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Contactless payment industry hit with growth pains

Range of "interim" contactless payment tools help educate users on benefits of the technology and won't hinder market development, but market players still need to find business case to offer such services, says analyst.
Written by Kevin Kwang, Contributor

The various near-field communication (NFC) technologies currently used in the contactless payment market are only "interim solutions" to educate consumers on the benefits of the technology. But this fragmented state is not expected to "hold back" the market's development, says an analyst.

Sandy Shen, research director at Gartner, noted that NFC technologies available today include radio frequency (RF) SIMs, NFC stickers stuck at the back of mobile phones and RF SD (secure digital) cards.

These interim technologies will "help educate" the market about what contactless payment can do for them and prepare consumers for "NFC-standard compliant services" when they are ready for commercial deployment, Shen said in an e-mail.

While they are stop-gap measures, they will not hold back developments in the NFC payment market, she added, noting that this is not a new technology and various parties such as mobile phone and point-of-sale vendors, smart card and credit providers and chipmakers have been "pushing NFC for a while".

Instead, the biggest hurdle in driving the adoption of contactless payment is the "lack of business case to major ecosystem partners", which includes bank and mobile carriers, the Gartner analyst said.

"It will help if a single market can agree on a single standard and all parties execute accordingly," Shen said. "Japan is one such example and we are seeing similar efforts being made in Singapore and France, which is good news for the industry."

Market players take driver's seat
Her comments follow recent announcements by Nokia and NXP to push the adoption of NFC technology.

Nokia, for one, said it would be integrating NFC chips into its mobile phones starting 2011.

Asked to elaborate on their plans, the Finnish mobile phone maker confirmed its global Symbian portfolio will be integrated with the contactless technology starting next year.

A company spokesperson told ZDNet Asia in an e-mail: "NFC is a technology we actively support and we are committed to further drive adoption of this technology into our smartphone portfolio."

He declined to comment on initiatives by other market players or give future estimates of the industry.

Meanwhile, NXP, together with six other companies including Ericsson and Gemalto, last month announced plans to join forces to form the MIFARE4Mobile Industry Group. The group aims to enable its members to collaborate and work together to standardize and advance the uniform management of Mifare applications on NFC-enabled secure elements such as SIM cards and mobile phones, the media release stated.

In its media statement, NXP said Mifare has become the "most widely adopted" contactless technology in the market today, and is used in public transportation initiatives, ticketing systems and access management around the world.

However, other stakeholders such as China Mobile are instead throwing their support in a competing technology, RF SIM.

According to tech blog Near Field Communications World, the Chinese mobile phone operator placed an order in February for 3 million RF SIMs to be used by visitors for mobile payments at the ongoing Shanghai World Expo.

The report also stated that RF SIM operate at a higher frequency than NFC and is incompatible with existing contactless ticketing systems such as Mifare and Sony's FeliCa--which is used in Singapore's EZ-Link transportation system--and other contactless payment systems such as Visa's PayWave and MasterCard's PayPass.

Charles Dachs, head of marketing and product management mobile transactions at NXP, told ZDNet Asia that he does not think RF SIM will become a "mainstream solution for mobile transactions". He said there are currently a number of initiatives "based on high frequency 13.56 megahertz, which are gaining more and more traction" in the Chinese market compared to RF SIM.

Dachs added that the establishment of the MIFARE4Mobile Industry Group as well as Nokia's integration of NFC into its smartphones are "strong indications" the industry is taking "major steps" to push the technology into the mainstream.

That said, Gartner's Shen said she does not expect NFC to become a mainstream technology before 2015.

"There will be a couple of large deployments in some countries such as Europe and Asia in late-2010 and early-2011, but the uptake will be slow as users and business partners learn how to get the most out of NFC," she predicted.

Dachs noted that the infrastructure for contactless technologies and, by extension, payment applications in various businesses such as retail and public transport, are "going to gain ground in multiple form factors", particularly smart cards and mobile handsets. He did not state a timeline for when this development will take place, though.

In an interview with ZDNet Asia last September, Dachs stated that the NFC industry had crossed a "major hurdle" touted to resolve interoperability issues and open the gates to pervasive contactless mobile payments. He added then that the industry is still at an "early adoption" phase of NFC mobile payments, although consumers can expect "large deployments" into 2011 and 2012.

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