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Contactless payment to hit mainstream?

Industry has crossed "major hurdle", finally paving way for mobile payments based on near-field communications technology, says industry player.
Written by Victoria Ho, Contributor

SINGAPORE--The industry has crossed a "major hurdle" that is touted to resolve interoperability issues, opening the gates to pervasive contactless mobile payments, according to an NFC (near-field communications) chipmaker.

Charles Dachs, head of NFC product management at NXP Semiconductors, said the standardization of the long talked-about SWP (Single Wire Protocol) specification, has allowed the mobile payment industry to address its "chicken and egg" problem that has plagued NFC deployments.

Speaking with ZDNet Asia at the NFC World Asia event here Wednesday, Dachs said the lack of standardization among the different industry players has resulted in mobile payments largely stalled in trial projects, or restricted to smaller-scale "closed" systems.

Due to the lack of deployment, manufacturers are hesitant to produce more NFC-capable handsets, which have in turn put customers off due to the lack of handset choice, creating the "chicken and egg" problem, he explained.

Now that several players in the industry have agreed on a series of standards aimed at enabling interoperability, there is sufficient confidence to build a fuller device and service ecosystem, he said. Mobile players such as Nokia and Samsung, have produced SWP-compliant phones, Dachs revealed.

Analysts, too, have blamed the slow adoption of NFC phones to the underdevelopment of the mobile payment ecosystem. A Strategy Analytics analyst said last year the success of NFC mobile payments relies on the various service providers to rally together.

The "chicken and egg" problem
Typically, operators have only been able to offer users a single phone model during their NFC trials, Dachs said, noting that manufacturers would usually reject requests to build a wide variety of NFC phones for a small order of "only a few thousand pieces".

Terry Tan, NFC product manager at NXP Asia-Pacific, said an example of a closed system is Sony's FeliCa technology, deployed with success in Singapore's EZ-Link and Hong Kong's Octopus transportations systems.

While a closed system allows services to be rolled out quickly, an open system helps expand mobile payments by including more players, Tan said. He noted that Singapore recently opened up the local mobile payment landscape with its CEPAS specification.

The Singapore government earlier this year also talked about the benefits of an interoperable NFC system, noting that having one in the country is expected to create a market eight times bigger than a closed-loop system.

Dachs said market scale will also be derived from supporting all legacy systems, including closed systems such as FeliCa and NXP's own Mifare chips, which have been deployed in European systems such as London's Oyster transportation card.

The SWP, introduced by Gemalto in 2006, sought to help in the embedding of the NFC chip directly onto a phone's SIM card.

Integrating the security element of a mobile payment with a SIM card is a vision the GSM Association has talked about for the past several years.

SIM-based NFC phones are touted to help drive security by allowing the mobile operator to quickly terminate the credit card, in the event of a loss.

Dachs noted, however, that the industry is still at an "early adoption" phase of NFC mobile payments--though consumers can expect "large deployments" into 2011 and 2012.

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