Apple could play key role in driving NFC

Upcoming iPhone with expected near field communications (NFC) support may drive adoption, but collaboration within ecosystem for compelling experience ultimately critical.
Written by Ellyne Phneah, Contributor

Following speculation that the upcoming iPhone 5 will be NFC-enabled, industry watchers note that Apple's latest phone may increase the adoption of near field communications (NFC) transactions, but it is the collaboration of the entire ecosystem of players will ultimately be needed.

In early July, previews of Apple's latest build of iOS 6 revealed references to an integrated NFC chip and antenna.

While other NFC-enabled phones such as Samsung's S III and Galaxy Nexus have already hit the market, adoption could be accelerated thanks to Apple's "undeniable market power" which will increase the user base significantly, said Denee Carrington, senior analyst of consumer product strategy at Forrester Research.

However, another industry watcher, Reed Peterson, vice president of business and market development and head of NFC at GSMA, noted that the end-to-end NFC ecosystem is not ready yet with many services including loyalty programs and access control ticketing being unavailable or poorly developed.

"It's not a comparison of headsets, it's a matter of whether you have enabled NFC, the back-end and merchants to support it," he said. "All the players of the ecosystem have to come together."

Consumers also need motivation to use their handsets for NFC mobile contactless payment, Carrington added. The payment experience needs to be more convenient or compelling than their existing payment methods or ownership of handsets will "mean nothing" to increasing NFC adoption, she said.

Ecosystem must function as one
According to Paterson, NFC has not picked up as quickly as it should because it requires many players to "come together", and is not a technology that one vendor can implement quickly.

He explained that the NFC ecosystem consists of the handset, access control, software service provider, payment service providers and even the mobile retailers--all of which must work together in order for successful NFC implementation.

With numerous players in the NFC market, there is also the issue of customer ownership, Peterson noted, citing that both a bank and a payment service provider may assert that a certain customer "belongs to them" because he has an account with both. The result is the entire ecosystem's players fighting for customers instead of collaborating, he explained.

"The ecosystem is large and fragmented and everyone is trying to do things their own way and take control of the entire ecosystem and that should not be the way," he remarked.

Carrington observed that in many markets, the use of NFC has been focused on mobile contactless payment but that has been hindered by a "classic chicken and egg problem"--not being able to motivate supply without demand.

There is still relatively low penetration of NFC-enabled handsets and the corresponding payment infrastructure and business models are still in development, she added.

Gaining traction
However, NFC is gaining a lot of traction in Asia, with companies working together and more users adopting the technology, Paterson noted. He cited that in China, telco China Unicom and national payment network China UnionPay are working together to roll out NFC. Over in South Korea, the country's largest operators SK Telecom and KT have sold 3.3 million NFC-enabled handsets in total.

Just last week, Singapore announced that its infrastructure for mobile payments using NFC technology was ready for launch with services to roll out in the coming weeks.

What is needed is collaboration among the players to reduce fragmentation, competition among players and barriers to entry, Paterson suggested. At the end of the day, they should be working to increase consumer choice and find the best solution for them, he explained.

Security for NFC mobile contactless payment should continue to be a top priority, Carrington added, noting that consumer confidence in the safety and security of NFC contactless payment is a requirement in order to achieve broad adoption.

In a March report, John Goeres, consulting partner and TMT (technology, media and telecommunications) industry leader at Deloitte Southeast Asia (SEA), noted that it could take at least 10 years for NFC to take off in Southeast Asia.

This would mainly be because of a lack of a "killer use-case", which he described as a reason which compelled consumers to need and "want it. He gave an example of how public transportation payment systems around many parts of the world had adopted NFC and helped it take off. However, he noted that many countries in SEA, the public transportation network was not as developed and organized.

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