, preferably led by one or two powerful companies and/or a government body and/or a strong, influential standards body. In the US and Europe, there is no natural leader like NTT DoCoMo, but no end of companies – operators, handset manufacturers, payment providers etc – that are unwilling to relinquish control to others. Instead of global, countrywide or industry-wide participation, we have seen small groups of interested parties setting up their own cliques that appear to be in competition with each other and even suing each other over disputed NFC patents.
Closely related to the leadership point is the requirement for consumers that NFC payments must be simple, useful but mostly cheap. North American and European consumers have many payment options, and each has their own preference – this means paying by mobile phone must be easier and cheaper than other common payment methods or NFC should be an extension of the payment methods they already use. That in turn means that each of the many participants in NFC will only be able to take the tiniest fraction of the total payment, if not take no share at all. This fits ill with the practice among Western mobile operators and handset manufacturers that demand a huge revenue share e.g. 35 percent of any sale via their portals or app stores.
The current situation in the USA and many European nations – though today’s announcement from the UK operators has caused mobiThinking to postpone its verdict on the UK – does not appear to be conducive to widespread NFC deployment anytime soon. But is the situation the same in Asia and Africa? Let’s look at those eight ingredients for NFC again. Then consider the lie of the land in US, UK, France, Germany, China, South Korea and Japan.
1. One or two strong and innovative companies that can lead the NFC charge;
2. Government backing for NFC;
3. Consumer willingness to embrace new mobile technologies;
4. Consumer willingness to use the mobile phone to make payment;
5. Lack of other payment methods, making NFC an attractive option for consumers and retailers etc;
6. Existing NFC systems, such as smartcard travel cards or loyalty cards;
7. The extension of other accepted payment methods including mobile wallets to NFC;
8. Local chipset, handset and terminal manufacturers that can mass-produce affordable NFC handsets and terminals.
USA: AT&T, Verizon and T-Mobile formed an alliance in late 2010 called ISIS which intended to create their own m-payments system in competition with traditional payment providers. Subsequently Sprint decided to go it alone. In May Google announced its m-wallet and NFC plans in an alliance with Citi Bank, MasterCard, First Data and Sprint with backing from retailers Bloomingdale’s, Foot Locker, RadioShack, Walgreens, Guess, Toys R Us, Macys, Subway and American Eagle Outfitters. Promptly PayPal sued Google for allegedly stealing ‘Mobile Wallet’ technology.
UK: To date NFC news from the UK had not been encouraging Barclaycard and Orange, announced a m-payment scheme in May 2010, seemingly without any other operators or payment providers and Visa and Samsung announced in March 2011 they planned to go it alone with mobile payments at the London Olympics in 2012.
On June, 16, 2011 the perspective changed as the three UK mobile operators Everything Everywhere (T-Mobile and Orange), Telefónica/O2 and Vodafone announced a joint venture company that will: “deliver the technology required for the speedy adoption of mobile wallet and payments. This will enable consumers to transfer their entire physical wallet into a new secure, SIM-based wallet regardless of which NFC enabled mobile device, or mobile network they are using.” This will facilitate companies that provide credit, debit, loyalty cards and transport tickets to put their service onto their customer’s mobile phones as well as providing a single contact point for advertisers, media agencies and retailers looking to reach consumers on their mobile phones.
France: arguably of Western nations, this has been the hotspot for NFC. The central government and city authorities have been strong supporters of NFC. The government announced in June 2011 a €20m fund to promote investment in NFC. Also some of the most compelling trials in Europe have taken place in Nice, France, under the Nice, Ville NFC and Cityzi initiatives. All French operators and four banks are committed to an early 2012 roll-out.
Germany: of all the world’s transport systems, the rail network in Germany looks to be the best prepared for NFC. Deutsche Telekom/T-Mobile appears to be launching its m-payments service on it’s own.
China: it is a vast country, with huge, powerful mobile operators, and a populous that readily embraces mobile technologies. Couple this with the vast numbers of people who use public transport every day; the much lower PC/broadband penetration and less variety of payment systems than the West; and the increasing spending power of the average Chinese citizen. China Unicom (number two operator) and UnionPay (largest payment provider) starting to roll-out NFC to Shanghai and Chongqing. China Mobile (largest operator) continues to push ahead with an alternative RFID-based system, but in April 2011, said it may also adopt NFC. Chinese device manufacturer ZTE (the fourth largest manufacturer in the world according to some analysts) pledged in Feb 2011 to include NFC functionality in all its next generation handsets from Q2 2011.
South Korea: Mobile Smart Life Activation Plan was announced in march, 2011, by South Korea’s Communications Commission. This included a Grand NFC Korea Alliance the members of which include three mobile operators, five credit card companies, seven manufacturers, four telecom billing providers and related associations. All the details are included in this excellent briefing document on the state of global NFC. South Korea’s Communications Commission announced in June, 2011 that 300,000 mobile payment checkouts at major retailers and transport services by the end of 2011 and mobile phone vendors are required to equip all smartphones with NFC.
Japan: After much resistance, NTT DoCoMo now seems inclined to move the FeliCa system to NFC compliance as it strikes a deal with South Korea’s KT Corporation to develop international NFC services for mobile payments, mass-transit ticketing and promotional coupons and more by the end of 2012.
Kenya, Africa: As yet there is no sign that Safaricom will follow Airtel Africa’s plan to launch NFC in Kenya and other countries, but it would appear to be a natural fit with Safaricom’s highly successful mobile wallet M-Pesa, in a country where consumers have limited payment methods. NFC terminals would add extra to the network of agents.
Also worth watching:
India, Indonesia, Hong Kong, Singapore, Taiwan, Philippines
Recommended reading:
If you read nothing else on NFC, read the South Korea’s Communications Commission briefing document:
Mobile Smart Life Activation Plan… the bits at the end are especially useful.
For news and analysis see:
Near Field Communications World,
NFC News
NFC Times
For what’s happening around the world, see::
NFC trials, pilots, tests and live services around the world from Near Field Communications World
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