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Cellphone Payments: High-Tech’s New Frontier

Given the interest my last post generated about mobile payments via cellphones, I decided to study up on the market and the technology that’s powering it. (See: MWC: Mobile’s Next Leap.)

Although I had suspected phone payments to be a part of the logical progression of the 21st century mobile lifestyle, I was a bit surprised to find that a mini war already seems to be raging: All sorts of companies are staking claims and looking to draw profits from the evolving market.

Before I get too deep into this, let me set it up so we’re all on the same page. Mobile payments obviously aren’t new. We already have short-message-service-related transactions for digital content and premium services; mobile Web payments through a browser with an charge card; iTunes-style smartphone in-app billing options; and person-to-person mobile money transfers, as {complink 7057|Juniper Research Ltd.} points out in its whitepaper, “Checkout the Mobile Payment Opportunity.”

What’s new and what’s hot, at least from an electronics standpoint, is the promise Near Field Communication (NFC) brings to the table. NFC technology, which is finally being embedded into chips and consumer devices after some foot-dragging by the electronics industry, earned considerable booth signage and attention at the recent Mobile World Congress in Barcelona. It's also making a bunch of headlines in the mainstream and trade press. As Bloomberg News reports, NFC is sparking competition among telecommunication operators, banks, device makers, and application providers. Bank Systems & Technology posted a similar story, and MobileSyrup.com, which provides mobile news to Canadians, offered an overview of “NFC and what it means to you.”

Essentially, NFC is a short-range wireless connectivity technology based on magnetic field induction, according to research firm {complink 7427|iSuppli Corp.} Because NFC is intended “primarily for intuitive, simple and secure communications between two electronic devices in close proximity to each other” it would be well suited for mobile payment applications; it also will find its way into devices that provide access to secure facilities or help machines swap or retrieve information, the firm notes.

Now that NFC-enabled devices are being released, 2011 is the year many experts expect to see “wave and pay” take hold. Basically, this means we’ll be seeing many more people ditching their credit and debit cards, and waving their mobiles in front of payment readers at the supermarket or subway station.

As with most mobile trends, the global market potential sounds enticing. In the previously mentioned Bloomberg story, the publication (citing IE Market Research) says NFC payments could account for a third of the $1.13 trillion global market in mobile transactions by 2014. Worldwide shipment of cellphones with built-in NFC capability is predicted to increase to 220.1 million units in 2014, up fourfold from 52.6 million in 2010, iSuppi reports, predicting that by 2014 13 percent of all cellphones shipped will integrate NFC, compared with only 4.1 percent in 2010.

Juniper also notes that “major announcements from several key players such as Orange France and Google,” plus the rollout of the contactless readers at merchants' point-of-sale stations and retrofitted interim solutions, will move the market forward. Not surprisingly, given global mobile usage trends, the “need to access basic financial services by users in developing countries will drive the short term growth of active mobile money users globally to exceed 200 million by 2013. Currently well under 100 million people use these services,” Juniper says.

While banks, telecom operators, and companies like Google, Nokia, and Samsung Electronics are heading up many of the initiatives already underway worldwide, semiconductor companies also are active in the market. For example, NXP Semiconductors had a flurry of NFC and mobile transaction-related news and demos at MWC. Earlier in February, Inside Secure announced an open-source Open NFC protocol stack aimed at the latest version of Google Android’s Gingerbread operating system.

Geographically, Europe and Asia have a headstart, with many of the big telecom operators testing systems, according to various reports, and Juniper expects that nearly 40 percent of active mobile money users in 2015 will be in the Africa and Middle East region. In the US market, it’s been slower to take hold because retailers do not want to invest in untested systems, according to an NPR report.

I’m not quite sure how fast this will gain ground. I, for one, don’t want all my credit card info stored in a device that can be as easily pick-pocketed as my wallet on the subway, or hacked like my laptop. But I can also see how efficient it would be to have most of my consumer purchases done with a flick of the hand.

How are your companies preparing for this new technology? Could NFC payments start making their way into B2B payments? What pros and cons do you see?

26 comments on “Cellphone Payments: High-Tech’s New Frontier

  1. mfbertozzi
    February 23, 2011

    That's right Jennifer, this new frontier is coming. Now.
    It's also a recent discussion inside EBN community. FaceCash (www.facecash.com) is a great and very fascinating solution, easy to use, secure and convenient. As pros.
    Cons: will similar solutions be available abroad across the glob? We have experienced several times good applications launched were available only for Western people. And what about emerging areas?

  2. AnalyzeThis
    February 23, 2011

    I too share your concerns about adoption, but like many new things, this will be very likely to be adopted more eagerly by younger generations.

    To me, this is somewhat like the development of ATMs: at first, they were not especially popular because people wanted to talk to a “real person” and didn't trust machines with their money, but look at how commonplace they are now…

    Then again, I refuse to use ATMs, so perhaps I'm a bad example…

    Anyhow, I do think NFC adoption is going to vary quite widely: some regions and demographics are likely to start utilizing it in huge numbers in the very near future, and in other areas and amongst other demographics it will be a complete non-factor.

    I have no plans to support or implement NFC on any level. Doesn't make sense for my business. I might think differently if I, say, owned a convenience store or something of that nature, though.

  3. SP
    February 23, 2011

    While reading your articlet the thing that keep crossing my mind was what if my cell phone is lost or stolen? Its a big risk. If all your bank info is there someone can steal big bunch of money. I would first analyze what are the safety features of NFC.

  4. Jay_Bond
    February 23, 2011

    My largest concern is the safety issues. It's bad enough right now that you have to be careful about your info getting stolen with an RFID scanner. To think that all that vital info would be on your cell phone. Think about how easily that info could be accessed. Everybody has times when they forget where they set their phone at. That would be just as bad as leaving your wallet lying around unattended. Until the security features are rather stringent, I can see issues with theft.

  5. SunitaT
    February 23, 2011

    Jennifer,

               What about security, are the NFC safe enough ? I read somewhere NFC suffers from Eavesdropping, Relay attacks etc ?

  6. Mydesign
    February 24, 2011

         Jennifer, security is a major concern in mobile computing and transactions. Even though there are some standers existing for mobile payment and M comers, still we can say it’s NOT a tamper proof. The tamper proof security is much concerned when transferring vital information’s like bank details, credit/debit card, MPin etc. Since these information’s are passing through air, radio magnetic devices can be used for tapping this information for decoding and misusing (duplicating the credit/debit card) purposes. Now a day’s wired data transfer (payment mode) is much safer because of the 128/256 bit encryption technology. In my personal opinion, unless and until the mobile payment mode adopted such encryptions technologies, we cannot say that it is safer when compare with the other payment modes.  One thing is dam sure, coming days are for mobile computing and expects a lot of revolutionary changes in this sector.

  7. Adeniji Kayode
    February 24, 2011

    Security is really an issue when talking about mobile devices for making payment. How safe can cellphone be from theft? How secured are the owner's informations on it?

  8. Jennifer Baljko
    February 24, 2011

    As soon as I sent this blog to post, I knew I would have to revisit the topic and take a closer  look at several related issues and challenges I started to see. Likewise, I suspected EBN readers would have lots of security questions, so thanks for keeping me in check on that. I'm scouring my notes from the conference – I know several chip companies talked about security measures they were also including in the devices – and trying to get more specifics about data privacy/safety. Hopefully for my next blog post I'll be able to share  additional details.

    Besides security, I'm also wondering about the cost of adoption, which consumer segments may be most likely to jump onboard , and how (and why) emerging markets may leapfrog everyone else on this. Several executives at the show – more than once – mentioned that many mobile initiatives would come out developing countries and float back to the mature Western markets.

    In many ways, though, this “next great thing” is not much different than everything else we've adopted so far. The same specualtion surrounded credit cards and ATM usage, E-Z Pass highway toll payments, music and movie downloads, Internet vs traditional print publishing, and, ironically, the pervasiveness of cell phones. One day far in the future, we might think it funny that this conversation even happened. But for now, there's going to be some justified concern, some reluctance, some testing the water type of experiments, and somewhere down the line, maybe 5 or 10 years from now, it magically crossover to something else and become almost second nature. How quickly we move from phase to phase will depend on convinced we are that we can live in always-connected world while simultaneously walking around in our own little safety bubbles.

  9. Adeniji Kayode
    February 24, 2011

    Jay_Bond I really agree with you. Security is really an issue but i feel with time this issue might be perfected after all it was like that with the ATM,it was an issue then too and with time, it became a more stable operation.In time to come lets expect more from them

  10. saranyatil
    February 24, 2011

    security is definitely the key problem of using Mobile phone, but different software companies will definitely come up with an amazing solution. at this point what comes to my mind is how i am goin to remember different passwords.

  11. Adeniji Kayode
    February 24, 2011

    Saranyatil: you made a good point but there is no way we talk about security without talking about passwords. I think they go hand in hand.I think it is more of passwords not “easily broken”.Another option is the Biometric scanner but how visible is that on mobile phones?.

  12. Taimoor Zubar
    February 24, 2011

    Just recently I read about how Starbucks has started accepting mobile payments via it's own smarphone app. The app allows users to add their Starbucks cards into the app and pay through it. Instead of NFC, it uses a 2D barcode system for authenticating payments. I think it's a very useful initiative taken by Starbucks. Not only would this encourage more companies to start using mobile payments, it would also make consumers more comfortable with using these.

    More details can be read here and here.

  13. Barbara Jorgensen
    February 24, 2011

    I have equal difficulty fishing my cell phone and my debit/credit cards out of my pocketbook. It is appealing to think about consolidating all of those cards onto one device. The issues I see, besides security, is how many apps I'd have to download and how transaction records are kept.

    The one thing I do think would work here is the replacement of “loyalty cards” (aka rewards cards) every single store wants to give you. I think Mobil was the first compnay to put a payment device on a keychain that you could wave at the gas pump.

  14. mfbertozzi
    February 24, 2011

    A few mobile companies have adopted a complementary schema as reverse face of the coin. You can pay goods from shops or stores using credit available on phone account or putting the cost directly in charge to phone bill. Then there isn't any card to replace or any other auth system in the chain.

  15. Parser
    February 24, 2011

    In Finland and Japan cell phone payments were implemented many years ago. I am glad that this idea got a recent boost from the US. Possibly it will be implemented even better and will catch on like Visa did decades ago and be common everywhere in the world. During my travels I had several Visa cards place in many different pockets in case I would loose one. Now everything will be in one place my cell. In case of loss I would not be able to call banks to report it. 

  16. hwong
    February 24, 2011

    Mobile payment should include security measures such as requiring the user to enter a password when making a purchase. That way even if someone steals other's phone they will not be able to authenticate and make purchases. As far as concerns about information snipping via the wireless mesh, this is equivalent to buying things using credit card information on Ebay.

  17. mfbertozzi
    February 25, 2011

    I agree with you Parser, while several features supporting our day-by-day life are going “inside” cell phone, it is becoming one of key devices. In fact, to avoid issues in case of lost, services to save your phone data on line and restore it in a new temporary or emergency SIM, are ramping a lot. And this is opening a new door on security room…

  18. Jennifer Baljko
    February 25, 2011

    Yes, remembering passwords will be a big pain in the neck. And, yes, companies are doing quite a lot with biometric security that, if I remember correctly, willrun side-by-side with NFC. I spoke with a few companies about this at Mobile World Congress. Next week, I'll circle back around with some of those security features. I'll also try to dig up some examples of how it's already working in parts of Europe and Asia.

     

  19. itguyphil
    February 25, 2011

    There will be alot of security concerns with this new payment medium. I saw a news story about new apps that run on tablets that can sniff all of your credit card information from a distance of just 3-4 feet. It's based on the smart-chips that credit card makers place to make verification quicker (Also fo rthe Speedpass-type functionality).

    Imagine the breadth of stolen payment card data once all of this information is ALSO tied to your cellphone.

    I wonder what safeguards vendors will try to implement to counter these potential breaches.

     

  20. mfbertozzi
    February 26, 2011

    Jennifer, Pocharle, that's the point in fact several mobile operators are trying to speed up their moving towards v6 in order to increase security feature from the network point of view. T-mob is US started past summary that process, but…it takes a long and…will it be enough?

  21. seel225
    February 27, 2011

    i would definetly say cellphone payments is going to be a huge success in this present arena. These days smart phones usage have become very comman, it is making our every day life easier. Just image morning rush in the coffee shop, you have wait for 10 to 15 minutes to get a latte. If you use cellphone, it makes quicker. Most of the members commented that cellphone payments are not secure and its hard to remember the passwords, I agree with you all. I feel cellphone payments would be good for buying food, flowers, paying mobile bill, etc but not for buying something precious.

  22. Ashu001
    February 27, 2011

    Jennifer,

    The Japanese are by far at the forefront of developments here.Especially when it comes to implementation of hardcore/superfast payment systems.

    You can't beat the Japs when it comes to adoption of absolutely crazy n cool payment systems.

    As for the effectiveness is concerned.Cases of cyber-crime are very-very low in Japan.Probably it has a lot to do with the Language barrier(and getting someone to code mobile viruses with effective Japanese interfaces).But my mind goes back to the Polish ING mobile hack(which basically consisted of Screenshots in polish) posted by hackers who were from outside Poland.They did a damn good job of stealing mobile credentials anyways….

    Regards

    Ashish.

  23. Taimoor Zubar
    February 28, 2011

    I agree with all of you that security will be a prime concern. The critical factor here is that once you have the payment mechanism built into your device, the dependency on it increases by several fold. If your cellphone gets stolen or snatched today, you may lose only your contacts or personal data. If you have your credit card inside your phone, you suffer a greater loss.

  24. Backorder
    February 28, 2011

    Though this looks very suspect from the security perspective, I am sure the standards being worked will take care of the issue appropriately. I think, eventually we will have to compromise a bit on the ease of use to allow for safety of our data. In the end, it will only be an extension of how we make payments and might not replace traditional methods of payment as being touted by players who have obvious interest in the technology. Japan is a different case as the systems become secure due to inherent advantages of the society! Anyway, the gingerbread shot in the arm and RIM's plans for NFC do mean that this will gain much ground in the near future. Ubiquity though wont neccessarily mean success, as is often the case.

  25. SunitaT
    March 29, 2011

    Jennifer,

    Thanks for the article. I am wondering if I can encode multiple cards in a single NFC device or do i need change my NFC device for different cards, because it usually happens that we tend to keep multiple credit/debit cards.

  26. Jennifer Baljko
    March 30, 2011

    Hi tirlapur,

    Thanks for the question. I can't say for certain, but  I would assume that more than one card could be encoded. It wouldn't be efficient or convenient if we had to lug around different devices – in that case it would be easier to keep carrying around a wallet and the plastic cards.

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