Mobiles ring in the end of the wallet
Telecoms groups, banks and retailers are finally ready to turn your phone into a payment device. Nick Clark reports
Tuesday 19 April 2011
This is the year that British consumers will be able to load up on Big Macs with a swipe of their phones. Or is it? Experts say the perfect storm that will allow "wave and pay" with mobiles is nearly upon us, but are people ready to trade in their wallets?
McDonalds revealed in January that it was to install readers to accept contactless payments in 1,200 branches this summer. Initially, it will allow customers to buy their food with contactless cards, and later with their mobile phones.
It seems the will is finally there between the mobile phone handset makers, operators, banks, payment processors and retailers to push contactless payment.
British consumers are already familiar with mobile payments via premium texting, with the charge added to their phone bills, as well as downloading applications to their phones on the move. The next generation is turning the mobile phone into a digital wallet. Alastair Lukies, chief executive of mobile banking payments group Monitise, said: "Putting a chip on a mobile phone is no different to a dumb NFC card. When it is integrated with the phone, and it can talk to apps, where you can check your balance and get a digital receipt, then it becomes interesting."
The agreed standard for the contactless payments is Near Field Communication (NFC) technology, a short-wave radio system which transmits data small distances.
Analysis group Juniper Research predicts the value of contactless payments and ticketing using NFC will hit $113bn (£70bn) per year by 2016. Howard Wilcox, lead analyst at Juniper, said: "2011 is the year when the first mobile contactless payment will be available in the UK." He forecast a million NFC devices will be shipped this year. "It needs a change in mindset. Your phone becomes your wallet," Mr Wilcox added. The system has been designed to buy low-value items such as refreshments, newspapers or train tickets, with purchases likely to be capped at £15. But do consumers want to use their phones to pay? Helen Karapandzic, the lead consultant at Analysys Mason, said: "There certainly has been consumer interest but it needs a fundamental shift in their behaviour. Consumers don't really see the need for it at the moment.
"Consumers need to see the benefits. Banks could pass on the savings they make as they don't have to issue cards. There should be a time-saving element, and increased control and accountability via payments." The companies could then start combining it with loyalty points and couponing, Ms Karapandzic added.
This will be driven by the rise of smartphones with NFC chips. Currently there is only one device – the Samsung Galaxy S – and that is not designed to allow payments.
Yet, smartphones will increasingly include the NFC chips. Juniper estimates that by the end of 2014, 300 million devices will be able to offer their users swipe and pay. Research in Motion, the maker of BlackBerry, has already said that it intends to put the chips in most of its new devices, and Google, which developed the Android smartphone platform, has also backed the technology.
The analysts said backing from marquee names would help bring the technology in faster. The industry is waiting on comments from Apple. It is understood there will be no NFC technology in the next iPhone – whether that is the 4GS or the iPhone 5. Yet, Apple is working on introducing some form of contactless payment next year. The take up by the mobile industry has been helped as the cost of the chips has fallen from around $5 three years ago to closer to $2 currently.
Yet the growth of devices is useless without the backing of the merchants and those supporting the payments. "Merchants are beginning to respond," Ms Karapandzic said.
It also has the backing of the banks and the payment processors. Mr Lukies, of Monitise, believes that rather than suffer a shake up in the market, these giants will benefit from new technology. "The regulators and banks will always be at the centre of anything to do with money, then there will be the trusted partners such as Visa, MasterCard or American Express. They may be challenged but they won't be displaced. The difference may be farther away, where opportunities emerge," he said. There will also be different revenue models emerging, with companies offering discount payments or loyalty cards when their phones are detected.
Visa has heavily backed NFC. Beyond existing contactless cards it has teamed up with Samsung to offer contactless mobile payment in the UK in the run up to the London Olympics next year. The companies said it would leave a "lasting legacy in the market" after the event finishes. Separately, Orange has secured a deal with Barclaycard to introduce contactless payments.
New winners will emerge, including companies such as ViVOtech, which makes the point-of-sale terminals. Mobiles have also allowed new payment technology to emerge such as Square, developed by Jack Dorsey, the co-founder of Twitter. The company has developed technology to allow a phone to accept a credit card payment and has already raised $27m in funding.
The contactless technology has been discussed in the industry for years, but finally the "perfect storm" of different stakeholders agreeing is close, according to Mr Lukies.
The NFC Forum, a not-for-profit industry association, was set up in 2004 and now has 140 members. The technology has already been widely deployed in Japan, although instead of NFC it uses a system called FeliCa. In February, its operators and those in South Korea revealed they would move to the global standard. In Europe, Orange is running a commercial pilot in Nice, dubbed Cityzi, which covers 3,000 customers. A similar trial was run in Spain by Telefónica, Visa and La Caixa. It proved a success and the project promoters are leaving the terminals with the merchants indefinitely.
Mr Lukies said the technology would almost emerge by stealth. "Almost before you've realised it, half of the country will be using their mobiles to pay for stuff. It is the same as chip and pin, which was talked about by the industry for years before it was introduced, as well as internet banking." But will it be this year? No, he said: "The parts are coming together. The Olympics next year is a showcase event to show off this technology. It should fly from there."
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