Message from MWC: NFC Opening Up Payments Space to New Players
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Last week’s Mobile World Congress provided ample evidence, if any more were needed, that NFC-enabled mobile phones will offer fertile ground for the entry of new payments players to compete with major banks.
Mobile operators, of course, are again shaping up as key competitors to banks when it comes to consumers tapping their phones to pay, even as the telcos pledge to open their mobile wallets to separate payment applications issued by major banks.
The operators and other players are getting the help of Visa and MasterCard Worldwide, which see the mobile platform as a major source of new transactions for their networks, whether branded by banks or other players.
Leading up to last week’s show, which is the largest mobile event worldwide, MasterCard and online mobile payments company Boku announced a partnership that would help telcos to introduce their own payment applications on NFC phones, as well as contactless stickers and contactless and conventional cards.
Boku has agreements with more than 240 telcos globally to enable them to sell virtual goods on their monthly bills or prepaid air time accounts. The new deal could help telcos expand into payment in the physical world–and to take a cut of merchant transaction fees–using MasterCard’s acceptance network and the PayPass contactless application.
Visa followed with its own announcements during the Mobile World Congress, including one publicizing a deal with giant operator group Vodafone, which it grandly called the largest mobile-payment partnership of its kind.
The plan calls for Vodafone to roll out a self-branded prepaid payment application supporting Visa payWave and using the Visa acceptance network. The application will be part of Vodafone NFC wallets in Germany, the Netherlands, Spain, Turkey, and the United Kingdom over the next 12 to 13 months, said the companies. And the service could possibly move to other Vodafone branches covering its nearly 400-million customer base in more than 30 countries, though not all of these would be NFC-enabled.
Vodafone and Visa stressed that the Vodafone-branded payment application would only be one of several applications in the planned wallets rolled out by Vodafone branch operators. The prepaid service would sit alongside services from banks, retailers, transport and utility companies, they said.
Vodafone told NFC Times it sees the payment service as a business opportunity, which includes collecting merchant transaction fees, reducing churn and offering related services. It wouldn’t actually issue the application, a small Visa-affiliated financial institution would do that.
Visa’s head of mobile Bill Gajda, speaking at a mobile-money conference session last Thursday, said the partnership would “preprovision Visa cards in every Vodafone wallet.”
But he characterized this Vodafone prepaid account as a way to sort of “drip feed” an electronic-cash application into the Vodafone wallets. Pretty much every telco-distributed NFC mobile wallet will have such an application, making sure all subscribers have access to a payment account, Gajda suggested.
He noted that Visa has licensed its Visa payWave application to other players, including Google, the Isis joint venture and even chip maker Intel. Although some in the payments industry continue to refer to Visa as a “bank association,” those days are long gone.
“It really is Visa’s role, whether you’re a mobile operator, a bank, a device manufacturer and OS provider, a new entrant like Google in the mobile-wallet space, to provide that enabling technology to try to take as much friction as possible and ride the largest payment network in the world,” said Gajda.
MasterCard is also licensing PayPass to different parties, and the Google Prepaid Card, which is part of the Google Wallet launched last September in the U.S., runs PayPass. The Google-branded prepaid application itself is issued by a small U.S. financial institution and administered by First Data.
Not all of the telco applications riding the Visa or MasterCard rails will involve a traditional financial institution or established payment services provider as the actual issuer, even if the branding is from a telco or the likes of Google. Telefónica UK, or O2, for example, has applied for its own e-money license to issue a prepaid O2 Money application for its forthcoming NFC wallet launch in the United Kingdom.
O2 said it wants the additional control that being an issuer offers. The O2 Money application will support Visa payWave. Vodafone told NFC Times it could someday get its own license, as well.
Deal with Intel: NFC Inside
Visa also announced a partnership with big chip maker Intel during the congress, which includes a payWave license. And according to the announcement, Visa has “certified” Intel's “smartphone reference device” that uses the chip maker’s Atom Z2460 processor.
The chip forms the core of Intel’s reference design for new smartphones, which the giant PC chip maker hopes will help it gain a foothold in the booming smartphone market. Five device makers, including Lenovo, ZTE and Motorola, have so far said they would bring phones to market based on Intel’s chip and reference design, which includes support for NFC. The device makers include one that will build an Android smartphone for operator France Telecom-Orange, with Intel’s own branding on the phone along with Orange’s.
MasterCard last year announced its own deal with Intel to enable contactless payment from ultra-slim notebook computers, known as Ultrabooks, running the semiconductor maker’s chips.
And in a first for a chip maker, Intel has hired its own trusted service manager, Germany-based Giesecke & Devrient, to manage the embedded secure element in the forthcoming Atom-powered smartphones. G&D also announced the deal last week.
Visa’s certification of the Intel reference “device,” as Visa refers to it, apparently requires a Visa-compliant NFC SIM card, at least at first. Even then, the finished handsets using the reference design probably would need to be certified again by Visa, since the device maker might have made changes.
In any case, Intel is clearly moving more deeply into the NFC ecosystem than other chip makers. And the service providers that will put payment applications onto the secure elements in Intel-powered phones won’t necessarily be banks.
Intel will make the embedded secure element “available to whatever business partner makes sense,” said Willem Bulthuis, G&D’s group senior vice president, global marketing and sales, mobile security. “It can be made available to anyone in the ecosystem.”
Of course, Intel could end up passing on control of the master keys to the chip to the device maker that incorporates its processor and reference design or the mobile operator that subsidizes the finished handset, added Bulthuis.
There will be other options for service providers, including new payments players, finding a wallet for their applications or introducing their own wallet.
Every other major chip vendor planning NFC chips or wireless chips incorporating NFC, including such large suppliers as Broadcom and Texas Instruments, will have an embedded chip or option for one, meaning high-end smartphones, among others, are likely to support embedded chips. Chip makers already shipping NFC chips, also include embedded chips or options for them.
Many or most of the NFC chips are also expected to support the single-wire protocol and NFC applications on SIM cards.
New Payments ‘Enablers’ to Come
These secure elements could host payment from new players. Among those developing mobile wallets for their platforms is Microsoft, which will introduce the software for its Windows Phone 8 operating system, due out later this year. The wallet could host payment applications, likely those supporting established payment schemes.
And I expect at least another of the top five mobile operator groups and one of the top five handset makers to use the SIM and embedded chip, respectively, to enable payment applications. They will likely support established payment networks, as well.
This is in addition to the possibility that Apple will offer a mobile wallet if it supports NFC in its next iPhone. If it does, Apple would probably have its own embedded chip, wallet and TSM, though probably not its own payment scheme.
Of course, banks could be a part of an Apple wallet, just as they will be part of Google, Isis, Vodafone and other wallets, which all support the established payment brands.
A key difference is that the banks will not control the secure chip running their applications, as they do with their payment cards. An option for them is to issue microSD cards containing their own secure chips, though I don’t hear a lot of demand yet for this.
And there will be still more new players jockeying for position for a piece of the expected mobile-payment bonanza at the physical point of sale. That includes PayPal, which is planning to expand its online payment business to bricks and mortar stores this year using so-called cloud-based payment–though NFC is among the technologies PayPal would use in the future.
Big U.S. merchants are also reportedly planning to enter the fray, with a possible NFC wallet and, presumably, self-branded mobile gift cards of their own.
Control of the secure chips in NFC phones–necessary to run the payment applications–will be vital to the rollouts. And large mobile operator groups and handset or mobile platform vendors know this will become valuable real estate they own as NFC-enabled phones get broadly distributed.
As the recent Mobile World Congress showed, partnerships are forming around these secure elements. And payments players–both new and old–know they will need to control or at least have access to these chips if they want to keep from being left behind.