Digital security company Gemalto is teaming with NXP Semiconductors to push contactless payments toward commercial viability.
The companies last week said they’d work together to define standards for SIM-based Near Field Communications products and ensure interoperability with MIFARE, a contactless smartcard technology for mass-transit authorities. Gemalto and NXP recently worked together on a trial of the MIFARE system in the Paris Metro, enabling users to pay fares with a SIM-based application on mobile phones.
Terms of the deal were not disclosed.
“The availability of SIM-based NFC phones is expected to positively impact operators and service providers, as well as end users,” said Gemalto VP Philippe Vallee. “Each and every one of them will gain from this new architecture. It enables operators to provide valuable new services to their installed customer base, while service providers-transit operators, banks and others-will find new ways to reach more customers.”
Train trials
M-commerce proponents envision several potential scenarios for contactless payments-from movie theaters to grocery stores to peer-to-peer transfers-but mass transit may be the most natural fit for the application. Not only are such transactions typically just a few dollars, they are often paid in cash. Contactless payments could make for a speedier transaction, saving commuters time and allowing transit authorities to move more bodies through the turnstiles.
Proponents say early trials are encouraging. Extensive pilot programs have been deployed by New York City Transit and the Utah Transit Authority, and smartcard-based fare collection systems are expected to be operational in more than a dozen U.S. cities within a year.
Some trials have used NFC technology embedded in mobile phones, while others employ chips embedded in credit or debit cards. And consumers may be just as likely to reach for their phones as their wallets to make small purchases, according to Gemalto VP Jean-Louis Carrara. Commuters in the Paris trial “didn’t want to turn their phones back in” at the end of the program, Carrara claimed, and more than 90% of users said they’d recommend the contactless service to others.
“People carry three, four, five credit cards with them, but usually one is at the top of the wallet,” Carrara said. “If you put a smart card in a phone, that may become top of the wallet very quickly.”
Working the value chain
Whether there’s a place in the value chain for wireless, though, is questionable. Unlike mobile content purchases, carriers typically aren’t responsible for billing contactless transactions; credit-card companies are. While the convenience of paying with a phone may be marginally attractive, it’s unlikely many consumers would be willing to pay much of a premium over traditional credit-card purchases.
But finance companies are hoping to make it easier for consumers to use contactless payments than to use cash, and have already eliminated rules that required signatures for smaller purchases. While they’re unlikely to give a share of each transaction to mobile carriers-or any other new link in the value chain-they may be willing to pay operators for making it easy for commuters and shoppers to use their phone to pay.
“I don’t think operators are going to take the cut they want to” from each transaction, Carrara said, noting the fact that mobile contactless payments can be made with the phone off, leaving the carrier blind to a purchase. “I think they’re probably going to get paid for activating that card, managing the life cycle of that card.”
Even if wireless operators can make a solid business case out of m-commerce, though, analysts generally agree that the space is unlikely to see any real uptake in the United States for quite a while. A Forrester report released earlier this year warned retailers not to expect “ground-breaking performance or a big bang with the arrival of retail’s newest channel,” although the market research firm encouraged vendors to begin experimenting with m-commerce.
“A lot of work has to go into lining up all the right pieces and creating and deploying the necessary standards,” Rubicon Consulting analyst Bruce La Fetra wrote last week. “There is a lot of chicken or egg to it. . We are likely to see success with NFC payments in markets where credit cards are not so ubiquitous long before we see broad adoption here.”
Carrara remains optimistic about contactless payments, though, both around the world and in the United States. Much of the heavy lifting has been done as retailers have installed costly readers for contactless payments. As the technology becomes ubiquitous, he said, vendors will train salespeople how to operate readers at the sales counter, and users will begin to appreciate the convenience of such transactions.
“We expect that by the middle of 2008, you’ll have enough consumer behavior change in the States” to move the needle for mobile payments, Carrara predicted. “At that point, they might understand that they can pay with their phones.”
