Justifying Mobile Payments

Observers of using Near Field Communications (NFC) in mobile phones are still confused about why it anybody would want to use the technology to make in-person payments at stores.

I'm Confused About Why Mobile Payments are a Good Idea. Many Other People Are, too.
When you look at the market, it makes little sense. Some of the arguments are:

• Using a phone is slower, not faster, than using a traditional credit/debit card.
• The costs associated with using a phone are higher.
• There is insufficient infrastructure available at merchants.
• Adding infrastructure (NFC-equipped point of sale terminals) would be expensive and adds too much cost for the merchant.
• There is an existing card presentation and clearance mechanism that's extremely well developed, entrenched and profitable. Barriers to entry are very high.
• Players are squabbling about who "owns" the customer and the secure element in the phone.

In short, the idea of adding an NFC payment mechanism to mobile phones makes little sense. And there's a lot of head-scratching going on among people in the industry as to why (and how) it could possibly happen.

A New Way to Think About It

I've said it before and I'm sure it'll be said again. NFC-based mobile payments are NOT a great idea at this point, at least not for the U.S. There isn't sufficient business case to drive key players to adopt it.

But there are a number of NFC applications that DO make a great deal of sense. And they're gradually finding their way into smartphones and stores and movie theaters and other places.

Mobile Coupons. Illustration from ViVOTech

People are justifiably now asking "How do NFC payments make business sense?" But when the market is ready, and there are enough NFC phones and infrastructure and interest -- driven by non-payment applications -- and people will be asking, "Why not NFC payments?"

 It's significant that we're still asking, "Why?" Instead, we need to make sure everything's ready when when people start saying, "Why not?"

New and Interesting NFC Developments

After my little hiatus, I've been finding the pace of near field communication (NFC) deployments and trials is picking up its pace.  Here's a sampling of what's been happening.

This is the area I've long said has to get the focus of development in order to lay the groundwork for mobile payments (groundwork means enough phones having NFC capability). These are primarily small deployments, minor applications, but are the sort of thing that is going to be needed to get people thinking about NFC, using it, and, more important, developers finding ways to integrate NFC into useful, productive, profitable applications.

Blackberry Tag was announced by Research in Motion in early October. 

[Tag] will allow users to share contact information, documents, URLs, photos and other multimedia content by simply tapping their BlackBerry smartphones together. BlackBerry Tag will also enable friends to instantly add one another as contacts on BBM™ (BlackBerry® Messenger). 

RIM took the industry lead last year when it announced it would eventually include NFC in all its devices. RIM is also opening its NFC application programming interface to allow developers to start making their own NFC apps.

Media Junction deploys smart posters for Jamiroquoi's European concert tour. Despite the lack of NFC-equipped phones (only the Google Nexus S and Samsung Tocca). Neil Cartwright of Media Junction says the phones will "automatically sense the contact and take the user to a webpage on their mobile browser. Users will be able to share the page with other fans and friends once viewed and they know secret URL.  The exclusive content, a behind-the-scene video, was specially commissioned for the promotion to provide a strong incentive for fans to tap on the poster."

Vox Cinemas in Dubai started using NFC for in-theater promotions using smart posters. The system was introduced by Proxama.  Exit displays allow NFC phone users to tap a tag to access movie listings and a Nokia Facebook 'Like' page.

Art Lovers Rate Exhibits with NFC at the STRP Festival in Netherlands. According to NXP, the semiconductor company that provides NFC chipsets, "By simply tapping a work of art with an NFC enabled device, visitors can rate pieces... Enabling visitors to share their appreciation for the arts with their friends via social media, the Android app also gives visitors information about the art through a synthesized voice." I'm not completely certain what a "synthesized voice" is, but but at least uses NFC.

A Concept Medical Device called MiniME is a personal device that monitors "ECG, blood pressure, heart rate, pulse oximetry, body temperature, blood glucose, cholesterol, hemoglobin and prothrombin time. Data are communicated through a cloud or internet site and shared with healthcare professionals via mobile devices." Even though it's not expected to become a commercial device in its current form, the MiniME, designed by Sweden's Ergonomidesign is expected to bring together all the stakeholders in the remote monitoring ecosystem.

Google Making More Wallet Progress

OK, now things are getting even better.

Remember Google Checkout? That's a way you can consolidate your purchasing information into a single credential that you could use at a wide range of e-commerce web sites. I'm no expert and haven't used it before, but it seems like a good idea but nothing that's too earth-shaking.


Remember Google Wallet? It was a way you could consolidate your purchasing information into your cell phone.

Now Google is putting the two of them together and replacing Google Checkout with Google Wallet. Anybody who had agreed to accept Google Checkout is automatically transitioned to Google Wallet.

I mean, think about it... I wouldn't want to use a separate payment method online and in real life (oh, wait; I do that right now with PayPal feeding my debilitating addiction to art deco clocks from the 1930s. I don't use the PayPal account for anything else. Pity)

Understanding the Vision 
Google's move means that we're moving closer still to the mobile wallet replacing the leather wallet. Rather than having separate operations serving the online and in-person purchase, having a single entity handle both kinds of payments is more like the way we use the credit and debit cards in our own wallets.

What about Privacy?
Well, there is the privacy thing. You have to remember Google makes its money from advertising and its ads are successful because of targeting... targeting that comes from knowing so much about you. When you unify all your purchasing, you're also providing all your entire purchase history -- online and real life -- to Google. It's important to remember with companies like Google (and Facebook) that you are NOT the customer... you are the product. And the more information you willingly provide, the more valuable you are as an advertising target.

Google Wallet Looking More and More Like a Wallet

Ever since the first report I wrote about mobile wallets in 2006, I had identified as the key obstacle competition among the players, especially competition based on the technology.

In Japan, all the mobile operators unified under a single trade name (osaifu-keitai, or wallet phone), even thought it was originated by one of the major mobile operators, NTT DoCoMo. All three operators also adopted the same technology, the near-field communication variant called FeliCa. 

In the US, heavy competition and a hands-off approach by regulatory bodies had caused many delays or the death of some new, interesting technologies (remember AM Stereo? I didn't think so).

These will be getting thinner and thinner

However, an announcement last week shows that there's more cooperation than competition among the key players for mobile wallet (and ultimately, mobile payments): VISA and Google have agreed to put VISA's PayWave technology and brand name in Google Wallet phones. 

PayWave cards and dongles are already offered through a number of issuing banks including BarclayCard, BB&T, Chase, PNC, Wells Fargo and others. 

Hey, prospects for mobile wallet are getting better, aren't they?

You bet they are. The things I believe are going to be required to push the entire market forward are the open wallet concept, rather than the closed system initially proposed - and abandoned - by Isis. For the ultimate success, mobile wallet is going to have to replace everything you now keep in your leather wallet: ID, gym membership, loyalty cards, all your credit and debit cards, library card, pictures of the kids and all the other things. And only after ALL those things are possible will the mobile payments component of the mobile wallet be ready for its inevitable success. 

Isis making the right moves

It's with considerable hope that I watch some recent announcements from (and about) Isis, the joint venture of AT&T, T-Mobile and Verizon Wireless.

First, Isis CEO Michael Abbott has been saying the right things about the "competition" Isis would face from Google Wallet. Instead of putting Google down or dismissing it (as Square's Chief Operating Officer recently did about its NFC competitors), Isis is supportive of its huge competitor, recognizing that Google's success in the market will surely propel the entire segment forward.

Second, Isis is expanding the expected scope of its 2012 rollout from one city (Salt Lake City) to two (Austin, Texas). Reportedly there will be fewer than 1 million phones involved with the rollouts, which sounds extremely ambitious when you consider the two cities have a combined population of 2.8 million.

Third, Isis has been hinting at having three banks involved with their rollout, without naming the banks. However, there have been reports that JP Morgan Chase will be providing a credit account and CapitalOne offering a prepaid card. BarclayCard was part of the of Isis's initial closed-system business plan.

What does it all mean?
In my estimation, these three items point to some acceleration of the realization of NFC mobile payments in the U.S. I've said it before, though: we need to be considering ways to encourage non-payment NFC applications such this NFC building access application for BlackBerry. Just don't expect things to happen immediately. It's going to be a while before there is enough infrastructure to support a robust cellphone-payment ecosystem.

Interested in seeing the numbers?
By the way, I published a forecast for report at GigaOm concerning NFC handsets and a variety of NFC applications, which you can see here... you need to be a member of GigaOM Pro to read the whole thing

“Pay-by-Phone Dialed Back” is NOT bad news for mobile payments in the US

If you don’t read past the headlines, things look pretty gloomy for Isis, the AT&T/T-Mobile/Verizon Wireless joint venture for mobile commerce:

• Pay-by-Phone Dialed Back (Wall Street Journal) 
• Operators scale back Isis m-commerce network as NFC competition mounts (Fierce Wireless) 
• Wireless Carriers Losing Isis M-commerce network in favor of simpler mobile payments solutions (Mobile Marketing Watch).

Sounds pretty grim with all those negative words: "Dialing back… losing… mounting competition." It almost sounds like this is the end, doesn’t it?

Actually, no. In fact, it indicates that Isis (and presumably the companies behind it), are maturing and facing the realities of the mobile payment market. And, perhaps, they were also reading my blog. So what's happened so far?

Isis started out with a business plan that basically put the mobile operators in the middle of the transaction, collecting fees on transactions. Everything passed through their system – and ONLY their system – using their specifications and their business systems… the entire process from start to finish. If you’ve been in this business a while, you’d recognize it as a pretty typical heavy-handed first draft from the telcos.

The dissent showed up pretty quickly when Research in Motion announced that its NFC-equipped handsets would not be compatible with the Isis approach. The result was a public row over who “owns” the customer  (personally, I don’t care to be “owned” by anybody.)

The reaction was hardly predictable, though. Isis seems to have realized that their requirement that they own mobile financial transactions would delay or even kill the prospects of the technology.  (http://alloymarketresearch.blogspot.com/2011/03/should-have-known-mobile-payment.html). Instead of taking their toys and going home, Isis appears to have taken a much more mature approach and called for open standards that would allow everybody to participate. (I mean, seriously, Isis, did you think you could have your own nationwide financial transaction system and leave VISA and MasterCard out of it? Seriously?)

What did Isis do?

The Fierce Wireless article by Jason Ankeny says,

Citing sources familiar with the matter, The Wall Street Journal reports the three operator partners are now in talks with Visa and MasterCard to bring the credit card giants into the Isis equation after determining building a rival payment network would have been too complex and time-consuming.

"Too complex and time consuming? I'd like to add "nearly impossible" to that list.

The article also says,

Isis previously said it would partner with Discover Financial Services to build out the necessary mobile payment structure, but in April the firm stated the service would be available to all payment networks, merchants, banks and mobile carriers. The Wall Street Journal notes many merchants expressed major doubts over Discover's reach: In 2010, 57.2 percent of debit or credit card purchases were transacted through Visa, nearly a quarter were executed via MasterCard, and Discover accounted for a market share of only 3.3 percent.

What does this mean for mobile payments in the US?

ViVOtech 4500m Contactless transaction device

Forget the doom-and-gloom sound of the headlines. What this about-face really represents is the first acknowledgment that the carrier-centric closed mobile payments system was not really practical from a commercial point of view. There are a lot of people who need to own part of this and Isis appears to be taking steps to open things up.

The best approach would be to offer a handset that provides a way to use Near Field Communications technology to securely include credentials and payment methods from a wide range of sources, including financial institutions, credit card issuers, loyalty cards and even identification cards like your library card or gym membership.

A mobile wallet that can replace your leather wallet is going to require an open system. If that’s where Isis is headed, I can once again be optimistic about getting mobile wallet in the US.

Due to a Overwhelming Interest, Symbian has Been Canceled

While this is outside my customary topics for this blog, it represents work I have been doing in forecasting handset and smartphone shipments. Recently, GigaOM Pro published my global five-year smartphone platform forecast at almost the same time Nokia made an earth-shaking announcement.

Nokia Drops the Bomb
It wasn't all that long ago -- back on February 11th 2011 -- Nokia announced it was getting to bed with Microsoft and turning its smartphone platform from the incredibly successful Symbian to the incredibly unsuccessful Pocket PC Phone Edition/Windows Mobile/Windows Phone/Windows whatever-Microsoft-is-calling-it-this-month.

Naturally, industry watchers went nuts, including this Wired article saying Nokia was "killing Symbian." (Such statements, by the way, violate my First Rule of Thinking About Technology).

And the impending death of Symbian? Well, that's not entirely accurate. The official press releases said they have, "the intention to form a strategic partnership with Microsoft to combine complementary assets and expertise to form a global mobile ecosystem and to adopt Windows Phone as our primary smartphone platform..." [emphasis added].

Seriously? You Think Nokia's Gonna Kill This?
What a shock we got two months later when Nokia announced two new Symbian-based phones: The E6 and X7, both with the latest update of the Symbian OS. The world was aghast! How could Nokia bring out new Symbian devices when they were about to kill Symbian??!!

First of all, in a letter  to developers released the same day as the Microsoft announcement, Nokia said it is still planning to sell an additional 150 million Symbian devices... nearly two years worth of sales even with a declining market share.

But what happens after that? Does Nokia kill Symbian altogether?  In 2010, Symbian was the most popular smartphone OS in the world with more than one-third of the global market. There were nearly as many Symbian phones sold as iPhone and Android combined. I don't see any killing there at all. With all its troubles, don't you think Nokia would continue to embrace the most popular smartphone on the planet for as many years as it can?

Nokia's Possible Scenarios
I'm thinking there are three things Nokia could do at this point:

1. Dump Symbian and lose the lower end of the market (and the majority of smartphone sales). This seems to be what is expected.
2. Dump the new strategy of CEO Stephen Elop--who, by the way, was just hired away from Microsoft--and continue with the Symbian growth curve.
3. Let the two platforms live side-by-side and move Windows to the upper end while continuing to support Symbian at the lower end as the market adjusts to more-expensive  smartphones worldwide.

Know which one I'm betting on? Number 3. Give it a year or so and watch what Nokia does.

The Forecasts
The Nokia/Microsoft announcement came at a time I was just finishing up a forecast for GigaOM on mobile handsets and smartphone platforms. I'd been working on it for a LONG time and was eager to just get it published.  And, to tell the truth, I don't believe  Nokia would embrace Scenario 1 above and dump Symbian, regardless of all the other  forecasters seemed eager to do. So now there's some controversy -- even from within GigaOM in an article called When, Exactly, Is The Timing of Symbian's Demise -- about the validity of all the forecasts in this market.

My forecast calls for this: Android and iPhone continuing their dash to market domination. Combined, they'll eclipse Symbian's market share during 2011. However, my  assumption is that Nokia sees that it can sell more than 700 million Symbian phones by 2015, instead of stopping at 150 million in 2012.

Here's one other assumption that's being made by other forecasters (look it up... don't make me call them out): That Microsoft's OS will magically replace Symbian's market, nearly phone-for-phone. I'm here to tell you, the resource-hungry Windows Phone system will not become the worldwide bestseller -- after 10 years of struggling -- simply because Nokia's out there trying to sell it to their (decreasingly) loyal customers.

Here's what my original forecast looks like. If there were a title for it, I think it would be, "Nokia realizes what a good thing it has in Symbian before it's too late."

Source: Alloy Market Research, February 2011

If Nokia doesn't change its strategy, it's likely that the greatest increase will be in the "Other" category, epitomized by the Samsung "badu" platform, as they rush to fill the void left by Symbian. Eventually, Microsoft will start to improve its position, but during the 5-year forecast period is unlikely to rise higher than fourth place in market share behind Android, Apple iPhone and BlackBerry.