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Part 2: How Can Incumbents Respond to Disruption?

Monday, August 8th, 2016

3 Questions to Ask!

By Dawood Khan

When it comes to disruption and the introduction of disruptive practices in a particular market, we should keep in mind what renowned Canadian communication and media theorist Marshal McLuhan said in 1964 about the heavy reliance of newspapers on classified ads and stock-market quotes. McLuhan said that “should an alternative source of easy access to such diverse daily information be found, the press will fold.” But as we all know, the demise of classifieds in print media did not happen until just a few years ago. And even more than a decade after the advent of the internet, many print publications did not care to invest in digital technology and transition to online publications. As a result, many of them suffered royally at the hands of startups and a few incumbents that had the foresight to make the transition and disrupt themselves.

Netflix’s transition in 2011 from DVDs to streaming is well documented. The company suffered 80% drop in its stock price as it transitioned to online streaming, but it eventually paid off as evidenced by a 134% spike in its stock price over the last 12 months, causing the cable industry to lose more than 6.7 million subscribers over the last five years[1], and driving BlockBuster, its arch-rival at the time, out of business. Another testament to Netflix’s success: the number of hours many of us spend on weekends, binge-watching our favorite shows.

” The challenge for incumbents is the task of preparing for the day when their cost structure won’t be aligned with alternatives in the market. The preparation can entail taking measures against some of their current operations with subsequent hits to their profitability. But those measures may eventually pay off handsomely. The challenge is that it’s difficult to predict accurately what may and may not work.”

The questions then are:

  • What is an incumbent to do as it prepares for emerging disruption – Is there a way to know what will work and what may not?
  • When should it act – while timing is important, is it possible to get the timing mostly right with a high degree of certainty? and
  • How it should bring its new approach to the market?

As no one really knows what approach would work best, or how to predict market reaction, prudent organizations are tackling disruption as a transformative journey rather than a discrete action at a point in time or the proverbial “destination.”

A Digital transformation journey means that these organizations are continuously experimenting with new business models, emerging technologies and ways in which to engage and interact with their customers.

As part of this journey, organizations are increasingly looking at determining how an approach may be desirable (do people want it?), design thinking - ideoviable (is there a business case/model that will work?), and feasible (is there a technical solution?). These three elements form the foundation of design thinking, as illustrated in the image courtesy of IDEO. Which, when used as part of an organization’s digital transformation journey, allows an organization to rapidly identify opportunities, test them through quick and iterative proof-of-concepts, refine the approach or move forward.

For anyone, and especially incumbents, it is important to accept market realities. Disruption is inevitable. In order to survive, organizations have to be prepared, and the way to do this is via a journey towards transformation. While many call this “digital transformation,” people (customers and organizational culture) form the core of any successful transformation. An innovation-focused culture that is open to employing a human-centric approach to solutions, rapid prototyping, and experiencing failure, is the corner-stone of success in addressing the ongoing disruption in the market.

[1] “Can Netflix Survive in the New World It Created?”, New York Times, June 15, 2016

How Can Incumbents Respond to Disruption?

Thursday, August 4th, 2016

Part 1: Start by Accepting that Disruption will Happen!

By Dawood Khan

It is well-known that incumbents in any industry seldom feel the impact of an early-stage disruption on their core business for many years or even decades. This is even truer for those industries that are heaviCryptocurrencyly regulated, as regulation creates a barrier to new entrants. Hence, in such situations, incumbents are typically highly profitable and may not feel threatened. They may prefer to remain on the sidelines for an extended period of time, often somewhat skeptical of the degree to which the disruption may impact their business. In this period, they may experiment with new technologies and business models, or hedge via investments in emerging start-ups. In some cases, they may take a wait-and-see approach. The question is at what cost?

As an example, one could say that FinTech is another oft-hyped, early-stage technology. But a look at alliances, investments, FinTech-focused technology accelerators, and the growing number of Fintech Unicorns suggest otherwise. Exponential growth in global FinTech investments attests to the industry’s path toward acceptance. Over a span of five years (2010-2015), global investment in FinTech reached $49.7 billion. In the U.S alone FinTech investment doubled from $4.05 billion in 2013 to nearly $10 billion in 2014 and by June 2015 it skyrocketed to $31.6 billion[1].

Today a new breed of FinTechs is focusing on crypto-currency, which are powered by blockchain technology.  Crypto-currency is a blockchain technology that involves financial transactions based on encryption technology. Blockchain is on its way to disrupt a wide range of transactions in the financial industry such as stocks, bonds, loans, and payments with a subsequent transformative impact on the banking ecosystem.

From a financial perspective, blockchain technology keeps all transaction records permanently on thousands of computers from various networks distributed around the world. Each of these computers attests to the authenticity of transactions with no single entity controlling them as they all run on open-source collaboration. Hence the arrival of frictionless transactions and possible disappearance of intermediaries. Blockchains can be used to record transactions of asset exchanges (or “value”) among owners. Transfer of assets, buying and selling of stocks and properties, private banking, and lending will all be disrupted. These are what blockchain FinTechs are focusing on. 2015 U.S investments in blockchain-focused FinTechs stood at $400 million and over $150 million in Q1 2016[2].

The global FinTech Unicorns (20 and rising) are bound to make their impact felt at the corporate boardrooms of incumbent banks. However, it may appear that there is a lack of urgency among incumbents, this is because their market share has not, and may not be impacted for some time to come.

By now, you may have already asked the proverbial $64,000 question: How will the incumbents react?

Part 2 of this piece looks at this question and provides an approach to addressing on-going disruption.

[1] The State of Fintech Industry as We Know It Infographic:

[2] Quartz, “Money keeps pouring into blockchain startups”, April 19, 2016

How Different Sectors Adopt Digital Transformation?

Thursday, June 2nd, 2016

Digital transformation (“DX”) is inevitable!

According to a McKinsey & Co. finding, 40% of Fortune 500 companies will not exist in 10 years, if they fail to transform. However, there are vast opportunities for those who take action!

The first Canadian Digital Transformation (“DX”) Think Tank session was led by RedMobile Consulting in Toronto on May 25, Dx Journey Pic2016. Select business leaders from a diverse cross-section representing public and private sector organizations participated. The participants examined various aspects of digital transformation and underlined the significance of anticipating and embracing disruption, and the threats posed if digital transformation was ignored.

>> Contact us for more information

Are FinTechs making Banks Endangered Species?

Thursday, May 5th, 2016

By Dawood Khan

Taking on water

I recently bumped into an old friend – a respected financial industry leader whom I had worked with on mobile payment initiatives almost a decade ago. She asked me something quite interesting. “We all hear that FinTechs are disrupting the financial industry, that this is forcing established banks to rethink the way they do business. These institutions are revamping their services, pricing Image1models, and trying to embrace digital channels, but I wonder if you think this will be enough? I mean, with a changing customer demographic – do all the positives traditionally associated with incumbents just become an ever-tightening noose around their necks? Do you think incumbents can successfully compete?”

The glass can actually be half-empty!

Her questions made me think of what we associate with an incumbent financial institution (FI). An established FI has well engrained processes, tested business models, an experienced workforce, a history of compliance with regulations and policies, infrastructure, and we are familiar with their services. But are all these legacy capabilities holding them back?

As an example, over-the-top players are offering digital wallets (e.g., Google wallet, Apple Pay) that are starting to result in incumbent FIs losing margins in some of their most profitable products. According to a McKinsey & Co study[1], by 2025 – FIs could lose up to 35% in profits from payments alone, Canadian banks can lose up to 70% of their margins in traditional retail banking, and wealth management can lose up to 35% of profits.

While a recent report by PWC[1] concurs and states that by 2020 consumer banking, transfer/payments, and private wealth management will be the sectors most impacted by FinTech.

But all that water’s got to go somewhere!

McKinsey & Co.[2] has reported that global investment in FinTech surged from $2.6 billion in 2012 to $12.2 billion in 2014, a whopping sixfold increase. As if it wasn’t a big enough surge in investment, 2015 finished with global investment in FinTech companies totaling $19.1 billion, with $13.8 billion invested into VC-backed FinTechs[3].

A recent report by KPMG and CB Insights[1] also shows that nearly 20 FinTech Unicorn companies globally are taking on two of the most lucrative segments of the industry: payments and lending. (Unicorns are startups with a market valuation of over $1 billion).

Clearly incumbent FIs have their work cut out for them – both organizationally and operationally. Among other things, incumbent FIs need to:

  • Innovate services and business models or at least react quickly when they trickle down the financial services food chain;
  • Evolve from legacy technology and infrastructure, practices, organizational capabilities, to meet evolving customer needs;
  • Secure significant corporate buy-in from key decision makers to support transformation.

Water – what water? Just drink the kool aid!

To stem the rising tide against them, many incumbents are investing in promising FinTech startups, setting up corporate venture capital (CVC) arms in search of startups whose products and services are in line with theirs.

But is this sufficient to reverse the tide? Yes and no!

With rising pressure on margins, the loss of market share, and the prospect of customers migrating to FinTech-based services, incumbents have no option but to invest in FinTech. However, for most this will not be enough.

These are dramatic shifts in the FI fabric, and incumbents must prepare to make monumental changes, they have no option but to transform on multiple fronts –business, customer and technology.


Twitter: @redmobileconsul             Facebool:

[1] Fintech funding hits all-time high in 2015, despite pullback in Q4, KPMG and CB Insights, March 2016

[2] Blurred Lines: How FinTech is Shaping Financial Services, PWC Global FinTech Report March 2016

[3] Cutting Through the FinTech Noise: Markers of Success, Imperatives for Banks, McKinsey & Company Global        Banking Practice, December 2015

[4] The Pulse of Fintech, 2015 in Review, KPMG, March 9, 2016

Digital Transformation – Getting Lost is Easy!

Tuesday, April 19th, 2016

By Dawood Khandx5

Digital Transformation – Mobile, Cloud, them Things, and that really Big Data

We’ve all heard that the Internet of Things (IoT) and data analytics are essential to future success of organizations. Almost every day, like me, I am sure you’re bombarded with a new event on the topic. Having spent a long time in the emerging technology and innovation area, I thought I’d attend one of the more established IoT conferences and see what all the fuss is about. I inherently dislike paying good money and spending valuable time at an event to hear nicely concealed sales pitches. But at this IoT event, to add insult to injury, I actually found myself lost half-way through the event. I thought I was alone in this, so I casually broached the topic at lunch with several other people. It turned out that they were in the same boat. The conversations over breaks, evening networking sessions, and hallway chats only reaffirmed the general sense of bewilderment. And this audience was mainly people in the tech-innovation space.

After hearing from 250+ different IoT platform vendors, half a dozen different interoperability/ standardization bodies, and many dozens of vendors who made sensor chipsets, “things”, radio networks, gateways, and analytics engines – one realizes the problem. It’s a classic tale of technology hype and lofty promises of what “can be” on one side and the reality (some may call these shackles) of legacy business. Between the two sides, you’ll find confused decision makers.

Where do you start? A rooftop patio is a great place

Over dinner on a rooftop patio on one of our warm winter evenings, I had an eye opening moment with a client who manages a large number of complex and diverse infrastructure assets. We were discussing the value of data analytics and the role IoT could play. His view was that before his organization could think of big data, they had to get credible, reliable and usable data first. They had no shortage of data – it’s just that the data they had was inconsistent, in different formats, and resided in disparate systems. Hence the level of confidence they had in its efficacy for decision making was questionable, especially in a highly regulated industry. I asked him why? He explained that they couldn’t even consistently identify an asset because they used stick-on bar codes that would peel off, wash off, or just get scratched. So, in such cases, the maintenance staff would write the information on a paper and enter it into their system at a later time. Most of the time they could identify the assets correctly, but a large number of times they couldn’t. As a result, their degree of confidence in the large amount of data they had was limited.

Digital Transformation – Failure isn’t an option, it’s a requirement!

To me, the fore-mentioned discussion, illustrates a classic challenge organizations face. Their line of business operations folks have business problems, but don’t necessarily understand where to start their Digital Transformation (DX) journey or how to go about IoT and analytics. This is because, these things seem too far a stretch from the reality of where they are today.

The examples illustrate major barriers to adoption of IoT and analytics, and corporate-wide success of Digital Transformation. In addition, the absence of a return on investment (RoI), justifying implementation costs, and an inability to visualize tangible results, have also been cited as main challenges for adoption.

While the majority of large enterprises claim to be in the midst of Digital Transformation, the fact is that many of the same organizations, when asked to define Digital Transformation, couldn’t do so.

As an example, we can see the fore-mentioned dynamics at play in the banking sector. Financial institutions (FI) are generally encumbered with bureaucracy, legacy systems, and regulatory burdens. At the same time, they are faced with the onslaught of web and mobile-based offerings from a growing pool of financial technology (FinTech) startups. These over-the-top players are disrupting the traditional business of FIs.

As the business of FI’s is disrupted, much like Uber disrupted the taxi industry, the overarching question for the banks is whether or not there are compelling drivers to embrace DX. Justifying implementation costs and quantifying RoI may provide insight for decision making. However, becoming sidelined in your own industry, or being rendered obsolete, are business outcomes that can never be undone.

So, the risks are high – but where does one start? How does one really plan a viable DX journey? And how does one’s mindset and approach have to evolve to be successful?

You may never have all the answers, so start, start small, be open to failing, learn quickly, refine your approach, and iterate! That’s the “fail fast” approach in a nutshell, you go from concept to proof-of-concept in several rapid iterations.

What people may not tell you is that, this requires a certain degree of discipline, and an appreciation for the art and science of “Design Thinking.” While organizations are starting to rapidly prototype and willing to fail fast – it’s no fun if you fail fast, fail everywhere, and just keep on failing.

A disciplined approach using “Design Thinking” that accords the latitude to experiment, learn, refine, and improve through discrete iterations is an art and a science.

Fail fast and succeed fast by learning from everyone’s mistakes

So, a select group of business, operations and innovation leaders are invited to participate in a hands-on “Design Thinking”-based, Digital Transformation Thinktank and Workshop. Roundtable discussions with early-adopters who have already undertaken the Digital Transformation journey successfully, will provide insights from first hand experiences. The goal is that we will be able to identify opportunities to derive business value from Digital Transformation, and to identify specific use cases for proof-of-concepts (PoC).


Tesla: Driving Digital Transformation & Disrupting the Ecosystem

Monday, April 11th, 2016

By Dawood Khan

As organizations explore digital transformation (DX) and determine business value in light of the buzz around Internet of Things (IoT) and Big Data, it is essential to remember that DX is more than just a technology overhaul, DX is a journey that can transform business models, processes, and customer engagement, and can even impact unrelated industry verticals. The recent launch of the Tesla #Model3 illustrates this perfectly.

DX can have implications on different levels, from company-level impact, to impacting the sector, and even an entire ecosystem. Take Telsa as an example. Everyone knows that it revolutionized the way we look at electric cars, but until the recent launch of the Tesla Model 3, few could have imagined the frenzy of consumer buying. People lined up to buy the vehicle like they would buy a hot new consumer electronics product. Within 48 hours of its launch, the car had 276,000 pre-orders totaling $10B in potential sales, and $276M in deposits. Tesla has in fact revolutionized the business model in its sector. It has crowd-funded the partial cost of manufacturing the Model 3. While the actual process to reserve a Telsa Model 3 took all of 2 minutes on average, consumers who signed up are willing to wait a year and a half or more to receive their vehicles.

Image - DX.1

Not only is Tesla disrupting the auto sector, it either has already or will soon impact a range of other sectors. As a connected car – updates are done via software upgrades, “over the air”, using wireless carrier networks or WiFi, thereby creating revenue streams for an ecosystem of carriers, electronic SIM manufacturers, etc. And generally, the expected entry of self-driving vehicles will certainly impact how smart cities plan transportation systems, roads, traffic flow, etc. The insurance industry is already looking to assess the impact of such vehicles on policies, and one can imagine that changes to driving regulations are in order.

So, digital transformation is about more than harnessing a new technology to improve, revamp, and overhaul processes and operations; it is about identifying and creating new value propositions. And as we have seen with the likes of Tesla, Uber, and other disruptors, entire industry sectors and business models have been disrupted, in some cases, traditional ways of doing business have been rendered obsolete.

While most organization realize that it is imperative for them to assess and respond to changes that digital technologies bring in order to remain viable, the challenge many organizations face, however, is that with the rapid changes in technologies and the plethora of vendor solutions for the “Internet of Things” and “Big Data Analytics” – figuring out where to start the DX journey and navigate the landmines along the way is a challenge in and of itself. Starting and planning the DX journey the right way are essential to success.

mHealth – The Genie in the Lamp

Wednesday, December 11th, 2013

Tuesday, December 10, 2013

By Dawood Khan,

mHealth Summit, Washington DC

WASHINGTON, D.C. – mHealth – The mobile phone is Aladdin’s Lamp!

The mHealth sector is definitely in the initial phases of a hype cycle. It is rattled with endless point-solutions; thousands of apps, hundreds of wearable devices, no real idea of business models, a blatantly “patient un-centric” approach to mHealth, and unimpressive solutions showcased as the “latest mobile health technology” that would remind anyone in the mobile industry of 2006.

2006 was an era the mobile industry was full of point solutions, more content than anyone could find on carrier portals – a.k.a. walled gardens. The Blackberry was the pinnacle of a smart mobile device, an entirely un-centric user experience, and a business model that basically gauged consumers.

Then came Apple in 2007 and the mobile industry changed. Apple’s ingenious approach went far beyond technology in the iPhone. It came with a markedly consumer-centric approach from revolutionizing the content revenue-sharing business model, and an engaging end-user experience. Apple negotiated Digital Rights Management deals with record labels, content aggregators, and distributors. It allowed application developers to keep 70% of revenues. This was unheard of among Western MNOs, who kept 80% of application and content revenues, and controlled their portals.

In retrospect, Apple was the mobile industry’s genie.

Fast forward to 2013, and while anyone who has observed hype cycles in industries undergoing change can see that mHealth is all hype and little substance. At this time, there are some glimmers of hope, offering a potential to change the hype to hope.


Enter Mohammad Yunus – an unassuming, humble, simply dressed global change leader – A Nobel Prize winning inspiration for social change. Among many innovative ways of challenging social, business, and technology status quo, he established Garmeen Bank, acquired wireless spectrum and set up a cellular service provider in Bangladesh to serve the underserved. His target was the poorest women in the world. They were the “telephone ladies” – allowing villagers to make calls, conduct banking, etc.. He grew this to 400k “telephone ladies” within 5 years.

He dreamed of creating Aladdin’s lamp with a magic genie who would solve the problems of people – he believes the mobile phone to be that magic lamp with a digital genie – granting wishes, solving people’s problems, allowing them to make money to feed their family, access banking, and “dial a doctor”. In trying to achieve Bangladesh’s Millennium Development goals, Yunus has been working on addressing medical issues among the most vulnerable. Using mobile to offer “dial a doctor” service and even for portable ultrasounds. His current dream is to use the mobile phone as a portable Ultrasound device (instead of a tablet) with an ultrasound app that can be downloaded.

While applications exist for mobile eye scanning, ECG, and detecting certain types of cancer, his vision is that mobile collects info from the body in every way allowing machines to analyze trends over time and pre-emptively alert  you when there is a problem. In this way, diagnostics can be provided at a personal level without having to go to a doctor.

After this, speaker after speaker spoke of the best solution their company either enables or delivers. The challenge is that these solutions are all closed loop and not necessarily the best for consumers. In many cases, solutions don’t have a business model. Given the US centric crowd, the approach to funding was, as expected, US centric. And so, the discussions around what kind of business model will work still need to be thought through. In essence, what may work for a particular solution in one Country, will need to be totally reformed for another. Eventually, the players will sort things out.

Department of Defense Offer to Share Spectrum with Commercial Carriers – Could lead to a $12B Auction Value

Wednesday, July 24th, 2013

By Dawood Khan

Red Mobile Consulting, Toronto, Canada

TORONTO – The U.S Federal Communications Commission (FCC) confirmed this week that the Department of Defense (DoD) has offered to share spectrum in the 1,755 – 1,780 MHz band with commercial wireless carriers. In March 20, 2013, the FCC had notified the National Telecommunications and Information Administration (NTIA) of its plans to commence the auction of licenses in the 1695-1710 MHz band and the 1755-1780 MHz band as early as September 2014.

Commercial carriers, especially those with limited spectrum, such as T-Mobile, who have been struggling to keep up with demand for data services, have been advocating the pairing of the 1755-1780 MHz band with the AWS-3 (2155-2180 MHz) band. The FCC plans to auction the 2155-2180 MHz band by February of 2015.

In a study done by Brattle Group, The value of the AWS-3 band paired with the 1755 MHz band is approximately $12 billion. Pairing the military spectrum with spectrum in the AWS-3 band will provide complementary channels for the uplink and downlink through frequency division duplex (FDD). The 1,755 – 1,780 MHz band is used internationally for commercial wireless services, and the DoD has faced pressure from the private sector and the Obama Administration to open up the band for commercial use.

The DoD plans to clear portions of the spectrum, which it currently uses for pilot training and drone systems, and share it with commercial carriers. It plans to do this by relocating some of the current systems occupying the said band onto other bands, and by compressing usage of the existing band. This is expected to cost the DoD $3.5 billion.

At this time, it is not clear how the Department of Defense will share the spectrum.

NFC World Congress – Highlights & Insights

Wednesday, September 21st, 2011

By Dawood Khan

Sophia Antipolis, France, September. 19 – 21th 2011

NFC – At tipping point!? … Well, perhaps, almost there

The launch of the NFC World Congress kicked off with claims of NFC approaching a tipping point and prediction, albeit many laced with caveats, of imminent success. Perhaps, some of the enthusiasm was premature, but nonetheless, it shows that the area is starting build momentum with NFC capable handsets coming into the marketplace and with the beginnings of contactless readers being introduced, in some markets more than in others. For its first session, the Congress was well represented by vendors and to some degree MNOs and the payment schemes. However, key participants of the ecosystem, at least from a payments perspective, namely the banks and merchants were ever elusive. To be fair to the organizers of the Congress, merchants are a tough group to engage at the best of times, especially true if the value proposition is not clear to them.

You could not help but feel the speakers preaching to the choir, at times, it almost felt surreal. “NFC has the potential to create life with a gesture – the wave of a hand”, said François Lecomte, the Chair of the conference and Managing Director of the Mobile Contactless Services Forum. NFC enables users to experience secure, context-based interactions.  From an end-user perspective, vs. other options such as QR codes, NFC is accurate, faster, and simpler to use. Despite their lack of presence, merchants would also gain through NFC via enhanced CRM and marketing capabilities, in addition to supporting payments. NFC allows the sharing of content between devices, and advanced applications that trigger activity based on an NFC interaction, i.e. a kid uses his NFC phone to enter the home, and a text is sent confirming this to the parents; or as you tap the NFC handset to enter a movie theater, you can complete the ticket purchase, and the handset can automatically be entered into a courtesy mode, so that it doesn’t go off during the movie. Yes, truly earth shattering reasons for the enthusiasm, but what did you expect from a bunch to techies getting together to strategize and pitch useful businesses and use cases to the rest of the believers? While the applications positioned for NFC were endless, the key areas for focus are Payments, P2P interactions, and NFC tags for information.

To be fair, several challenges were also discussed. Given that NFC is clearly not yet arrived at a tipping point yet and that it is still in early infancy stage (from a global perspective and not just for Niece or Istanbul) , the challenge with NFC is true to the introduction of any new technology, i.e. getting NFC into the hands of end-users, in order to offer services that appeal to them, and to arrive at sufficient critical mass for it to be usable in our daily lives.

While a lot of the market has thus far been focused on the Business Model for NFC, some claim that it’s time to move on and create appeal for end users, who, in turn will drive business models to follow. A recent study conducted by Edgar, Dunn and Company, which, at least for proximity based contactless and NFC payments, suggests that the limited number of contactless terminals, little merchant demand, lack of contactless cards, and handful of options for NFC enabled devices, out rank MNO/bank business cooperation as key barriers to contactless and proximity based mobile NFC payments. However, the same study also points out that for remote mobile payments, MNO/bank cooperation comes first as a hurdle. Personal experience suggests that while the identified barriers are common, the relative position of each type of barrier varies across countries and regions, as well as with time. What may have been true in the US with the initial launch of ISIS, polarizing the MNOs from the banks and not showing sufficient value to merchants through cost savings, has evolved considerably over the last year. The recent application by Rogers in Canada for a banking license, has, likewise, changed the status quo of apparent inaction, and at least for now, be seen as a threat to existing banks and other MNOs.

The major technology enablers of NFC include the antenna, the chipset, and the secure element on the device, as well as support for software platforms and IOT. While good technical progress has been made in all of these areas, there will continue to be need for further work, especially in relation to security and interoperability.

NFC market trends

Also, as with any new technology cycle, we see an incredible element of excitement and therefore hype isn’t unexpected. Predictions from pundits were shared of the incredible growth of NFC enabled payment revenues, and the range is rather wide.

  • NFC will be in the top 10 consumer mobile apps by 2012, Gartner
  • NFC Transactions to hit $50 B by 2014 according to Juniper Research.
  • NFC to enable $680B of mobile payment value by 2016, Edgar Dunn and Co.
  • There will be 860 million NFC enabled devices by 2015
  • NFC tags will come down to 1 -2 cents per tag as we get to the several Billions of tags from the current 20 to 25 cents.
  • Contactless PoS to grow by 30% in 2011, after a 50% growth in 2010 (this is limited to some markets in Europe and Canada, most of the world is lagging here)
  • 85% of PoS will support contactless by 2016, ABI Research

How is NFC driving global opportunities?

The current situation of NFC, according to Koichi Tagawa, NFC Forum Chairman and General Manager Global Standards and Industry Relations at Sony, is that business models are starting to take shape, through MNOs and FIs in discussions, and various verticals starting to take some interest. Transport, sporting sites, and governments are showing interest in safe, secure and fast transactions. Trials and early deployments show the propensity of users wanting to tap for transactions. Anywhere between 70 and 90% of the users involved in several NFC trials that were polled have suggested that they would continue to use NFC.

The chicken and egg scenario with NFC was the lack of devices as one half of the problem. However, several phones are coming out this year with plans for this to grow. Samsung recently demonstrated an NFC tablet as well. There is also a potential for NFC in other consumer devices to such as laptops, set-top boxes, etc. to enable users to tap and connect. While this may vary from market to market, in general, contactless terminals have been slow to gain acceptance and given the lack of merchant interest, I think that terminals are likely to take longer to deploy in markets than it would take operators to seed a market with NFC devices. While this doesn’t hinder all the other applications of NFC from taking place, retail and transit are two of the corner-stone must have applications for NFC to achieve sufficient critical mass in a market.

The NFC Forum has developed Specifications for NFC and a global compliance program for NFC interoperability. The current set of specifications took six years, and was completed in late 2010.  To date, there are 16 specifications, defining 3 modes of operation. Card emulation; Peer to Peer; and Reader/writer mode. The Forum has also brought the various ISO specs (18092 and 14443 type A, type B + Felica) together to enable interoperability. Key developments include to securing NFC communications, and supporting RFID tags (ISO 15693). Another element that is key to the success of NFC, is the ecosystem, and the NFC Forum is keen to leverage any existing specifications to allow work with that portion of the ecosystem. The NFC Forum has developed the N-mark, for license free use, and is developing the brand book to outline the rules for co-existence with other marks, and usage of devices.

From a global launch of NFC perspective, several successful deployments of NFC were discussed, including that in Nice, Turkey, and Japan. On the Canadian front, John Ambrose of the Ambrose Connection and a past contributor to the Canadian Mobile Payments Thinktank, presented an insightful view of Canada’s roadmap to NFC and shared the challenges of getting there. He positioned the potential for a mobile broker in Canada to manage the myriad interfaces needed between all the actors in the mobile payments space. The recent announcement of Rogers Wireless applying for an issuer license in Canada was discussed by several speakers during the Congress. The dynamics in the Canadian market have moved from behind the scene posturing, and one can only speculate how this would impact the level of cooperation between MNOs and banks moving forward. On the US front, as discussed earlier, while the ISIS launch in the US was initially seen as polarizing the banks and the MNOs, the position now is seen as more open to bank participation and slightly more appealing to merchants. A realization perhaps, that to be of value, this has to be an ecosystem level play.

The 2010 Cityzi trial and subsequent launch of NFC services has been on-going in Nice, while take-up and growth in the rest of the Country has been slow, expectations of several other 20 cities joining, including Paris, over the next few years were expressed. The Cityzi launch has been a collaboration of service providers, led by MNOs and in cooperation with banks and with the Government’s support. While a blueprint of the overall collaboration model has been issued by AFSCM (and available at ), each party is free to negotiate its own business terms with other partners. Thierry Millet, VP of mobile payments and contactless services at Orange spoke about deployment experiences of NFC. He highlighted that this requires collaboration on multiple levels with stakeholders who must move forward in a synchronous manner. No one party can just implement NFC successfully alone, he said. When the Cityzi trial happened in 2010, a handful of partnerships existed with limited services and one device. However, customers liked the offering, and now, there are 150,000 subs with capable NFC devices, and a goal to have 500,000 by year end. Furthermore, mobile marketing will be added to the exiting mobile payments offer.

What is needed for NFC to get to a tipping point? A GSMA Perspective

Anne Bouverot, the Director General and Member of the Board of the GSMA, believes that NFC is at a tipping point. She added that the next magic moment (post mobile browsing and social networking) will be when users can use NFC for ticketing, payments, access control, couponing, etc. Given that 75% of people don’t leave their home without their mobile phone, and almost the same number of users, see NFC as a positive technology that they will use once introduced, the future is promising. The GSMA’s interest is a SIM-secured approach to the implementation of NFC, allowing portability of services between devices, security and interoperability everywhere it is implemented, according to Ms. Bouverot. There are, of course, caveats here, she did highlight the fact that many MNOs still subsidize devices and hence may lock the user out from porting their credentials and services as they churn prior to end of their contracts. Some may offer users an option to buy out the remainder of their contracts in such cases.

The ecosystem, according to the GSMA starts with the mobile industry, which needs to support NFC devices and SIM cards, which requires an investment on part of the MNOs. MNOs compete, but they have to work together for a successful NFC launch, such as in South Korea and Japan as well as in the US and France. She also believes that governments have an important role to play. In the case of France, the government has set aside money to help cities implement and promote NFC.

While there are many ways to implement NFC including stickers, micoSD cards, embedded, and SIM-based, the position of the GSMA is whole-heartedly SIM centric. While stickers are easy, they have no interaction with the phone and are not standards based, they only support one service provider. While microSDs may seem easy to attach to existing devices, but only support 1 service provider, and are not standardized. Embedded supports multiple devices and OTA, but is not portable to other devices. The SIM based approach allows for portability.

eSIM – The GSMA perspective is that the SIM card is paramount to enable security and applications. Given the capabilities of SIM cards such as in the case of M2M, where the SIM is far from the user, they are in a meter or a truck and used for many years. In such cases, the SIM needs evolution to support updates in a secure and standard way, and the GSMA supports embedded SIM in these instances.

 Did anyone mention banks?

And where are the banks anyways, and for that matter, the Retailers, the Transit Authorities, and other verticals such as Government?

Jean-Claude Deturche, Senior VP Financial Trusted Services as Gemalto discussed the differences in the mobile and financial sectors. He positioned Mobile as an industry has been seeing exponential growth in its relatively nascent history relative to the Banking industry, which started in the 7th century BC, with coins. This dichotomy of industry culture is not conducive to an obvious scenario for trust between these parties and for collaboration, which is why MNOs and banks will have to each step up to the plate to support NFC.

Jorn Lambert, Head of Emerging Payments, MasterCard Europe discussed the Regulatory framework requirements for successful NFC through two use-cases. The first being mobile payments. His synopsis was that there isn’t enough money in interchange fees today to split with additional parties. The issue here has been the payments model has been a high volume, low transaction-cost approach (some would contest this claim, did I ask where the merchants were?), and this ecosystem is now being faced with another entrant in the value chain. He shared the example of France and the UK for interchange fees, as indicated below:                   

                                                France                  UK

Ave. spend on card         7000 Euros          3000 Euros

Spend /Paypass                                10%                        10%

Merchants                          700 Euros             300 Euros

Ave. Interchange             0.55%                    0.8%

Therefore, he said that the amount of value is not a lot to further share from.

What happens beyond payments? In the US, 67% of consumers looked up a product on their mobile device and then made the purchase in person at the store. While users spend 28% of their time on the internet, it only gets 13% of the advertizing revenue. Thus, the second use case he proposed was to close the loop for merchants, who can use mobile advertising to issue coupons and support redemption, and monitor success of their campaigns, while strengthening their CRM capabilities. Some MNOs would like to manage this data and then offer it as a value-add service to merchants, finally realizing double-sided value models (note that the GSMA’s One API approach to offer usage trends data to 3rd party app developers has not been very successful, albeit, it was a little late in the game).

So, what needs to happen next? This sounds like déjà vu all over again

According to several industry experts, key obstacles that must be overcome for the successful launch of NFC are as follows.  Given that we are now seeing handsets and standardized solutions, PoS terminal penetration needs to increase, as well as the collaboration between ecosystem players. The 64 million dollar question yet to be answered is “what’s in it for retailers and how can they be better engaged?” Lastly, both national and global ecosystems need to develop in order to achieve interoperability. As much as these sound like motherhood statements, this is the current reality of NFC.

Follow on discussion?

If your organization is looking for help positioning itself to leverage NFC and to develop a pragmatic business strategy and implementation plan to successfully leverage NFC, or if you would be interested in participating in the Mobile Payments Thinktank, please contact us.

MWC Wrap up: The Wireless Industry is Alive Again!

Thursday, February 17th, 2011

Dawood Khan, Barcelona

This year, after a long time, I must admit that the mobile industry feels distinctly exciting again. The excitement is not for the hype that one must always wade through, but for the pace at which new opportunities and associated challenges are being created. This has been the year of many “this is the year of …” This is the year of NFC, the year of mobile advertising, the year of smarter smart phones, tablets, mobile broadband, context aware applications, mobile enterprise, data growth, HSPA+, operator M&A, the push to harmonize LTE spectrum … the list can go on. If this industry is a giant, it just woke up!

Smarter Internet: Eric Schmidt of Google summed up the pulse of the sentiment best, “everything is changing again,” he said in reference to the way technology is impact us. “Technology is going to serve humans vs. humans serving technology,” said Eric of the way he sees our future. Google has transformed the mobile industry, if its dominance wasn’t appreciated by some, they would have been convinced of it at MWC this year. Andriod was everywhere. With over 300,000 android devices being activated daily, a choice of 170 devices from 27 device vendors, Eric hoped that Nokia will also eventually join the bandwagon. If users so choose, Google could not only determine that you need a new pants, but that you could purchase them cheaper from the store 50 feet from you on the right hand side. In fact, the pants could be hung up in the change room, ready for you to try, or your favourite colour can be packed, ready for you to pick and go.  Yahoo’s CEO Carol Bartz said that the days of the yesterday’s noisy internet are gone. Its all about contextually applicable content. Scary, yes, to many this is, but who would have thought 5 years ago that the power of people’s leveraging social media could topple a 30 year plus dictatorships in days.

NFC represents a Euro 120 B (number varies drastically depending on assumptions and what counted)  opportunity by 2015 according to a Frost & Sullivan study, and projections NFC devices to grow to 457 M by 2015, a 139% CAGR over 2011. With successful market launches in Europe; Korea, China and Japan starting to work towards cooperation on NFC deployment; the ISIS JV in the US taking form, NFC may be ripe for major growth. The interest on this topic was both evident at the Mobile Venture Forum, where Investment Analysts and VCs discussed the promise of m-payments and other NFC enabled capabilities; to the NFC discussion at the conference today.

Devices, devices and even more devices, and they are all connected and smarter than before. According to NSN’s CTO Hossein Moin the smartphones we’re beginning to see “are essentially smarter computers with intelligence such as location, camera, and eventually NFC capabilities built-in….Dongles and smartphones have exploded, with the entrance of newer, less expensive devices, this explosion will continue.” With 45 tablets launched in the market to date, there was no shortage of all shapes, sizes and capabilities evident at the show. The LG Optimus promises users a 3D experience; The RIM Playbook a fully WiFi/3.5G/4G  experience with support for Flash, HTML5 and open internet standards; to name a select few of the choices out there.

Broadband network investments in HSPA+ and LTE. I have already discussed this topic on previous blogs, but needless to say, this discussion was fueled by the double digit growth of data traffic experienced in many parts of the world.

Spectrum harmonization, as discussed in previous blogs was positioned as critical for cost-effective devices and deployment of globally viable LTE networks. However, everyone sees that between at least 5 and 10 band solutions across FDD and TDD will likely be coming into play.