Near Field Communication (NFC) in which mobile/cell phone devices provide payment services at points of sale such as transport ticketing have been the subject of so many so called “successful trials” that it is surprising that the public verdicts of those trials have not been echoed by roll outs.
Take O2 and Barclays in the UK. The public response was very positive with high levels of willingness to use the services offered especially using the phone as an Oyster card (London Transport Contactless Ticketing) that the subsequent silence is surprising. The gossip at a recent mobile data association meeting in London was all about Barclaycard and another network (Orange) being in development of another NFC service, but major handset manufacturers like Sony Ericsson have no plans for NFC handsets and report no demand.
One problem is that the costs are in the handsets, but the revenues are in the NFC payment processing side. Traditionally networks in Europe have subsidised devices from call and data revenues, but by definition NFC generates little additional network traffic. Now the GSM Association have called for the handset manufacturers to start making NFC handsets. This may seem akin to the strategy of Kevin Costner in the film Field of Dreams – namely “build it and they will come” – but in the mobile industry it has historical precedence. Camera phones have no business model for the networks as they sure as hell have not stimulated the moribund MMS market, but they are an essential feature in most western European markets because they sell handsets. Ofcom today announce that 58% of the UK population regularly uses their camera phone – unfortunately for the mobile networks they are more likely to upload it to their PC and Flickr or email it as send it via MMS.
The other problem for the development of a robust NFC business model is certificate management. Most GSM SIM cards are Java based and capable of Over The Air configuration. The problem is that the owners of the SIM cards are the mobile networks. The MNO controls the keys through which any OTA has to operate. They also own the SIM chip real estate. Some compromise with the banks is needed. Unfortunately this is a process like Porcupines mating – one that has to be done very carefully. The industry consensus is that an independent body needs to be set up to administer the scheme. My personal bet is that like the UK Mondex electronic purse scheme of th 1990s we will see one bank and one operator set up company whose business model will be selling shares in itself to the late scheme entrants before selling out to Visa or MasterCard. Let’s face it a successful OTA SIM card management service for NFC is a significant threat to both Visa and MasterCard. One of them will have to buy it. Which is why people will be looking very carefully at this market in 2009 and with a great deal of interest.
Banks and card schemes have a lot to worry about at the moment – but ignore cell phone NFC at your peril. Don’t forget there are more handsets than PCs and a lot more handsets than there are payment cards (by a factor of 2:1 in most developed countries and higher in developing).