NFC & mobile Payment

Julien Gaudemer


Consultant at IDATE

Payment and transportation: vectors of development for NFC?

Recently, IDATE has published its report on "NFC & mobile payment" which presents the current situation of the mobile payment and mobile NFC technology markets. It analyzes the prospects for the market from a technical and economic point of view, by looking at challenges facing the economic models in key areas, including: automation, commerce, advertising, public services and transport.

"One of the major problems for NFC on mobile devices is how to define viable business models for a particular type of application in which the different stakeholders can find some level of financial balance", comments Julien Gaudemer, project manager for the NFC study. He insists:"In numerous initiatives, obstacles often lie in the difficulties local stakeholders encounter in defining a stable cooperation framework for offering services to users."

Complex business models

A different business model often exists based on application type (essentially payment and transport) and geographical region. Relations between stakeholders can vary from region to region. The types of stakeholders may also vary (different operators from one country to the next, for instance).

  • For transport applications, the business model seems relatively balanced between the costs incurred by NFC on mobile devices and the direct revenues that carriers can generate from NFC. These revenues are first used to cover the costs of NFC for mobile usage. Since the different transport networks do not all have standardized NFC infrastructures, each carrier must, in principle, develop its own NFC mobile transport application.
  • For payment applications, the business model may be more complex since, unlike the transport ecosystem which is relatively closed (a single entity manages the various transport activities), payment applications require many different players who must cooperate in order to offer an NFC payment service. While most already maintain relations to offer traditional card payment services, NFC incurs new costs, particularly for banks (application, TSM, operators where necessary). These costs may then be passed on to customers (particularly private users), although this may be dissuasive. However, other strategies can be adopted to cover the technology cost, such as advertising on mobile
  • For other applications, the business model is simple, in which service providers invest in a mobile application and tags, and then recover the revenues, usually indirectly.

An overcrowded ecosystem

Compared with traditional payment methods and transport ticketing (credit/debit cards or NFC travel cards), the business model for NFC applications is different. More stakeholders are present in the ecosystem. This is explained by the fact that mobile usage requires the presence of certain players: manufacturers of mobile devices, mobile operators and SIM card manufacturers, primarily. Alongside these are other stakeholders, such as TSMs, most of which were previously smart card manufacturers who converted the value of a physical product into an intangible service. This ecosystem mainly differs from non-NFC mobile payment in that there are fewer technical issues and the conflict between stakeholders is not as fierce. Some players, such as chip or mobile device manufacturers, do not even enter the arena.
The NFC mobile ecosystem therefore comprises a multitude of stakeholders, each jostling to get ahead in a particular application. This is mainly the case with payment applications which can generate substantial revenues and consequently attract many businesses. Some stakeholders in this ecosystem have invested fully in NFC technology and in rolling out initiatives, while others seem more cautious, particularly Web giants such as Apple, Facebook and Amazon.

Competing technical architectures

The fact that the ecosystem comprises a multitude of stakeholders, and since some have
some clearly chosen a technical architecture (SE type) that is most financially viable for
them, conflicts arise between them. These technical architectures only affect so-called
“secure” applications such as payment and transport.

Operators fully support SEs in the SIM card since it enables them to generate revenues
from renting secure space on the SIM card. Service providers are more opposed to this
architecture since they are seeking to minimize costs and have as few intermediaries as
possible. This is the case for Google, which bases its Google Wallet on an SE built into the
mobile device.

Manufacturers of mobile devices are caught in the middle:

  • on the one hand, they want the built-in SE they have inserted in their devices to be
    promoted via applications (and initiatives);
  • on the other hand, they must satisfy the demands of operators who prefer the SIM card
    and are mostly responsible for selling the mobile devices of manufacturers.

The same is true for manufacturers of NFC chips and SIM cards who are looking to
please all of their potential customers, and who must therefore support initiatives based on
the SIM-card, as well as on other types of SE to avoid focusing on a single market segment.

Consultant at IDATE

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