By Dawood Khan
http://redmobileco.com/contactus/
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 www.afscm.org ), 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.
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