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Contactless payment

November 23, 2011

New hardware could turn more mobile phones into payment devices, simply by waving them over a reader. Companies ranging from Apple to Nokia to Visa want a piece of the pie.

mobile phones
Tech firms want to turn mobile phones into payment devicesImage: picture alliance / dpa

As London gears up for next summer's Olympic Games, mobile phone and financial services companies are working together to roll out even more devices with a new kind of contactless payment system across Europe.

Near Field Communication, or NFC, is an upgraded version of another type of chip, known as RFID, which is commonly found in transit system payment cards or keycards for offices or hotel rooms. However, NFC works at closer range and can be used for secure two-way communication, which makes it more suitable to use as a payment system.

The idea is that a mobile phone itself would contain a "digital wallet," upon which its owner could pre-load a fixed amount of money. Then simply by swiping the phone over a reader, the amount could be debited as a way to pay for a particular item.

Currently, across the United Kingdom, only 70,000 outlets have NFC readers to use for purchases under 15 British pounds (17.30 euros, $23.40). But making payments requires NFC devices, and handset makers have been slow to catch on to the mobile wallet.

Visa has been pushing its own products to jump into NFC payments

Still relatively rare

"At the moment it's only Blackberry that's got it, as well as Samsung Galaxy SII," said Kevin Tembe, a London mobile phone store manager, adding that his customers were largely unaware of NFC.

"Nobody really knows about it, I don't think there's enough advertising for it, or enough of a push or campaign behind it either."

Only 3.5 percent of handsets worldwide are currently NFC-enabled, and in the UK, there's still only one mobile network operator – Orange – offering a SIM card with NFC built-in.

That's due to change in the next six months however, as NFC-enabled handsets start to hit shelves across Europe from the likes of HTC, LG and Nokia. The market analysis firm, Jupiter Research said in a report released in April 2011 that it expects one in five smartphones to have this capability by 2015, adding that the primary first markets would be North American and Western Europe.

New NFC arrivals

This delay on the handset side has left the market open to newcomers, including Visa's European offices.

In its role as official payment sponsor for next year's London Olympics, Visa has been promising the first "contactless games." The idea is that neither athletes nor spectators - wherever they come from around the world - will need to use cash on the Olympic site.

London 2012 Olympics
Companies are betting that the London 2012 Olympics will give NFC a boostImage: AP Graphics

But rather than wait around for other firms to bring NFC to the masses, Visa has decided to enter the mobile accessories market itself, for the first time, by releasing the iCart case to European customers earlier this year.

"We have the iCart, a case – just a couple of millimeters thicker at the bottom - for an iPhone, where the payment applications sits," said Sandra Alzetta, the head of Visa's mobile payment unit, in an interview with Deutsche Welle.

"And we're looking at putting the payment application and indeed the antenna on the microSD and that's a work in progress and will in time be certified," she added.

Companies note that the beauty of the microSD system - a small memory card commonly found in digital cameras - is that the card can be inserted into most currently-available handsets, independent of mobile phone network operator. That could prove to be a great business advantage, according to Guillermo Escofet, an analyst with Informa, a market research firm.

"The reason why companies like Visa are pursuing this: one is because it gets over the problem of lack of handset choice," he told Deutsche Welle. "The other reason is that you don't have other players trying to crowd into the value chain, and everything is nicely controlled by Visa and the banks."

But, of course, not all phones have SD card slots - most notably, the iPhone - hence the new add-on case.

iZettle is a Swedish startup that has been turning the iPhone into a payment deviceImage: Johan Bendz

Google, Apple moving in

Meanwhile, the new giants of the mobile phone market are also moving to secure their own slice of the NFC pie, including Google, which launched its NFC payments service in the US, with a UK debut slated for next year.

Intriguingly, earlier this month, Apple published a patent in the US for their own NFC system, which could bring the whole payments process and even mobile network selection under the control of the iPhone user.

There are also a number of plug-in devices – like the iZettle from Sweden, or the American company, Square - that convert a phone into a credit or debit card reader. The stakes are high in a market potentially worth many billions of euros. But the winner isn't necessarily going to be the company with the best phone or payment system.

But in the end, NFC may not only transform the mobile market, but banking as well.

"It comes down to who do you trust with your money?" said David Snow, an NFC expert at Juniper research. "An older generation would say 'the bank looks after my money,' but a younger generation might say 'I have more affinity with Google or Facebook than I have with my bank.'"

Author: Robin Powell, London
Editor: Cyrus Farivar