Payments

NFC is back, some Analysts were wrong

MEDICIFounder and Chief Strategy & Innovation Officer

In the past few years, Near Field Communication (NFC) technology has been a subject of debate. It went through the bull cycle and this year it was felt by many that it is having a hard time. Various analysts, reports and payment experts had downgraded their outlook about NFC uptake as a payment enabling technology. In one of the most popular instances a research firm had also revised the estimates for Global NFC market (forecasts) lowering the figure to $110 Bn by 2017 from earlier estimates of $180 Bn. However, I am going to present a case below to the industry(s) and pose a few questions: Were the Analysts wrong? Is NFC back as a mode of payment?

A lot of cynicism about NFC revolves around three key notions - limited mobile devices with NFC, non availability of NFC Infrastructure (terminals) and lots of pilots but no mass deployments. Add to that some issues with big products based on NFC such as ISIS and Google Wallet. Maybe add Apple staying away from NFC (for the time being).

More and More Devices are being shipped with NFC

Lets look at some numbers. According to the Strategy Analytics, the NFC capable smart phones are expected to be nearly 400 Mn by the end of 2014. There is large market opportunity to create contactless payment applications, integrate NFC into connected home and car products, mobile wallet services and develop other innovative services that will trigger consumer demand for NFC.

Tap and go payments enabled through mobile devices with Near Field Communication (NFC) technology are gaining widespread momentum with nearly 50% of all smartphones launched by 2015, to be NFC enabled. This would mean that 1 Bn NFC based handsets will be sold worldwide by 2016 which will support $50 Bn worth of transactions; approximately 15 Bn NFC tickets will be delivered to mobile devices worldwide by 2014 and around 300 Mn NFC enabled smartphones, tablets and eReaders will be sold in 2013, according to a report by AT Kearney.

Even if your phone doesn't have a NFC chip, you can use stickers. Australia’s Bankmecu and card issuer Cuscal have completed an NFC payment sticker trial, enabling consumers to make contactless payments at Visa payWave terminals using a smart sticker stuck to their phone. Bankmecu now plans to further test the service before launching it to its wider cardholder base in the next few months.

Carriers are putting more NFC enabled Sim Cards

In November 2013, Vivo (Brazilian Mobile Operator) partnered with Gemalto to provide Trusted Services Manager (TSM) platform for its NFC based m-payments implementation. Vivo plans to offer mobile payment services and products using NFC technology to its customers for financial transactions. The company will make use of Gemalto’s UpTeq multi-tenant NFC SIM cards to offer services such as contactless payments, transit ticketing and financial transactions among platform users.

Anne Bouverot, director-general of the GSMA spoke about how mobile NFC is providing a critical link between our digital life on our smartphone and the connected world around us. She says “More than 70 million NFC SIM cards have been shipped to operators as of the middle of 2013. Shipments in 2012 grew 87 per cent from the previous year. While Japan, Korea, and Western Europe have dominated SIM shipments to date, North America is gearing up.”

There are many similar examples from around the world.

Acceptance Infrastructure growing, NFC terminals and New Tech

New avatar of Google Wallet (said Goodbye to carrier based NFC approach) looks promising for NFC uptake. With the release of Android 4.4, Google introduced a new platform support for secure NFC-based transactions through Host Card Emulation (HCE), for payments, loyalty programs, card access, transit passes, and other custom services. With HCE, any app on an Android 4.4 device can emulate an NFC smart card, letting users tap to initiate transactions with an app of their choice. Apps can also use a new Reader Mode so as to act as readers for HCE cards and other NFC-based transactions.

Intel in its 4th Generation core processor (already found in some high end PCs/Laptops) has integrated an NXP chip which enables users to make payments for goods by simply tapping their NFC enabled credit card against their device.

As you know the largest networks introduced their own NFC based cards a while back, called  MasterCard PayPass and Visa PayWave . And associate infrastructure. The numbers are growing now with 1.2 million MasterCard PayPass acceptance locations in over 50 countries & over 174,000 retail locations in 31 countries for Visa PayWave. It would actually be more by the end of next quarter.

Thierry Millet, VP of Payments and Contactless at Orange highlighted Orange’s partnership with around 20 banks in Europe. He also stated that over one million NFC based POS terminals were live in Europe. He further said there are around 132,000 POS terminals live in Poland, 280,000 in UK and 255,000 in Spain.

New solutions on these lines are helping the eco-system. Merchant360 Inc. started in the year 2008 is a company that delivers POS payment, loyalty and ticketing solutions. The company recently announced the release of a bi-directional NFC technology between enabled Mobile phones and POS terminals From Ingenico and Verifone.  “Lack of this capability has been a significant hurdle to the global adoption of NFC,” said Felix Marx, CEO of C-SAM and one of the founding members of the NFC Forum. The solution is intended to help mobile payments organizations and value add services enables organizations to provide a better engagement at the point of sale using NFC technology.

NFC going beyond Pilots, Deployments globally and on large scale: 

China telecom (China’s 3rd largest mobile operator) made its NFC rollout in November 2013. The company has signed up nearly 12 banks to make their payment apps available on its SIM Cards. China telecom stated that the wallet would also support coupons, membership cards, fuel cards and boarding passes. The company wishes to achieve targets of rolling out 40 NFC phone models and 30 Mn NFC SIMs by 2014.

Isis Wallet, a joint venture from Verizon Wireless, AT&T and T-Mobile, focuses on in-store payments making use of NFC technology. After doing pilots in some regions, they launched across the US recently.

Vodafone recently announced the launch of an NFC based mobile payment service in Spain. The Vodafone SmartPass service has been developed in partnership with Visa. It enables consumers with an NFC enabled mobile device to make contactless payments via their SmartPass credit balance at any POS.

OTI, an Israeli company that designs and develops contactless microprocessor based smart card technology, recently signed a major contract to supply NFC-readers to one of its channel partners in the U.S. According to the terms of the agreement, the partner is required to buy $10 Mn worth of OTI NFC readers over 3 years.

Rogers Communications announced on 7th November that it is launching a new virtual wallet Suretap that works on NFC technology to enable users to make payments with their phone. Rogers now struck a deal with MasterCard that allows users of Suretap to load up gift cards and pre-paid MasterCards from national retailers. The Suretap wallet is set to be released during the next few weeks and is touted to be the 1st of its kind offered by a wireless carrier in Canada.

Samsung recently sponsored a series of live gigs. Whats interesting is that the fans attending the concert were making use of NFC technology at the arena to make purchases and store tickets with their smartphones. Samsung says that its Smart Ticket brings technology to the forefront of music and brings the fans closer to their artists.

Sri Lanka’s first workforce smartcard, packs NFC touch hi-tech power. As described by MINISTRY OF INDUSTRY & COMMERCE, SRI LANKA The first ever smart card for a Sri Lankan workforce is fitted with no less than NFC touch technology.

NTT DOCOMO and MasterCard recently unveiled  the launch of  ID/PayPass  – branded payments via Docomo’s ID mobile credit payment system. The launch is expected  to open up around 1.2 million MasterCard PayPass acceptance locations in over 50 countries to ID users beginning  5 February 2014. It’s the kind of impetus that NFC payments need. You will see a large number of access technology users (Docomo’s ID) coming to a large acceptance system (PayPass). Payment with ID/PayPass will be available to DOCOMO subscribers using Smartphone devices equipped with a contactless chip for Osaifu-Keitai (mobile phones  with wallet  functions) via near  field  communication.

Charles Weir, founder and technical director of development house Penrillian said that NFC technology would gain traction in the next 2 years. Speaking on Apple’s iPhone 5s and 5c launch not including NFC technology he said “Apple’s lack of development in the area is just a red herring.” According to him, Apple likes to take a cautious approach. The growth of NFC would depend on mostly two companies i.e. Visa and MasterCard. Both the companies are sure that they would like to see NFC in use where ever cards are accepted.

NFC reaches the ATM and Vending machines 

Diebold Inc., announced that it is making a contactless card reader available at all financial institutions globally. The solution claims to leverage NFC technology at the ATM, enabling the user interface to read smartphones with NFC and contactless media such as payment cards, tags, stickers etc. The contactless card contains a chip or processor which can communicate and exchange information with a reader. When the card is placed next to the contactless reader, it is detected through NFC technology.

SAP, market leader in enterprise application software, recently announced that it is developing a smart vending machine solution that claims to enable customers to purchase and make payments with NFC technology. It claims to allow customers to link purchases with social profiles such as Facebook and Twitter. In October 2013, SAP Hana partnered with Vendors Exchange to launch this new initiative. SAP’s new offering enables users to tap their NFC phones against an NFC enabled vending machine. A user’s profile and account information can be obtained from the cloud. It also offers users a personal experience and enables payment to be charged to a pre selected account.

Non Payment applications of NFC surge 

Shambala Jewels, a Danish Jewelry designer, is all set to integrate QR Code and NFC based anti-counterfeiting solutions to its products starting 2014. The solution, Product Alive, allows businesses and users to examine the authenticity of a certain product. It can also detect details such as when and where the item was bought, simply by tapping or scanning a tag attached to the product. Product Alive was developed by NFC Danmark.

Bagjack, a German based messenger bag maker, utilizes NFC based anti-counterfeiting solution to authenticate its products before sale to Japan. The solution allows for a validation code stored on a product’s NFC tag. This is read and matched with its counterpart on a backend database to confirm the authenticity of the bag. The solution was developed by Serfides.

In February 2013, Inside Secure introduced an all in one solution called ComboPulse for integrating NFC card emulation and P2P capabilities to a range of consumer electronic devices. “ComboPulse is a drop-in, zero-tuning solution that makes it simple and inexpensive to add NFC functionality into a broad range of mainstream consumer electronic products, including tablets, entry-level mobile phones, personal media players and other smart mobile devices," stated Inside Secure.

Tagtual Technologies, a Bangalore based startup founded in 2012,  announced the release of India’s first NFC business cards wherein a person can share his contact information with nothing but a tap of the card on a smartphone. NFC business cards provide an interactive experience better than what has been possible with the traditional print.

Taking an out of the box approach, MoLo Rewards in combination with Association of Town and City Management (ATCM) had set up an NFC based treasure hunt for a group of top retailers in UK between 21st and 29th of September 2013.

Pilots continue in different parts of the world, they will lead to larger programs:

As of December 2013 the London Underground, also known as ‘The Tube’ will start accepting contactless payments. Transport for London (TFL) runs the transport system and says that contactless will be introduced completely at Docklands Light Railway (DLR), The Tube and London Overground by the summer of 2014. It is also set to operate on National Rail within Zone 6 where Oyster Card is currently accepted. To accept contactless payments, over 15,000 card readers have had their software upgraded.

Hong Kong ATM network provider Jetco is to offer NFC payments using an add-on device that plugs into the headphone jack of a standard smartphone, the South China Morning Post reports. Five of Jetco’s thirty member banks have signed up for the service and Bank of China (Hong Kong) is set to be the first to pilot the platform later this year, alongside its existing BOC e-Wallet NFC service.

2Degrees, a newzealand based company, recently tied up with GE Capital to launch a trial version of their mobile wallet. The trial uses NFC technology. It enables participants to load their existing GE Capital credit card on to their 2degrees Samsung Galaxy S3 smartphone. It does not require any special accounts or funds to be loaded beforehand onto the phone. The trial which is in collaboration with Gemalto, will run for 3 months with participants giving feedback to monitor the performance at various stages.

Momentum is gathering

On 19th November 2013, Eurosmart (a Smart Card vendor association) confirmed its previous projection that atleast 250 Mn secure elements for NFC devices would be shipped by industry suppliers in 2013. This is set to increase by 64% to 435 Mn units in 2014.

According to estimates from NFC Times, SIM vendors shipped over 31 Mn NFC SIM Cards to mobile operators within the first half of 2013. This number is forecasted to increase to 80 Mn by end of 2013.

The Bitcoin Connection:

Diamond Circle, an Australian startup, is starting to issue NFC tags which will perform as Bitcoin Wallets, NFC readers that can be utilized by merchants to charge consumers in Bitcoin currency, and to provide Bitcoin ATMs that can be used to top up & withdraw funds from Bitcoin accounts and also issue new wallet tags. “The NFC tags can be affixed to the back of a mobile phone and are used to store the owner's Bitcoin balance and their private key” said Stephen Rowlison, CTO at Diamond Circle.

Some hurdles

Large retailers in US are going slow on NFC. They are evaluating options and therefore POS NFC adoption is getting affected. They invested in the POS terminals for plastics and now to replace all of it is a non-starter. They are debating Durbin impact and interchange fees. Solutions around the problem are coming up and this hurdle should eventually get cleared as the eco-system exerts pressure.

Also despite widespread adoption in Europe and the UK, the researchers found that contactless payments are more vulnerable then previously believed. Hacking into NFC payment transmission and covertly skimming, relaying or eavesdropping on the transmission of sensitive customer information isn't new; researchers began to make these three types of vulnerabilities public around 2008.

But these hurdles will be crossed - IBM Scientists from Zurich, in an effort to curb fraud and security breaches have come up with a new mobile authentication security technology based on Near-Field Communication (NFC). IBM says that this technology would add an additional layer of security while using an NFC-enabled device & a contactless smartcard for mobile transactions. The contactless smartcard could either be an ATM card issued by a bank or it can even be a employer issued identity badge.

Amit Goel

MEDICIFounder and Chief Strategy & Innovation Officer

“Amit Goel is the Founder & Chief Strategy & Innovation Officer for MEDICI. Amit’s vision is to build a strong FinTech market network that involves financial institutions, banks, startups, investors, analysts & other key stakeholders across the ecosystem – helping each one of them in a meaningful way by removing the asymmetry of information and providing a platform to engage & transact.\ \ Amit is passionate about bringing actionable FinTech-focused insights, innovative products & services for the FinTech ecosystem. Some of his work involves startup scores, bank scores/assessments, predictive viewpoints & other innovations that have helped MEDICI’s customers and the ecosystem. He has been named amongst the Top 100 FinTech thought leaders/influencers in the world & Top 10 in Asia multiple times by reputed agencies, consulting firms as well as financial institutions. Amit has built MEDICI (formerly LTP) as a new-age, tech-enabled advisory/research firm, which is now considered the #1 global research & innovation platform for FinTech in the world.\ \ Amit has been writing pioneering viewpoints on financial technology space that have been ahead of the curve since 2010. His data-driven predictions have helped the customers as well as the ecosystem. His past work experience includes a strong background in strategy & market analysis and advisory to clients (from big business houses to Fortune 500 firms) in payments, commerce, financial services & IT/technology. In the past, Amit had also founded a successful consulting & research practice called GrowthPraxis and has worked at Boston Analytics, Frost & Sullivan, and Daimler Chrysler in strategy & research.”