Deutsche Telekom Plans Move into Payments Market with NFC Phones and PayPass
Deutsche Telekom intends to make its move into the payments market at the physical point of sale in direct competition with banks, with an NFC payments commercial launch planned in Poland this year, before later expanding to Germany and other European countries.
The big Germany-based mobile operator group, as expected, announced its partnership with MasterCard Worldwide today, a deal that will see it use NFC phones, among other technologies, to enable consumers to pay with their phones where MasterCard PayPass is accepted.
The Deutsche Telekom payment service would be among other applications in mobile wallets the telco plans to introduce in its various European markets, starting with Poland. The operator said it also plans to sell point-of-sale terminals with partners–helping to address the problem of low penetration of POS terminals that can accept contactless payments in many of its markets.
The telco said its wallet will eventually support such other NFC applications as ticketing, couponing or access control for users’ automobiles, homes and offices. In the medium and long-term, consumers will be able to receive mobile coupons directly on their phones and redeem them in-store. They’ll also have an option for transferring money directly between mobile devices, said the operator.
As NFC Times reported late last week, the partnership will help Deutsche Telekom to introduce a prepaid application supporting PayPass on SIM cards the telco issues. Plans also call for issuing co-branded cards and passive contactless stickers in Germany.
The partnership agreement follows a similar deal announced in February between Vodafone and Visa that would see Vodafone introducing a Visa payWave application in its mobile wallets in five or more countries, including the UK, Germany and Turkey by February of 2013, according to the announcement.
But Vodafone has said it won’t issue the payment applications itself, but would work with Visa and, presumably, small partner banks. Deutsche Telekom, however, plans to issue its own payment applications, through its wholly owned ClickandBuy online payments unit. UK-based ClickandBuy, which Deutsche Telekom fully acquired in 2010, has an e-money license, which would enable it to issue a payment application in its markets in European Union countries, Peter Vesco, head of payment products and innovation for Deutsche Telekom group, told NFC Times.
“We believe mobile commerce will be a huge growth case for the future,” he said. “We want to be in the driver’s seat to create an ecosystem.”
Business Case from Transaction Revenue
Vesco told NFC Times that while Deutsche Telekom’s mobile wallets will include payment and other applications from other service providers, including those issued by banks, the telco sees a definite business case for offering its own mobile-payments service.
It plans to make money from the mobile-wallet rollouts by earning interchange fees when its payment service is used by consumers to make purchases, he said.
Deutsche Telekom will also charge banks and other service providers to rent space on its SIM cards to be part of its mobile wallets. Instead of rental fees, banks could choose to give Deutsche Telekom a cut of transaction fees when their applications are used by consumers, he said. Having its own payment service also would reduce churn, Vesco said.
According to the telco, there would be no partner bank in the background for its mobile-payments application; MasterCard, instead, will help with the payments rollouts.
But competition in payments from Deutsche Telekom and the fees the telco plans to charge to be part of its wallets are unlikely to sit well with banks.
Mung Ki Woo, group executive for mobile at MasterCard Worldwide, who was in Berlin today for a press conference announcing the partnership, declined to directly address the threat to banks from Deutsche Telekom’s plans or those of other new players getting into the payments space.
“Our strategy is to partner with all the entities that deploy mobile payment,” Woo told NFC Times. “The telecommunications industry is playing a very important role. (But) there’s no exclusivity. We work with banks. We work with all companies that want to deploy.”
Deutsche Telekom, itself, also reportedly sees competition from other new mobile-payment players at the physical point of sale, such as PayPal, Apple and possibly Google. Besides contactless stickers, the telco has said it could use 2-D bar codes and cloud-based payments as part of its wallet.
Prime NFC Market in Poland
Poland is seen as a prime launching ground for a commercial rollout of NFC payments by MasterCard and Deutsche Telekom, which owns 100% of Polish operator PTC. Other Polish telcos and banks also are preparing for a launch in the country, where some estimates place the penetration rate of contactless point-of-sale terminals to total POS terminals at 20%.
The contactless penetration rate in Germany is much lower, roughly 1%, according to MasterCard and Deutsche Telekom, though it may be lower. There are a total 1 million POS terminals in Germany, said Vesco. And estimates call for fewer than 10,000 contactless POS terminals by the end of the year.
Vesco contends that contactless terminals will ramp up quickly in Germany, with up to 200,000 by the end of next year, as merchants and acquirers replace their terminals. That remains to be seen, but Deutsche Telekom said it intends to add momentum to the terminal rollout.
The telco will “enter the key area of distributing NFC-capable terminals to retail outlets,” it said in a statement on its Web site, noting that 60% of all retail transactions in Germany are conducted in cash. “This will solve the ‘chicken-and-egg’ problem of contactless and mobile payments. The company will act as a partner for the sale of POS terminals and develop a sustainable infrastructure.”
Mpass Initiative Still on
Vesco confirmed to NFC Times that Deutsche Telekom will continue to pursue a separate NFC payments initiative in Germany, mpass, with competing mobile operators Vodafone Germany and Telefónica Germany. The telco consortium plans to create their own payment brand, expanding their German mpass Internet payments service to the offline world.
Plans call for launching a trial with contactless stickers by September, with some type of commercial launch with NFC phones by the end of the year, though the parties have been mum about how they plan to encourage deployment of a significant number of POS terminals accepting the brand.
Vesco characterized mpass as a local, German, initiative, while the deal with MasterCard extended to all of its European operations. Deutsche Telekom and MasterCard said today that the partnership “aims to make mobile payments a reality for Deutsche Telekom’s 93 million mobile customers across Europe.”
Besides Germany, and Poland, Deutsche Telekom branch operators in the Czech Republic, Hungary and likely the Netherlands, are considered key markets for future launches of NFC mobile wallets by the telco.
T-Mobile UK is part of the Everything Everywhere joint venture with Orange UK. Orange last year launched its Quick Tap NFC mobile-payments service with issuer Barclaycard, which T-Mobile was supposed to have followed. It’s unclear what Deutsche Telekom’s plans are for issuing its own payment application in the UK.
The MasterCard partnership doesn't apply to Deutsche Telekom's U.S. unit, T-Mobile USA, which is part of the Isis joint venture planning NFC mobile-wallet trials in two cities this summer.