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Mass-market adoption of mobile contactless payments still years away: analyst

While the contactless mobile payments ecosystem is evolving quickly and moving in the right direction, it is still three-to-four years away from achieving mass-market adoption, according to an ABI Research analyst.

Industry insiders have been touting NFC contactless mobile payments for years, but the ecosystem has still not reached its tipping point. If Nokia and Apple decide to embed NFC chips in their handsets next year as expected, that will be the catalyst everyone has been waiting for (see story).

Mobile Commerce Daily’s Dan Butcher interviewed John Devlin, London-based principal analyst of smart cards and embedded security at ABI Research. Here is what he had to say:

What is the current state of contactless payments via mobile devices such as smartphones, and what is its potential?
Some NFC-enabled devices are already available, although only in a limited number of products.

Samsung has a commercially available [NFC-enabled] version of its Galaxy handset and Sagem has confirmed that its latest Cosyphone is NFC-ready.

These—as will almost all others—still require an NFC-suitable Single Wire Protocol, or SWP, SIM card to be fully functional.

There are some other non-handset devices also shipping with NFC built-in, in the PC/laptop sector for example.

Apple entering the fray would definitely open up the market. It has the ecosystem with iTunes to support and implement NFC or a proprietary alternative and may not choose to go down the pay at counter/POS route, instead using it for transactions and other purposes between fellow iPhone 5 consumers.

I believe that such a move would certainly stimulate carriers and [original equipment manufacturers] to respond.

What barriers do you see to mass-market adoption of mobile contactless payments, and how can they be overcome?
Unless carriers coordinate their activities and ordering, consumers will have to wait for NFC handsets to become available on a piecemeal/country-by-country basis, since the manufacturers will not include it as standard—although Apple jumping the gun could change this.

I believe that the target market has changed over the past two years from “NFC everywhere” to “NFC in smartphones.”

The smartphone market has moved on so much in the past two years that it is a viable target market in its own right, and it will only get bigger as the feature-phone sector is cannibalized.

I will place the caveat here that there remain some limitations on NFC in smartphones.

As I understand how things stand right now, I believe that Android may have some issues to address around support for some security features relating to NFC and the secure element—however, this is to be confirmed or denied still.

The issue of retail adoption is still to be resolved as well.

Some markets, Hong Kong, Singapore, France, Britain, Poland, Turkey, possibly China and to a degree the U.S. and Canada, have growing contactless adoption for card payments and mobile can piggyback on this.

Others, for example, in the Middle East, can jump straight to mobile.

Generally though, retailers have not responded well to the need to not just install, but also place and promote contactless payments.

Convergence with existing mass transit could be a major driver and has a ready-made market for contactless mobile transactions.

Stickers are okay and can provide an excellent quick-fix, but they do not offer the multi-application environment of a full-blown NFC phone and SIM.

The user interface is also largely missing and so there is little benefit in placing the sticker on a phone or on my actual wallet itself.

Nokia’s intention to implement NFC capabilities in Symbian could be part of its perceived road to redemption. It is still the largest provider of handsets and smartphones and Symbian is by far the OS with the largest installed base.

By releasing NFC-enabled Series 40 and Series 60 devices next year, Nokia could include something that would be close to a market first and perhaps give it some of that wow/cool factor again.

If addressed correctly, I can see how the combination of NFC devices, Ovi and Nokia Money/Obopay could be a very strong proposition in different markets.

A positive note, and one which I believe will be successful, is the multi-service provider announcements made in the past two months in the U.S. and in the Netherlands.

This cooperation will see a structured implementation, cohesive ordering and installation of phones, readers and equipment and help to remove the ambiguity which is likely to surround lone service provider implementations, which are more likely to lead to fragmentation and differences in terms of quality of service.

However, to be truly mass market and to benefit many of those that most need access to alternative, non-traditional payments, NFC needs to be implemented in a wide range of devices. 

Smartphones are great and widely used in a large number of countries but there are many where this is not the case, and even where it is, the majority of the market remains non-smartphone-based.

In developing markets, this may be truer with regard to peer-to-peer capabilities/transactions than for retail-type transactions.

The current level of uptake of mobile payments and mobile banking in these markets demonstrates the likely demand for such a capability.

When do you expect handsets embedded with NFC/RFID technology to reach the mass market? When do you expect POS NFC/RFID contactless readers to reach critical mass?
In terms of mass-market handset availability in mainstream/western markets, I think we will see the first MNO-supported handsets in 2011, but we won’t likely see more than 20 million units a year shipping globally until 2012.

Bridging solutions will be used to boost this in the short-term, and genuine mass market shipments won’t occur until 2014.

From the EFT-POS reader side of things, I think it will vary considerably from country to country—some are already taking a lead in this area, others will be some way behind or may just implement in specific vertical markets such as transportation.

The certification/interoperability side of things needs to be clarified still, since there remain some issues in this department.

Similarly, EMVCo has not yet endorsed/certified a SIM card as being fully compliant, since I believe there are issues around over-the-air updates and installations of applications which effectively require the SIM to be re-certified as a new product each time it is updated.

However, these are technical issues and I believe they can be overcome. Some of it may require a small degree of compromise, but I see the will to do so from different stakeholders.

Much of what has occurred to date has been technical development and jockeying for position, but now there is evidence that the real work is now being undertaken.

Even so, I believe that critical mass will not occur overnight and this is why we are looking at a three-to-four year timeframe for major, mass-market availability and adoption.

Final Take
Dan Butcher, associate editor, Mobile Commerce Daily