The battle for the mobile wallet

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One of the next big mobile battlegrounds will probably be near field communications (NFC) – but as Jasper Jackson reports, operators are facing a fight from manufacturers to avoid being squeezed out

Turning the mobile phone into a digital wallet, allowing consumers to do away with their plastic, and even cash, is a dream that appears to be fast approaching reality.

The UK leads Europe in rolling-out the near field communication (NFC) technology that allows mobiles to connect with payment terminals for contactless transactions.

Already the UK has 70,000 NFC terminals, and in May Orange launched the first commercial service allowing UK consumers to make NFC payments with their phones.

Few can make firm predictions about when mobile NFC technology will go mainstream. However, RIM’s recent launch of two NFC-enabled BlackBerry handsets was a major step forward, and more such devices from other manufacturers are expected in coming months.

McDonald’s recently joined the list of firms, including sandwich shops, Pret A Manger, Eat and Little Chef, that have installed NFC payment terminals across their outlets.

Visa plans to push payments on NFC cards and mobiles at next year’s ‘contactless Olympics’, and Apple’s inevitable entry into the market will give NFC a huge boost.

Though few in the industry believe mobile NFC will be commonplace by the end of 2012, most agree the technology is picking up momentum and will be a major part of consumers’ lives within the next few years.

In June, Vodafone, Everything Everywhere (EE) and O2 put their fierce rivalry aside to form a joint venture (JV) to develop NFC payments and advertising, in the clearest vote of confidence to date for the technology in the UK.

Vodafone UK CEO Guy Laurence said the JV was the “next phase” in replacing traditional wallets with mobiles.

Yet the operators are engaged in a battle to ensure they are not cut out of NFC payments’ future, in the same way they have lost out to Apple and Google in mobile apps. And there is no guarantee they will win.

Operator optimism
Of the big three UK mobile operators that founded the JV, EE is the only firm to have launched a service.

Quick Tap, launched on the Orange brand in partnership with Barclaycard, allows users to transfer money to a prepaid account linked to their NFC handset, which they can spend in retail outlets equipped with NFC terminals.

According to EE director of mobile payments and ticketing Jason Rees, Quick Tap adoption is “in line with expectations”, and those who have signed-up are using Quick Tap more than expected.

“We are finding that consumers are spending more with NFC than they would have done in a cash transaction or a card transaction, and spending more frequently, as well,” he says.

Rees concedes that Quick Tap’s £10 joining reward and cashback on Quick Tap transactions has helped drive early use. However, he believes the service will gain wider traction while maintaining usage levels, as more NFC-enabled devices come to market over the later half of this year and beyond.

O2 head of financial services James Le Brocq praises Orange for “getting to market as soon as it was able”, saying it will help raise awareness of NFC. However, he hopes the O2 Wallet, first announced in 2007, will gain greater traction when it launches later this year.

“I would like to think we will offer customers an appropriate balance between the friction they want to see, because it makes them recognise the secure nature of the payment they are making, and the ease and convenience contactless was intended to deliver,” says Le Brocq.

Both O2 and EE realise the operators have a key role in getting NFC out to the public.

“I can say that from Everything Everywhere’s side, we are embarking on a policy of seeding the market with NFC devices,” says Rees. “So if there’s an

NFC variant of a device range, we will seed the market with that NFC capability. My understanding is that a number of other operators may well do the same.”

Where’s the money?
Though Rees will not reveal exactly how Orange generates revenue from Quick Tap, he insists that the firm will be looking for a cut.

“We are driving for incremental revenue, and therefore will be looking for a share of any incremental opportunity for our partners, whether that’s a bank or a merchant.”

Informa Telecoms & Media analyst Guillermo Escofet says operators had initially hoped to get a cut of transaction commission charged by the likes of Visa and MasterCard. However, the card payment value chain is already being squeezed, with firms coming under pressure to reduce handling fees.

According to Escofet, this has led operators to negotiate on renting out ‘space’ on SIM-cards for companies like Barclaycard to store information, charged on a monthly or annual basis, per user, per app. Currently, this appears to be the best shot UK operators have of making revenues directly from NFC payments.

Uphill struggle
The operators may currently be well placed to get a slice of NFC payment revenues as the first services come to market. Yet their confidence and the hype surrounding the JV mask how difficult it will be to maintain their role in the payment-value chain, in the face of competition from better-placed rivals.

“The operators are anticipating moves by the big players, ie Google and Apple,” says Escofet. “Google came out with its NFC phone at the end of last year and has now got the Google Wallet service. Apple has yet to play its hand, but sooner or later I’m sure it will jump into the market as well.”

He adds: “The operators are right to be wary of moves from there. Their biggest fear is that they will be pushed aside from this market as they have increasingly been in other mobile services.”

“The JV is definitely the right approach,” says CCS Insight devices and applications director Geoff Blaber. “But when you look at players such as Apple, and Google, they have a lot of these pieces already in place, and very well integrated – and certainly in Apple’s case tightly vertically integrated.

“There’s a very big risk that in 2012 they will enter the market and steal a march on the operators.”

Full article in Mobile News issue 497 (September 12, 2011).

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