Banks and Mobile Operators Go Head-to-Head for Control of Mobile Payments

Banks and Mobile Operators to Go Head to Head for Mobile Payments Business

NFC mobile phones will be used to replace everything from credit cards and loyalty cards to bus and train tickets, library cards, door keys and even cash.

NearFieldCommunicationsWorld.com
January 14, 2010

Banks and mobile network operators are set to go head to head in a bid to control the market for NFC mobile payments services, according to a new research report published today.

"NFC mobile phones will be used to replace everything from credit cards and loyalty cards to bus and train tickets, library cards, door keys and even cash," says Sarah Clark, editor of NFCW and author of the new report. "What hasn't yet been decided, however, is who will win the battle to provide consumers with their new hi-tech mobile wallets."

So far, banks and operators have worked together to run field trials of NFC technology but, the report predicts, the emergence of new ways to add near field communication technology to existing mobile phones means they will soon find themselves in competition for control of this important new market.

"New products are now available that enable NFC functionality to be retrofitted to current mobile phones. These will enable banks to deliver NFC services to their customers without the involvement of mobile network operators, and this has fundamentally changed the balance of power between banks and operators," Clark explains.

While a collaborative approach between banks and operators may work in some instances, 'NFC: The Road to Commercial Deployment' predicts that most commercial deployments will have only one lead player. And that lead player will not necessarily be a mobile network operator.

"Decisions made in 2010 will be critical in determining which mobile network operators, which banks, which industry suppliers and which service providers become the leaders in the field," says Clark. "Ultimately, only two or three companies in each country will succeed in building a major new business providing NFC services to businesses and consumers. The winners could be banks or mobile operators, or even a new entrant to the market."

"We now expect a competitive market to develop between mobile operators and banks in each market," Clark adds. "Here, overall leadership will not be determined by what business the company is currently in. Instead, it will be based on their overall business strength, on how well they execute their NFC strategy and on the alliances that they put into place."

Strong banks, for instance, will be able to make deals with weaker mobile network operators. And strong mobile network operators will make deals with weaker banks so that, ultimately, who ends up as a lead player in each market will depend not on whether they are a bank or an operator but on key factors such as:

• The strength of the company’s existing presence in its core market.


• How loyal its customers are.


• The level of risk it is willing to take in terms of investing in the deployment of NFC services.


• How successful it is in developing an attractive business proposition for potential key service providers and how quickly it manages to sign them up.

Although the widespread introduction of commercial NFC services can begin from early 2011, another year of field testing will need to take place before the trials this year will be different to those that have gone before.

"This year's trials will not be simple technical tests," says Clark. "Instead they will be pre-commercial trials, designed to enable NFC service providers to finalize their business plans."

The UK, France, United Arab Emirates, Singapore, Taiwan and Korea will be the first countries to introduce NFC commercially, the report predicts, beginning in 2011. The US, Canada, Spain, Germany, Italy, Norway, the Czech Republic, Romania and Australia are also expected to be early adopters of NFC.

'NFC: The Road to Commercial Deployment' examines the international market for near field communication technology from 2010 to 2014. It is published by SJB Research, a UK company specialising in analysing the market for emerging technologies in the mobile and payments fields.

The report provides detailed guidance for banks and mobile operators looking to introduce NFC successfully and for companies wishing to offer NFC-based services to their customers. It includes an analysis of the technical and business challenges that still need to be resolved and explains how mobile operators, banks, handset manufacturers, industry suppliers and key potential NFC service providers will resolve those issues during 2010.

'NFC: The Road to Commercial Deployment' explains the key factors that will decide which companies will become the mobile wallet market leaders and details what the first NFC services will need to offer in order to succeed.

One of the Players Must Take on the Risk Before NFC Can Succeed, Says Founder of Japanese Mobile Wallet

NearFieldCommunicationsWorld.com
January 21, 2010

Carl Atsushi Hirano, the driving force behind the introduction five years ago of Japan's Osaïfu Keitai mobile wallet service, has set out his thinking on what was required to make the service a success and what it will take to successfully introduce NFC services in other countries.

In the foreword to a new report on the Japanese mobile wallet service Osaïfu Keitai, Carl Atsushi Hirano, president and CEO of consultants NetStrategy and the head of mobile wallet services at NTT Docomo during the launch of the operator's Osaïfu Keitai service five years ago, has set out his thinking on what it will require to launch NFC services in other countries and why the technology has been a success in Japan:

"The first reason is that I researched the dissatisfactions and inconveniences of daily life. I'm convinced that these 'dissatisfactions' and 'inconveniences' are the mother and father of every new industry. Why do I have to have so many loyalty cards or credit cards in my wallet?

"Everything started with this idea. After a theft I would lose all of these cards, but if all of my cards are integrated on my mobile then all I need to do is make one phone call to my telephone operator to stop them. In order to create such a world, I created Osaïfu Keitai.

"I am certain that there is a demand for such a market the world over, as much in Europe as in the United States."

"It is important to construct an ecosystem from which all participants of the value chain — mobile operators, providers of contactless card technology, companies managing the services of the real world, such as retailers, public transit companies or beverage dispensers — earn a profit," Hirano adds.

"However, to create this ecosystem, we need to solve the hen or egg causality dilemma, as Andrei Hagi (a professor at Harvard Business School) explained in his Multisided Platform Theory, and one of the players has to take the risk to create and coordinate the ecosystem," he adds.

"In Japan, NTT Docomo took on the role of the market coordinator taking on a high risk. I wish, from the bottom of my heart, that another company or brave person will give birth to this ecosystem in Europe and in the United States. I am impatiently waiting for the day when I can buy a café au lait and a croissant in a Parisian café with my Japanese ''mobile.'"

According to the report, Mobile Felica in Japan, there are now a total of 60 million consumers equipped with Mobile Felica-enabled handsets. Of these, 35 million are customers of NTT Docomo's i-mode service, 10 million are signed up with KDDI and a further 10 million with Softbank Mobile.

Visa Europe to Invest €200 Million in Development of Contactless Payments by Card and Mobile

NearFieldCommunicationsWorld.com
February 4, 2010

"M-commerce is a strategic priority," says Visa Europe's head of UK and Ireland, "we are working and talking with all the mobile operators and handset manufacturers to develop standards for payment on mobile phones."

Visa Europe is to spend €200 million on R&D for low-value contactless payments by card and mobile device, says Marc O'Brien, Visa Europe's head of UK and Ireland.

The information was revealed by O'Brien during a visit to Dublin to brief Irish banks about the potential of contactless cards and NFC payments.

"Ulster Bank and Halifax now issue Visa Debit cards to their customers," a Visa Europe spokesman told NFC World. "Visa Debit is an innovation path to both contactless and mobile payments. Visa Europe discussed the successful trials it has had with contactless payments in other markets and shared information about them with Irish banks."

A report in Irish tech news publication Silicon Republic provides further details on Visa Europe's strategy and the size of the investment it is willing to make in the contactless and NFC market:

"Looking to the future, O'Brien said Visa is hard at work researching and developing new ways for people to pay, and one of the areas being given serious consideration is contactless payments via mobile phones using near field communication (NFC).

"For us, m-commerce is a strategic priority, and we are working and talking with all the mobile operators and handset manufacturers to develop standards for payment on mobile phones."

O'Brien says Visa spent €800 million over the last five years on R&D, out of which €170 million went into chip and PIN. "We envisage spending a further €200 million on R&D into low-value contactless payments by card and mobile device."

An earlier newspaper report that the Irish banks are looking to implement NFC as early as 2011 has been dismissed, however.

"The report was slightly overzealous, there are no confirmed plans to launch NFC mobile payments next year," says the Visa spokesman.

Visa and MasterCard Launch Mobile Payment Technology

NFC-enabled mobile phones will be used to replace everything from credit cards and loyalty cards to bus and train tickets, library cards, door keys, and even cash. - Banks and Mobile Operators to Go Head to Head for Mobile Payments Business, Mike Clark, January 14, 2010

Visa Seeks to Extend Retail Dominance With Pay-By-iPhone Service

DeviceFidelity partnered with Visa to provide mobile payments using an iPhone app and a special case with a microSD payment card inside it.

Wired
May 18, 2010

A battle is heating up over the right to process payments when you wave your cellphone over a sensor to buy goods at a local merchant. Visa made waves this week by announcing a collaboration with DeviceFidelity, which makes an iPhone case called In2Pay with a near-field communications (NFC) microSD card embedded in it that will allow iPhone users — whose devices lack a microSD card — to get in on the action.

To pay at any of Visa’s swipe-free payWave payment terminals, already found at over 32,000 retailers nationwide, all you would need to do is tap an app in your DeviceFidelity-encased 3G or 3GS iPhone and wave it over the terminal. Retailers like the system because it saves them time on each transaction, according to Visa.



Apparently, swiping a credit or debit card simply takes too long.

Mobile payment is fast becoming a red-hot sector. Square, from Twitter co-founder Jack Dorsey, which allows small businesses to accept credit card payments using an iPhone. Meanwhile, eBay’s Paypal allows customers to pay in stores using a simple smartphone app — no chip required.

DeviceFidelity announced a microSD card version of this system in March, but the iPhone lacks the requisite slot. This In2Pay case adds room for the slot, allowing DeviceFidelity’s microSD card to be used with the iPhone, also adding a micro USB slot for charging the iPhone and, according to the company, syncing it to a computer without Apple’s proprietary cable. DeviceFidelity expects (.pdf) to begin trials of the device and service this summer.

“Visa is working to bring the security and convenience of digital currency to mobile users around the world,” said Visa head of mobile contactless payments Dave Wentker in a statement. “Our collaboration with DeviceFidelity can extend the reach of Visa mobile payments to millions of iPhone users.”

With this move, Visa seeks to maintain its strong position in the credit and debit payment system, from which it extracts fees from retailers, who pay Visa about 30 cents when you enter in a PIN code or 75 cents when you sign a debit receipt. Under its payWave system, Visa requires a signature for any purchase over $25. When it comes to these iPhone payments, the fees will be set by banks.

“Pricing of the mobile payment services will be determined by the financial institutions,” confirmed Visa spokeswoman Carolyn Chiang. Depending on the institution, users could pay transaction fees, enrollment fees, and/or annual fees for paying by iPhone, the same way they do with Visa payWave.

In addition to Visa, DeviceFidelity will allow third-party app developers to integrate the system into other apps too, enabling secure transactions with an optional password such as access to corporate buildings and computer networks, purchasing goods from cashier-free kiosks, and paying for transit.

Retailers need to accept Visa and Mastercard, which is why those companies can extract these fees from them. But Visa and Mastercard face at least some tiny degree of potential competition from an upstart with the unlikely name Bling Nation, which currently offers a pilot program in Woodland Park, Colorado (population: 7,300).

Crucially, Bling Nation claims to undercut fees charged by traditional payment companies, “streamlin[ing] payment processing and reduc[ing] costs by eliminating processing middlemen” such as Visa. The company is focusing first on small regional banks to solve what Bling Nation co-CEO Meyer Malka calls the “chicken and egg problem” of Visa already having so many swipe-free terminals installed nationwide.

Given Visa’s massive and growing install base, it appears unlikely that Bling Nation or any other payment system can scale up in time to compete, because Visa already has swipe-free terminals at so many locations. However, Malka says, any swipe-free payment terminal that accepts Visa can be made to accept BlingTag with a software upgrade.

Merchants would prefer not to be held hostage to Visa’s and Mastercard’s fee systems, of course, and consumers have reasons to prefer Bling or something like it too. Rather than a bulky case like In2Pay, Bling Nation’s solution involves affixing a tiny transmitter card called a BlingTag to the outside of a mobile phone without increasing its overall size, which Malka said can be linked to a checking account in 30 seconds. iPhone users, whose devices are already barely small enough to fit into a pocket, might prefer such a solution to DeviceFidelity’s bulky-looking cases.

Malka says the problem with Visa’s iPhone payment announcement is that it duplicates the legacy credit card/debit system, along with the fees and privacy issues for merchants and consumers that come with it. In addition to streamlining fees, Bling allows merchants to see anonymous user data that would allow them to offer their 50 most frequent customers free merchandise. And it puts power in the hands of consumers by allowing them to pay using any of their accounts or bonus points from a bank, receiving a receipt via text message — all without handing over their name, address, and other identifying information to the merchant.

Congress is reportedly so likely to approve an amendment curbing “swipe fees” that Visa and Mastercard stocks each fell nearly ten percent on the news last week. Hopefully, for local merchants and consumers, the new rules will extend to “swipe free” payments made by cellphone as well.

MasterCard to Test NFC Add-on for Mobile Payments in Singapore

NearFieldCommunicationsWorld.com
May 5, 2010

MasterCard is to run a pilot test in Singapore of a new SIM+antenna NFC solution developed by Gemalto.

The Upteq N-Flex device is the first NFC add-on to conform to the Single Wire Protocol (SWP) and is designed to add near field communication functionality to a wide range of existing mobile phones.

For the trial, MasterCard is collaborating with DBS Bank, mobile network operator StarHub and EZ-Link, operator of a contactless stored value card with over 20,000 acceptance points in Singapore including public transport services and retail outlets. Participants in the trial will be existing holders of DBS and EZ-Link Fevo MasterCards.

"This innovation is aimed at accelerating mobile NFC payments in the region," explains MasterCard's Ajay Bhalla. "MasterCard's collaboration with Gemalto marks an important milestone for the contactless payments industry, with mobile services expanding beyond simple payments and fueling economic connections for consumers in the global marketplace."

Participants will be able to use their phones to make payments at merchants equipped to accept MasterCard PayPass contactless cards and, later, possibly pay use them for transport ticketing too:

"We are also exploring the possibility of using the Upteq N-Flex solution for our contactless e-purse application (CEPAS) to enable mobile NFC payments for small ticket retail and mass transit including buses and trains," says EZ-Link's Nicholas Lee.

In February 2009, Singapore became the first country to give the go ahead for the creation of a central Trusted Third Party (TTP) designed to deliver a fully inter-operable, multi-application national NFC ecosystem. Government funding is being used to encourage merchants to switch to contactless card accepting terminals and a number of NFC trials have taken place in the country over the last couple of years.

Visa to Launch Contactless Mobile Payments for iPhone

ReadWriteWeb
May 6, 2010

Want to pay for purchases by waving your iPhone in front of a payment terminal at checkout? That will soon be a reality thanks to a new partnership between Visa Inc. and DeviceFidelity, which has teamed up to launch a mobile payment technology for iPhone 3G and iPhone 3GS devices.

The news comes by way of a leaked press release that temporarily appeared on MarketWatch, but has since been taken down. Several versions remain on the Web, however, thanks to Google's cache.

payWave for iPhone

According to the release, the new Apple-certifed technology combines a protective iPhone case with a secure memory card that will host Visa's contactless payment application, Visa payWave.

PayWave, introduced in September 2007, allows cardholders to wave their card in front of terminals in order to pay for purchases at point-of-sale. The technology is similar to MasterCard's PayPass solution, which rolled out to select markets in 2005.

Visa's contactless technology already works at over 32,000 retailers from top brands, notes the company's corporate website, and the list is "rapidly growing," it says.

The iPhone-enabled payWave technology, too, will be made available at thousands of merchants, claims the release, including fast food restaurants, retail stores, in taxis, during sporting events (such as baseball games) and even at vending machines that have contactless payment terminals.

Beyond iPhone: Works on Any Phone with a Memory Card Slot

What's even better about this news is that the mobile payment technology won't be limited to iPhones. It will also work with "a majority of smart phones that have a slot for a memory card," which means that owners of other popular smartphones won't necessarily be out of luck. To use Visa's technology on non-iPhones, users can insert the card into their phone's memory slot to transform their phones into mobile payment devices.

Visa already released a similar technology in Malaysia and Japan. Last year, for example, the company teamed up with Nokia and Maybank, a leading financial institution in Malaysia, to offer Visa payWave on mobile devices. But at the time, the company claimed that several barriers to U.S. adoption still remained, many of which had to due with the limited adoption of NFC-enabled devices and terminals here in the U.S. (NFC, or near field communications, is a wireless communication technology that enables data exchanges between devices. The technology is popular overseas in Europe and Asia, but has yet to catch on with any real gusto in North America. PayWave uses NFC for mobile transactions.)

Apparently, Visa has found a workaround for the lack of NFC phones by embedding the computer chip needed into specially designed iPhone cases instead.

Is it Secure?

Considering that people often lose their mobile phones, the application has been designed so that it can be password-protected and uses "advanced security technology," says the release, to uniquely identify each transaction. If a phone was lost or stolen, the phone's owner would simply call their provider who could then immediately deactivate the account, the same as with lost or stolen credit cards.

The leaked release was accompanied by videos demonstrating the new technology, but sadly those are now unavailable. Here's what we gleaned from watching the footage: The video shows a two-part casing for the iPhone, into which a DeviceFidelity NFC microSD card is inserted. This casing then fits onto the iPhone, plugging into the device's dock connector. The product looks as neat and discreet as a protective shell can be, but it is unclear if the case needs to be removed to charge the iPhone. The video goes on to show a transaction being made, with the user selecting a payment application on the iPhone's screen and then waving the device over a terminal to pay.

You can also find more details on Apple's own plans for NFC, iTunes and the iPhone here.

Visa Mobile Payments Trial to Start Second Quarter 2010 for iPhone

NearFieldCommunicationsWorld.com
May 17, 2010

DeviceFidelity has confirmed that, as we reported on 4 May, its In2Pay NFC MicroSD solution is now available for the iPhone.

The solution, which has been certified by Apple, was developed in collaboration with Visa and uses a protective case which is designed to stay permanently attached to the iPhone and which provides a micro USB slot for users to sync and charge their devices. Users then simply insert a standard In2Pay MicroSD card into the case and can then use their iPhone to make payments at merchants equipped to accept contactless payments. Trials are scheduled to start during the second quarter of 2010.

"The more than 200,000 apps on the App Store are an integral part of iPhone users' lives,” says Amitaabh Malhotra, COO of DeviceFidelity. "With our In2Pay solution, we want to give both iPhone users and app developers the power to do even more, by putting the convenience of interactive secure mobile transactions, right at their fingertips, anywhere they are."

"Visa is working to bring the security and convenience of digital currency to mobile users around the world," adds Dave Wentker, head of mobile contactless payments at Visa. “Our collaboration with DeviceFidelity can extend the reach of Visa mobile payments to millions of iPhone users.”

Visa announced in February that it would be running a number of field trials using DeviceFidelity's MicroSD technology from the second quarter of this year.

U.S. Sues AmEx, Visa, MasterCard, Latter Two Settle

Reuters
October 7, 2010

The Justice Department sued American Express Co, Visa Inc and MasterCard Inc on Monday, accusing them of violating antitrust laws and citing rules that prevented merchants from encouraging consumers to use cheaper credit cards. Simultaneously, the Justice Department settled with Visa and MasterCard, which agreed to allow merchants to offer discounts to consumers who use less expensive types of credit or debit cards. American Express said the lawsuit would hurt consumers by limiting their ability to use their AmEx card. Attorney General Eric Holder said that credit card companies "put merchants and consumers in a no-win situation. Accept our card, pay our fees and don't even think about trying to get a discount."

Merchants pay fees to banks and processing networks like Visa and MasterCard every time a customer pays for something by using a credit or debit card. These so-called interchange fees usually amount to between 1 to 3 percent of each total bill. American Express, which lends directly to consumers and processes credit card transactions, charges merchants a higher percentage on average. AmEx said on the conference call that merchants get more business from American Express cardholders in exchange for the higher fees because its wealthy customers tend to spend more than the average credit card user.

Visa, MasterCard and American Express and their affiliated banks collected more than $35 billion in fees from U.S. merchants in 2009, according to the lawsuit. Ed Mierzwinski, consumer program director of the U.S. Public Interest Research Group, said in a statement that the lawsuit and settlement "will finally open competition in the card payment market, ultimately leading to lower prices to consumers." But in a statement late Monday afternoon, the American Bankers Association said it looked "forward to seeing whether (merchants') new-found pricing authority will actually result in consumer benefit or merely be used to pad their own bottom lines."

Visa said that as part of the settlement, it would allow merchants to offer discounts to consumers who use certain types of cards, such as non-rewards credit cards, which carry lower interchange fees.

Until this year, these fees have been relatively unregulated in the United States.

"Credit cards cost phenomenally more in the U.S. than abroad and the DOJ action will help open the market," said David Balto, a former policy director at the Federal Trade Commission's competition office.