I shall apologies in advance for a bit of a ramble in this week's post as it's based on an email conversation I've been having with a guy called Manju who got in touch via my Linkedin.com page. It's about contactless payments which utilises Near Field Communication (NFC) technologies. For those of you that aren't up to speed on NFC I'll explain what it is in a second (actually I've c&pd from Wikipedia). For those who know it inside and out you may want to skip a few paragraphs...
Essentially, NFC, is a short-range high frequency wireless communication technology which enables the exchange of data between devices over about a 10 centimetre (around 4 inches) distance (although my own tests suggests this is often more like 2 cms). The technology is a simple extension of the ISO/IEC 14443 proximity-card standard (as used in RFID) that combines the interface of a smartcard and a reader into a single device. One of the real advantages of NFC is that in certain deployments the reader can take its power from the wireless device meaning that the reader can be extremely small (postage stamp sized). This lends it to applications such as "smart posters" where a reader is placed behind an advertising poster allowing the consumer to "wave" their NFC device past the poster to initiate the transaction. For example, Amazon might want to adopt smart posters for advertising the latest book in railway stations. If you would like the book you wave your device (which could be a card or your mobile phone) past the poster, click "OK" on your device and the book is automatically ordered from the Amazon website for you. You could do it with MP3 music also. Select the music you want from the advertisement as you board the train, your device connects to the wifi hotspot in the station and whilst you're waiting for the train to depart the music is downloaded to your phone and you can listen to it as you travel... Of course this is a simplistic vision of how it would work and glosses over some of the security and authentication aspects, but you get the drift. For those of you with your feet firmly in the present, the Transport for London Oyster cards uses NFC-esque technology, albeit a proprietary standard.
Right, that's the science out of the way, what about the practicalities. Are we really going to see mass deployment of contactless payments in the UK? Probably not for a while. At the moment, contactless cards are as good as you get and the aforementioned Oyster is pretty much obligatory if you live or work in London. Although it was intended as a way of allowing pre-pay entry to the tube transport system, many retailers in and around London now accept Oyster for payment for goods and services. ATOC, the UK train companies body, are planning to roll out contactless ticketing across the numerous UK train franchises, and I've heard Oyster may be the solution they opt for. One potential problem on the trains is that each franchise may opt for its own contactless solution which won't necessarily be compatible with others. As many train companies share stations and ticket offices, imagine how many different readers you may need in each station and how confusing that could get for the traveller.
Another challenge for contactless payments is extending it to the retailers. We've all seen the Barclaycard ad where the guy leaves work on a water slide and buys a banana from the supermarket using his contactless Barclaycard on his way past the till. Great vision, but how many retailers of any size accept contactless cards, never mind contactless payments using a mobile phone. In the UK, retaillers are still recovering from the massive investment in the EPOS infrastructure, training and processes needed to introduce chip & pin authentication for traditional card payments. How likely are they to want to upgrade this technology to cater for NFC? Ironically some of the smaller retailers may be in a better position than the cash rich supermarket chains as they often lease their EPOS equipment and so are probably due an automatic upgrade in a few years anyway.
So what about contactless NFC phones? Will you get one of these the next time you renew your mobile tariff. I doubt it. At the moment there are very few models available and the ones that are are expensive, not subsidised and apart from the NFC chip are pretty much 2005's phones (and who wants a phone without a touch screen these days!!!). The manufacturers need to put chips in more, new models and the chips are extremely inexpensive (I was quoted 0.5 USD by one industry expert) so this should be feasible. However, it's chicken and egg. Until there is demand for contactless phones, why should they invest even half a dollar more? The mobile networks could fuel demand by starting to subsidised phones with NFC chips. However, they'll only want to do this on sexy models and if the manufacturers aren't building them...... So who will provide the catalyst for NFC phones. Personally I think it needs a partnership between a phone manufacturer, a large global mobile network operator, a card company such as VISA, and a major retail group to trigger the demand. In the UK, maybe the London Olympics will be the catalyst. London 2012 has an ambition to be contactless (ticketless and cashless).
I also think there's a cultural change starting to slowly happen. I believe it will start by the demise of cash. Who wants to carry a pocketful of pound coins around when you can make small cash payments using a card or even your phone? This will grow to the point where credit cards become contactless (Barclaycard are leading the way of course) and eventually cards will disappear altogether and we'll be living in a world of virtual wallets. After all your leather Gucci wallet is really just a repository for storing various instruments for your financial accounts (debit card for current account, credit card for credit account, ID card for access to your place of work etc). Mobile phones now have massive, secure storage capability and is effectively a repository. So why not store your account credentials in your phone rather than in a chip on a piece of plastic that's easy to lose, clone or steal... Think about it. How many times do you realise you've forgotten to take some cash out with you compared to the number of times you've forgotten your phone...
Again, sorry if this was a bit of a ramble (isn't that what blogs are by their very nature anyway). It's not an exhaustive discussion of the opportunities and challenges for contactless payments, but hopefully it's a little food for thought. Let me know what your views are via the comment button.
Essentially, NFC, is a short-range high frequency wireless communication technology which enables the exchange of data between devices over about a 10 centimetre (around 4 inches) distance (although my own tests suggests this is often more like 2 cms). The technology is a simple extension of the ISO/IEC 14443 proximity-card standard (as used in RFID) that combines the interface of a smartcard and a reader into a single device. One of the real advantages of NFC is that in certain deployments the reader can take its power from the wireless device meaning that the reader can be extremely small (postage stamp sized). This lends it to applications such as "smart posters" where a reader is placed behind an advertising poster allowing the consumer to "wave" their NFC device past the poster to initiate the transaction. For example, Amazon might want to adopt smart posters for advertising the latest book in railway stations. If you would like the book you wave your device (which could be a card or your mobile phone) past the poster, click "OK" on your device and the book is automatically ordered from the Amazon website for you. You could do it with MP3 music also. Select the music you want from the advertisement as you board the train, your device connects to the wifi hotspot in the station and whilst you're waiting for the train to depart the music is downloaded to your phone and you can listen to it as you travel... Of course this is a simplistic vision of how it would work and glosses over some of the security and authentication aspects, but you get the drift. For those of you with your feet firmly in the present, the Transport for London Oyster cards uses NFC-esque technology, albeit a proprietary standard.
Right, that's the science out of the way, what about the practicalities. Are we really going to see mass deployment of contactless payments in the UK? Probably not for a while. At the moment, contactless cards are as good as you get and the aforementioned Oyster is pretty much obligatory if you live or work in London. Although it was intended as a way of allowing pre-pay entry to the tube transport system, many retailers in and around London now accept Oyster for payment for goods and services. ATOC, the UK train companies body, are planning to roll out contactless ticketing across the numerous UK train franchises, and I've heard Oyster may be the solution they opt for. One potential problem on the trains is that each franchise may opt for its own contactless solution which won't necessarily be compatible with others. As many train companies share stations and ticket offices, imagine how many different readers you may need in each station and how confusing that could get for the traveller.
Another challenge for contactless payments is extending it to the retailers. We've all seen the Barclaycard ad where the guy leaves work on a water slide and buys a banana from the supermarket using his contactless Barclaycard on his way past the till. Great vision, but how many retailers of any size accept contactless cards, never mind contactless payments using a mobile phone. In the UK, retaillers are still recovering from the massive investment in the EPOS infrastructure, training and processes needed to introduce chip & pin authentication for traditional card payments. How likely are they to want to upgrade this technology to cater for NFC? Ironically some of the smaller retailers may be in a better position than the cash rich supermarket chains as they often lease their EPOS equipment and so are probably due an automatic upgrade in a few years anyway.
So what about contactless NFC phones? Will you get one of these the next time you renew your mobile tariff. I doubt it. At the moment there are very few models available and the ones that are are expensive, not subsidised and apart from the NFC chip are pretty much 2005's phones (and who wants a phone without a touch screen these days!!!). The manufacturers need to put chips in more, new models and the chips are extremely inexpensive (I was quoted 0.5 USD by one industry expert) so this should be feasible. However, it's chicken and egg. Until there is demand for contactless phones, why should they invest even half a dollar more? The mobile networks could fuel demand by starting to subsidised phones with NFC chips. However, they'll only want to do this on sexy models and if the manufacturers aren't building them...... So who will provide the catalyst for NFC phones. Personally I think it needs a partnership between a phone manufacturer, a large global mobile network operator, a card company such as VISA, and a major retail group to trigger the demand. In the UK, maybe the London Olympics will be the catalyst. London 2012 has an ambition to be contactless (ticketless and cashless).
I also think there's a cultural change starting to slowly happen. I believe it will start by the demise of cash. Who wants to carry a pocketful of pound coins around when you can make small cash payments using a card or even your phone? This will grow to the point where credit cards become contactless (Barclaycard are leading the way of course) and eventually cards will disappear altogether and we'll be living in a world of virtual wallets. After all your leather Gucci wallet is really just a repository for storing various instruments for your financial accounts (debit card for current account, credit card for credit account, ID card for access to your place of work etc). Mobile phones now have massive, secure storage capability and is effectively a repository. So why not store your account credentials in your phone rather than in a chip on a piece of plastic that's easy to lose, clone or steal... Think about it. How many times do you realise you've forgotten to take some cash out with you compared to the number of times you've forgotten your phone...
Again, sorry if this was a bit of a ramble (isn't that what blogs are by their very nature anyway). It's not an exhaustive discussion of the opportunities and challenges for contactless payments, but hopefully it's a little food for thought. Let me know what your views are via the comment button.
Comments
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