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Sprint looks to beat rivals to the punch with NFC platform

Sprint Nextel Corp. is teaming up with handset manufacturers and payment networks to launch a near field communication platform to compete with its rivals’ Isis joint venture.

With Isis set to debut in January 2012 at the earliest, Sprint could swoop in and launch an NFC service in advance of that, potentially attracting new subscribers and offering new handsets that can make contactless payments by waving or tapping them on an RFID reader at retailers’ point of sale.

“As per their recent agreement with Google Voice, Sprint is looking to differentiate itself from other U.S. carriers,” said Thomas Husson, Paris-based principal analyst at Forrester Research Inc. “In the payment space, it looks like they want to provide a more open model by not asking a fee per transaction.

“That’s the current approach in most European countries, where carriers are more likely to take a yearly fee for the management of SIM-based applications per active NFC SIM subscriber with financial institutions to offer more flexible business models with transit authorities and marketers,” he said.

Sprint did not respond to an inquiry by press time.

NFC competition ramping up
In addition to enabling contactless mobile payments, Sprint could potentially partner with brands and retailers to power loyalty programs and couponing initiatives, with redemption and tracking all executed via NFC.

More than 150,000 merchant locations in the United States have NFC-enabled their point-of-sale systems.

The NFC space is getting crowded, with Microsoft, and Google all seeking out partnerships in preparation for platform launches.

Google is partnering with the likes of Samsung for its NFC-enabled Nexus S, and it also reportedly has a deal in the works with MasterCard and Citi for an NFC platform.

Other payment franchises such as Visa and American Express have been active in the mobile payments space, and either could be a potential partner for Sprint, as could handset manufacturers such as Research In Motion or HTC.

The biggest direct competitor to a Sprint NFC initiative would be Isis, the AT&T-Verizon Wireless joint venture that includes deals with Discover Card and Barclaycard.

As Sprint cannot compete with the soon-to-be Big Two in number of subscribers, it must out-compete them with innovative services. If executed properly, an NFC platform that offers marketing, CRM and payment-processing opportunities could be a win for Sprint.

Mobile payments market
Forrester Research believes that adding new players and technologies to an already complex and evolving mobile payments value chain is a recipe for disruption in many forms.

New payment methods, such as contactless schemes, aim to displace cash transactions. Mobile payment capabilities can also catalyze changes in related markets such as transit systems—their readers could be upgraded to accept digital tickets stored on phones, per Forrester.

Disruption also means that new entrants could gain market share at the expense of incumbents.

Forrester is forecasting disruption via existing players expanding their roles.

“Several players are aggressively and ambitiously repositioning themselves in the value chain, blurring the boundaries between financial services and telecommunications,” Mr. Husson said. “Banks are becoming MVNOs while some carriers have acquired banking or eMoney licenses.”

New entrants are expanding into mobile payments.

Online giants such as, Facebook and Google have launched mobile payment initiatives, with little market impact to date, per Forrester. But they are clearly ambitious.

“Appending real-world purchase information to its treasure trove of online behavioral data would allow Google to drive significant transactional and advertising revenues,” Mr. Husson said.

In addition, new partnerships are emerging in the mobile payments space.

While they have traditionally focused on payments for low-value digital products, carriers are now expanding into new payment types—most notably in-person and online macropayments, per  Forrester.

French carriers partnered with ATOS, while U.S. carriers partnered with Discover and Barclays. Sprint’s partners are still t0-be-announced.

The factors driving this disruptive phase of mobile payments include mass-market smartphones, open software platforms and millions of NFC-enabled phones.

“After so many years of trials, NFC can no longer be considered a new technology,” Mr. Husson said. “However, 2011 is—finally—the year in which we will see significant volumes of NFC devices shipped from the largest handset manufacturers.

“Such volumes will accelerate change in countries like the U.S. and Britain, where NFC-enabled POS devices are already present in the market.”

Mr. Husson said that there are lots of different business models that NFC could enable, and it varies a lot by regions and countries.

Many of these business models are at a trial stage and will evolve once volumes are there and once the value chain has been restructured.

Retailers and merchants should understand mobile payments in the context of the broader mobile commerce ecosystem, per Forrester.

“Retailers should focus on delivering the key benefits that consumers want while researching for product information on a mobile device,” Mr. Husson said. “This is about crating mobile services that are more intimate, more contextually-relevant and more convenient to use.

“We’re just beginning to see real “mobile” offerings and not a copy and paste of Web offerings,” he said. “There’s much more to come and more convenient mobile payment solutions will be part of this equation tomorrow.

“Current solutions do not really prevent retailers or merchants to generate mobile transactions if they want. Some large players start reporting dozens of millions of euros in mobile transactions.”

Final Take
Google’s Simon Wilson