Near-field communication (NFC) is an enabling technology that is poised for significant market growth over the next few years. The main driver for its adoption appears to be the use of NFC-capable handsets as a means of payment and ticket replacement on public transport systems. NFC systems have been operational in Asian countries, including Japan (FeliCa), Hong Kong and Singapore, for many years and have proven commercial benefits for mobile payment transaction; in Hong Kong, for example, more than 10 million transactions each day are facilitated by NFC systems.
In Western Europe, only a relatively small number of NFC payment systems currently exist, including the Oyster Card, a virtual travel card for the London underground. However, products combining transport-payment mechanisms and credit cards are a commercial reality, and trials of NFC-based mobile payment systems are advancing quickly in Western Europe, as described in Figure 1. During 2008, we anticipate announcements of existing systems being extended, further trials being started and new systems going live.
| Application |
Location of trial |
Participating organisations |
Dates of trial |
Details |
| 02 Wallet – virtual credit and travel cards |
London, UK |
AEG; Barclaycard; Nokia; 02; Transport for London; TranSys; Visa Europe |
Nov 07–May 08 |
500 participants are testing O2 Wallet installed on the Nokia 6131 NFC handset, which, like a normal wallet, will hold several cards, including Oyster and Barclaycard, but in virtual form |
| Payez Mobile – mobile payment solution |
Caen and Strasbourg, France |
Six French banks (BNP Paribas; Crédit Agricole and LCL; Crédit Mutuel-CIC; Groupe Caisse d'Epargne; La Banque Postale; and Société Générale); four mobile operators (Bouygues Telecom; NRJ Mobile; Orange; and SFR); MasterCard and Visa Europe |
Started Nov 07 |
Trial involves 1000 customers and 200 sales outlets in Caen and Strasbourg. It will evaluate users’ interest in Payez Mobile and test interoperability between solutions from different suppliers: mobile handsets from LG, Motorola and Sagem; payment terminals from Ingenico and Sagem Monetel; SIM cards and secured application management from Gemalto and Oberthur Card Systems; and NFC components from Inside Contactless |
| Various, including mobile ticketing and payment |
Rennes, France |
SNCF and Orange |
Nov 07–Jan 08 |
50 participants are testing NFC technology in the SIM card that provides access to various services, including bus and train ticketing, payment for purchases, timetable information and car-park access |
Figure 1: Selected ongoing trials of NFC-based payment systems in Western Europe (Source: Analysys Research, 2008)
NFC allows banks and mobile operators to offer new services in developed countries
The potential for deployment of mobile payment systems is very different in emerging and developed countries. In emerging markets, mobile phones are becoming more widespread, but relatively few people have bank accounts. Mobile banking and payment services in emerging markets will, therefore, rely on existing, simple and robust technologies, such as SIM Toolkit applications or SMS. This solution eliminates the need to equip large existing customer bases with expensive NFC-capable handsets, but severely limits prospective use of NFC in these markets.
In more developed countries, most people have both mobile phones and bank accounts, so there is a larger potential market for NFC. The focus of NFC lies in providing more fluid commercial relationships through a variety of mobile payment systems, including paying for retail purchases, transport fares, and online shopping and auctions, as well as making loan authorisations. NFC technologies could become a key enabler in this context.
The success of mobile payment systems depends upon a business model that provides mutual benefits to the various groups of participants. This implies that co-operation is needed between players, including mobile operators, financial institutions (retail banks and card issuers), payment infrastructure providers (such as Sony and NXP) and the different points of sale (including retail locations and public transport authorities). In practice, such co-operative relationships can prove difficult to sustain, as illustrated by the failed industry partnerships of Simpay in Europe and the early RFID initiatives in South Korea. Nevertheless, the ongoing NFC trials in France and the UK represent encouraging signs of recent co-operation in Western Europe.
Life in a ‘Smart’ world
Once initial hurdles are overcome and NFC-enabled payment systems, which are probably the lead application, reach a critical mass, the scope for NFC is wide. The technology already extends beyond mobile devices. For example, Samsung has developed a prototype Smart fridge with a built-in RFID (radio frequency identification) chip reader that scans items as they pass in and out of the fridge, monitors the stock of food remaining and will send a shopping list to the owner's mobile phone – or directly to the supermarket – when it detects that supplies are running low.
In Germany, Galeria Kaufhof started using RFID in the menswear department of its Essen outlet. RFID transponders that carried the electronic product code were attached to 30 000 items and readers were installed at all transition points from the warehouse to the checkout desks. The readers automatically track the movement of items, allowing staff to check the availability and location of goods. ‘Smart Changing Rooms’ identify clothes via RFID and supply customers with useful information, including the price, size and material of the article, via an integrated display. In the next phase of the project, the Smart Changing Rooms will tell customers what additional sizes and colours are available, together with suggestions for complementary products.
In Spain, the Barcelona Baja Beach Club launched the VIP VeriChip, an RFID device the size of a grain of rice. Patrons can chose to have the chip embedded in their hand or arm, allowing them to identify themselves, and to pay for their food and drinks, without having to produce ID.
The integration of Smart Chips into mobile phones is likely to result in increasing numbers of applications converging into a single device. Ease of use, the inherent security of mobile encryption and the backing of large international players is likely to generate strong interest from users. For service and equipment providers, this is likely to result in new revenue streams, if they are able to agree on a mutually favourable business model.
