Russia’s Largest Bank to Use NFC Embedded Chips; Discussing Pilot with Visa, Samsung for Sochi Games

Russia’s largest bank, Sberbank, plans to launch mobile payment using embedded chips in NFC phones, snubbing Russian mobile operators, the bank’s director of IT strategy told NFC Times.

A commercial launch should happen within the next year, possibly by the end of 2013 or early 2014, Mircea Mihaescu, Sberbank’s director of IT strategy and technology innovation and a principal of the bank’s venture capital arm, told NFC Times.

And the Russian banking giant also has been working with Visa and Samsung Electronics to possibly demonstrate NFC payment for the 2014 Winter Olympics in Sochi, Russia, next February, he said.

Visa and Samsung are both sponsors of the Sochi 2014 Olympics, like they were for the Summer Olympics last year in London, where they demonstrated NFC payment with a Visa payWave application stored on NFC SIM cards in Samsung’s flagship phone at the time, the Galaxy S III. Samsung’s new flagship, the Galaxy S4, which carries a preloaded payWave application on its embedded chip, is expected to be used for the Winter Olympics.

Mihaescu had indicated that the planned pilot with Visa and Samsung for the Olympics would be announced soon. But in response to a follow-up question from NFC Times, Mihaescu said the proposed pilot had not yet been approved by the bank, so there is “nothing we can announce.”

Meanwhile, Sberbank is working with multiple device makers and their embedded chips as the bank gears up for a planned NFC commercial launch, confirmed Mihaescu. Sberbank's venture capital arm, SBT Venture Capital, is making a large investment in U.S.-based trusted service manager startup Sequent Software to manage its payment application on the chips.

Russia a Prime Target Market for Embedded Chips
Just about all mobile phones in Russia are sold on the open market–with no subsidies from mobile operators. This allows handset makers, such as Samsung, to more freely promote embedded chips as secure elements for NFC payment and other secure services. The phone makers don’t have to worry about mobile operators with SIM-centric NFC business models refusing to buy their devices.

“The market is open to this type of development, and this is our strategy, and this is what we’re pursuing,” Mihaescu told NFC Times, noting that Sberbank has had a “long discussion” with one major Russian operator about the possibility of putting its application in the telco’s SIM cards and has “decided not to go that route.

“From the (business) model point of view, if the payment goes to mobile operators, the customer relationship–the knowledge about the payment–stays with the MNOs (mobile network operators),” he said. “The bank loses this relationship with the customer.”

It’s not clear whether he was referring to purchase transaction data, which would remain with the issuer, even if the payment application is stored in NFC SIM cards. But telcos could collect additional information around their mobile wallets, if they offer them.

Russia has a small but growing number of contactless point-of-sale terminals, about 15,000, supporting Visa payWave and MasterCard PayPass, and it is believed to be one of the target markets for Samsung for the embedded chips in its NFC devices, as well as for Visa. Sberbank has deployed more than 10,000 contactless POS terminals to date, said Mihaescu.

Samsung is preloading a Visa payWave application on the embedded chips in its new NFC devices and has also said it is working with other payment brands, though hasn’t said which ones. But among them is MasterCard Worldwide, NFC Times has reported.

Mihaescu confirmed to NFC Times that the bank has been working with or has discussed working with the embedded chips from other Android device makers, such as HTC, probably Sony, and one or more Chinese OEMs (original equipment manufacturers), in addition to Samsung. It has talked to BlackBerry, as well, Mihaescu indicated.

Sberbank’s Pilots Have Avoided NFC SIMs
The bank is conducting an internal trial with embedded chips in NFC phones from multiple device makers, Mihaescu said. That’s in addition to two other contactless-mobile pilots Sberbank has completed–one with microSD cards and one with passive contactless stickers, Mihaescu said. None of its pilots have used NFC SIM cards from mobile operators.

Russian mobile operators MTS, MegaFon and VimpelCom are all in the process of launching NFC-based payment, transit ticketing and other services commercially on SIM cards. MTS last year launched NFC payment, putting a PayPass application issued by its own MTS Bank on its SIM cards. The telco recently said it has added payment from the large Russian Standard Bank.

Overall, MTS’ NFC rollout is believed to be small so far, however, and only available in Moscow.

And a snub by Sberbank, Russia’s dominant financial institution–with more than 45% of retail deposits in the country and more than 100 million individual customers– would hurt the telcos’ SIM-based NFC business models.

As NFC Times reported last month, another, much smaller, Russian bank is planning to use embedded secure elements in NFC phones. St. Petersburg-based wallet provider and TSM i-Free will be enabling embedded chips in two HTC models and a Philips-made phone to implement a prepaid PayPass application issued by Tinkoff Credit Systems bank, which bills itself as the No. 3 credit card company in Russia’s small but resurgent credit card market.

Sberbank Leads $12 Million Round
With the vast majority of retail transactions conducted in cash in Russia, Sberbank is making mobile payments a top priority, Mihaescu has said. Last year, he disclosed Sberbank would set up a venture capital fund, starting with $100 million, to nurture promising startups.

The fund is leading a $12 million series B funding round that U.S.-based Sequent Software announced today. Existing investors Opus Capital and Jado Investments are also contributing to the round.

Sequent CEO Robb Duffield told NFC Times the investment would help Sequent to “chase opportunities” for TSM and mobile-wallet platform business and add “balance sheet strength.”

He said Sequent would continue to pursue its strategy of seeking to enable multiple service providers to connect their applications and mobile wallets or other apps to the same secure element in NFC phones. Sequent also said it provides services to mobile operators. The ability to support services from different wallets or apps on the same NFC phone would depend on how open the owner of the secure element–whether SIM, embedded chip or microSD–is to allowing access from multiple parties.

“We believe that you’re going to see a tremendous amount of innovation coming from the application developer community themselves,” Duffield said.

Sequent also bills itself as one of the few “neutral” TSMs–one that does not also produce NFC SIM cards or other secure elements, which it contends could lead to conflicts with other technology suppliers and, therefore, result in interoperability problems.

The Silicon Valley-based company says it offers a secure element TSM and also a service provider TSM. A significant part of its technology came from the now defunct Vivotech. The company also has a mobile-wallet platform. It raised initial funding of at least $7.5 million, though declines to release the exact amount of its financing leading up to the $12 million series B round.

To date, Sequent has only announced one TSM service contract, with a small Polish loyalty system company. NFC Times last year reported Sequent had a contract with No. 3 U.S. mobile operator Sprint to manage embedded secure elements in Sprint’s NFC phones under the telco’s planned open-development strategy for the chips. That project has yet to launch, however.

Sequent has not confirmed the Sprint contract, but has said it has other contracts it has yet to announce.

In addition to its investment, Sberbank will use Sequent’s technology. Mihaescu said Sequent was aligned with the bank’s philosophy and strategy for NFC and the direction the bank believes the market is headed.

In recent years, Sberbank has looked at investing in more small companies. In a blog post last year, Mihaescu said the venture capital fund intends to nurture these companies.

“By making an investment, (we) will make sure that the company that works for us or with us will have the capital to survive, and will also benefit from returns,” he said.

HEADLINE NEWS

In-Depth: Persistent Consumer Security Fears about Mobile Payments Prove Difficult to Dislodge

NFC TIMES Exclusive Insight – Results of yet another survey has shown that a significant percentage of U.S. consumers continue to harbor security fears about using their smartphones for payments, a stubborn problem that has hindered growth of mobile payments from the beginning.

Mobile Suica Still Accounts for Disappointing Share of Suica Users and Transactions in Japan

NFC TIMES Exclusive – While Apple Pay next month will mark the 5th anniversary since its launch in the U.S., there is another contactless-mobile payments service that is three times as old as Apple Pay–Japan’s Osaifu-Keitai, or wallet phones, which this year turned 15. 

Rome Latest Transit System to Launch Open-Loop Fare Collection; also Enables Monthly Passes with EMV Cards

NFC TIMES Exclusive Insight – Rome has become the second major city in Italy–and one of a small but growing number of large cities globally–to enable riders to pay transit fares with EMV contactless credit, debit and prepaid cards and NFC devices.

Vivo Last of Major Chinese Smartphone Makers to Officially Launch NFC Pays Wallet

NFC TIMES Exclusive Insight – Vivo, China’s second largest smartphone maker, made it official this week, launching its NFC-enabled “vivo Pay” wallet, the last of the major Chinese phone OEMs to roll out NFC payments–though their use has been disappointing, at least for payments in stores.

In-Depth: Fit Pay’s Troubles Indicate Difficult Business Case for Provisioning to Wearables

Sep 19 2019

NFC TIMES Exclusive Insight –  Given the poor financial results of U.S.-based Fit Pay, it’s becoming clear that the business case for provisioning of payment cards to wearable devices remains difficult.

Analysis: Chase Pay Latest Bank Wallet to Shut Down; Why Did They Fail?

NFC TIMES Exclusive Insight – Plans disclosed this week by JPMorgan Chase to shut down its Chase Pay app for in-store purchases is yet another nail in the coffin–perhaps the final one–for bank wallets in the U.S. And the situation does not look much brighter for bank-issued wallets abroad.

Miami Latest U.S. City to Introduce Open-Loop Transit Payments

NFC TIMES Exclusive Insight Transit officials in Miami-Dade County, Fla. are the latest in the U.S. to introduce open-loop payments of fares with contactless credit and debit cards and bank card credentials on NFC wallets, launching the service yesterday on the city's relatively small metro network, with plans to expand to buses later.

UK Tram Riders Take to Tapping with NFC phones to Pay for Fares, According to Early Results

NFC TIMES Exclusive – Transport for Greater Manchester, which last month launched open-loop payments on its large Metrolink tram network, said Thursday that contactless credit and debit cards and NFC wallets accounted for a combined 170,000 rides during the first four weeks of the service.

In-Depth: NFC Wallet Use for Open-Loop Transit Grows but Still Makes Up Relatively Small Share of Contactless Payments

NFC TIMES Exclusive – When New York City transit officials announced Tuesday that the 1 millionth ride paid for through their new OMNY open-loop payments service had arrived ahead of schedule, they also proudly noted that 80% of the contactless payments had come from NFC wallets, not physical bank cards. 

PayPay Gets Off to Quick Start as One of Many Digital Payments Services in Cash-Loving Japan

NFC TIMES Exclusive Insight – As Japan continues to fight what to date has been a losing battle against cash, an announcement by the joint venture behind QR code-based payments service PayPay offers a little bit of encouragement. 

Research Firm Projects Use of NFC Mobile Wallets in U.S. to Remain Disappointing This Year

NFC TIMES Exclusive Insight – As Apple Pay approaches the fifth anniversary of its launch in the U.S., there is more research showing that most American consumers simply don’t see the value of tapping to pay with NFC-based payments services. 

In-Depth: Five Years After Transport for London Launched Contactless Across Its Transit Network, UK Open-Loop Rollout Remains Uneven

Aug 15 2019

NFC TIMES Exclusive Insight – Five years ago next month, Transport for London introduced open-loop contactless payments across its transit network, including metro, trams and commuter rail, following an earlier launch on buses. The service now accounts for more than half of all pay-as-you-go journeys and has become a global showcase for the technology.