China Mobile Pulls Back from Its Aggressive RF-SIM Push

SHANGHAI - China Mobile is easing off its drive to roll out its own mobile-payment scheme and other services using contactless SIM cards known as RF-SIMs, NFC Times has learned. 

A top executive with China Mobile now in charge of mobile payment has questioned the wisdom of the rollout and is apparently slowing down the project, though has not called a halt to it. And the telco has signaled it is open to using other contactless technologies–not just the nonstandard RF-SIM technology–for mobile payment, including NFC.

“They are a little cautious (now),” said one observer, noting that over the past year China Mobile had stopped development on NFC and every other technology for contactless payments in favor of RF-SIM.

Executive director and vice president Li Yue launched the re-evaluation of the RF-SIM program in recent weeks, after taking over responsibility for mobile payment from Lu Xiangdong, also an executive director and vice president and a backer of the RF-SIM rollout.

Li held a high-level meeting Feb. 1 in which he questioned China Mobile’s ability to get millions of consumers to change their payment habits and to recover the costs of the massive rollout of specially equipped SIM cards and tens of thousands of readers at the point of sale and at transit gates, according to leaked details of the meeting.

The change comes as China Mobile agreed earlier this month to buy a 20% stake in Shanghai Pudong Development Bank for 39.8 billion yuan (US$5.8 billion) to help it offer mobile payment and m-banking to its gigantic base of more than 520 million subscriptions. The mobile payment will include both contactless and remote transactions.

It remains to be seen whether China Mobile works with other banks on mobile payment and what it does with the RF-SIM project after the World Expo 2010 in Shanghai, scheduled to run from May through October. The telco has targeted the expo to showcase its RF-SIM technology, loading expo tickets for subscribers who pay the roughly US$17.50 extra fee to buy a card. The subscribers will be able to tap their phones inserted with the contactless SIMs to enter expo venues.

The RF-SIM rollout has caused considerable consternation among Chinese banks and China’s domestic payment card network, China UnionPay. UnionPay has stepped up the expansion of its “large-scale pilot” of mobile payment and has set a goal of equipping 30,000 merchant locations for contactless payment in Shanghai by May and 100,000 locations nationwide by the end of the year. The banks are mainly working with China Mobile’s chief rival China Unicom, hoping to use NFC and other contactless technologies to introduce mobile payment at the point of sale.

Opening the Door to NFC
Huang Gengsheng, principal scientist for wireless at the China Mobile Research Institute, declined to comment on the operator’s plans for its stake in Shanghai Pudong Development Bank when asked by NFC Times. But he confirmed that the telco is not only working on RF-SIM, sometimes called RFID-SIM.

“We have not closed the door to NFC,” he told NFC Times through an interpreter. “NFC is quite a mature technology, but not a mature ecosystem.”

China Mobile announced the launch of its RF-SIM program last fall in Shanghai, and has expanded it to several major cities and provinces, including Beijing, Guangzhou, Chongqing, and Hunan province.

It’s an ambitious plan, since it requires an all new infrastructure, funded by the telco. The SIMs and readers use the 2.4-GHz frequency, not 13.56 MHz as is required in standard ISO/IEC 14443 contactless technology for cards and NFC phones. 

The telco has been signing up merchants, including McDonald’s and Starbucks, to accept contactless payments with a reloadable e-purse on the cards. And users can also tap their phones for contactless transit ticketing in Shanghai.

But according to one source, China Mobile has only sold 100,000 of the RF-SIMs nationwide, out of an initial order of 1 million cards. Its goal had been issuing 10 million cards this year, said the source.

It seems to be behind on deployment of point-of-sale terminals that can read the SIMs, as well. The telco initially ordered 10,000 to 15,000 of them, but has yet to deploy all of them, sources told NFC Times. There are about 2,000 terminals at retail locations in Shanghai, and perhaps 1,000 to 2,000 in and around Guangzhou, with more in other cities.

Huang, who spoke Saturday at the Contactless Technology Congress in Shanghai, organized by NExTelecom, also acknowledged some shortcomings in the RF-SIM technology, such as the cards failing to work with some popular phone models sold in China, including at least some of those made by Samsung and Dopod, a smartphone maker owned by Taiwan-based HTC. The SIMs also don’t work in many or most phones complying with TD-SCDMA network technology, China’s own domestic standard for 3G phones 

UnionPay Responds to M-Payment Challenge
Xiao Bo, vice general manager for the product innovation department at China UnionPay, who spoke at the same conference, told NFC Times he thought China Mobile should go back to focusing on mobile communications.

“The payment business–there are so many elements,” he said through an interpreter. “China Mobile is not good at it. We are very professional at it. The payment business doesn’t bring a lot of profit compared with the cost.”

UnionPay, which handles all interbank domestic purchase and ATM transactions in China, has developed a contactless payment application based on the national payment standard approved by China’s central bank, the Peoples Bank of China.

Bo told NFC Times the card network plans to have 20,000 merchant locations equipped with contactless terminals in Shanghai by the end of April and about 30,000 in May, the month the Expo 2010 begins. This includes department stores, supermarkets, hotels, fast-food restaurants and electronics stores. It already has about 6,000 merchant terminals in place in Shanghai, according to a statement by the card network.

UnionPay has also participated in a pilot involving 7,000 merchants reportedly equipped to accept contactless in the Zhejiang provincial city of Ningbo and has set up some terminals in department stores, supermarkets, cinemas, drug and convenience stores, and taxis in Changsha, in south-central China.

These and the rest of the 100,000 terminals UnionPay said it wants to roll out by the end of the year are targeting mobile payment, with such big banks as Industrial and Commercial Bank of China, Bank of China and Bank of Communications, along with smaller Yinzhou Bank in Ningbo. UnionPay’s five-year plan would see it spread contactless terminals in all “first-line cities,” said Bo.

UnionPay said it also plans to expand its trials of remote payment, including enabling users in several cities or provinces to pay bills, shop online, and pay hotel and airfare reservations over the network. UnionPay said it will expand the remote payment services with banks in 2010.

But while remote payment has already started to become established in China, it’s unclear how UnionPay and the banks plan to enable proximity payment at all the POS terminals UnionPay seeks to deploy. There are only a couple of NFC phone models available in China.

Besides issuing contactless cards, the banks could roll out other form-factors, such as SIMpass, dual-interface SIM cards with flexible contactless antennas, manufactured by Beijing-based Watchdata Technologies. One or more banks, including Yinzhou Bank, have cooperated with mobile operators to issue at least a few thousand SIMpass cards. There are other launches of SIMpass in China, including those involving China Mobile. Contactless microSD cards are also a possibility for bank payment.

But UnionPay has a partnership with China Unicom, China’s No. 2 telco, to research and develop NFC technology. Plans by UnionPay and the telco call for working with major banks to introduce NFC-based mobile payment this year.

That will depend on whether phones are available, among other things. But when the project does launch, Unicom said it is taking a different approach than its larger rival, China Mobile. It would not pursue mobile payment without banks, said one Unicom executive.

“China Unicom wants to share in profits of different partners, like China UnionPay, partners from different banks,” he said. “We want to open the platform for every player in this market.”

China’s No. 3 telco, China Telecom, is experimenting with various contactless technologies, including the RF-SIM. China Telecom, like China’s other mobile operators and its banks, is state-owned. So, according to one observer, the fate of the RF-SIM ultimately rests with whether the technology continues to have at least the tacit backing of government officials.

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