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NFC mobile payments – fixing the big issues

Mobile News
May 20, 2013

Uptake of NFC mobile payments in the UK is being hampered by deadlock between retailers, operators and finance firms over rolling out the necessary technology and processing payments, as Chris Donkin reports

The widespread introduction of NFC-based mobile payments could be delayed for years as retailers, operators and finance firms continue to disagree on how best to implement the system and the logistics of making payments.

This is according to a panel of experts representing mobile operators, banks, payment service providers and retailers who spoke to Mobile News at a GSMA conference on the technology held in Milan.

Current disagreements revolve around who is responsible for the security element and where it should be positioned – such as in the cloud, on the SIM or elsewhere on the handset – and retailers’ concerns about the increase in transaction fees they may see from introducing contactless terminals.

Trials of NFC payments running around the world mostly focus on smaller transactions, and retail sector representatives say these payments would be more likely to replace cash rather than card payments, introducing a transaction fee they don’t already pay. On top of this, NFC-based payments are generally more expensive to process than card payments, so retailers argue this will hit their margins.

Eurocommerce – the body which represents the interests of retailers in the EU – argues that the commercial model needs to be weighted so transactions become cheaper and cost businesses the same amount to process as cards before the mobile operators and finance providers can persuade them to change point-of-sale (POS) terminals and actively promote mobile payments.

Retailers are not the only obstacle according to the panel, with disagreements between finance providers and the mobile operators over where the secure chip should be. With Google’s wallet launching in the US using cloud-based security, the GSMA argues that unless an agreement is reached soon, the operators and banks may be bypassed altogether by an ‘over-the-top player’.

The GSMA – representing the mobile operators – is promoting a SIM-based security solution containing the payment data and information about whatever else is in the mobile wallet, which can also contain loyalty cards, travel cards and coupons. The argument against the SIM-based solution is that companies would effectively have to rent space on the SIM from the operator, who would have overall control.

Other options include an SD card which could have the secure element inside it or a chip embedded into the main body of the device which would connect to POS terminals, however the GSMA maintains the SIM remains the obvious choice.

The association also believes that although retailers may incur increased transaction fees, they will receive marketing information through use of the technology and can use it to promote special offers when they opt-in to receive them. They will also attempt to persuade high street retailers about the value of being able to send vouchers to customers in store.

Despite the perceived value-add of NFC, Eurocommerce legal advisor Ruth Milligan claims the main concern of retailers is all about the cost of implementing the POS terminals and transaction fees.

“The bottom line for merchants is the business model,” she said. “I welcome and am fascinated by all the information

I have about vouchers and marketing but in the end most retailers want to know ‘Will the interchange fee be the same for card payments?’ That is something that has been discussed but not fixed.

“We’ve been going on and on about it for 10 years already and it could carry on for years longer unless it’s addressed.

Before you get retail really into NFC and mobile payments, you need to address the interchange fee issue – it’s the main reason why retailers are quite reluctant and weary.

“Retailers don’t see what the marketing benefits are going to be and how they weigh up against how much it will cost to implement. If it doesn’t give a cheaper transaction in the end, the business case for a retailer is hard to see.”

The GSMA is currently holding talks with retailers around the globe to address this issue and promote the benefits of the value-added services NFC can offer.

Former head of NFC at the GSMA Reed Peterson claims from the retailers’ perspective one of the biggest strengths of the technology is that it allows retailers to monitor what their customers are doing.

“If you’re looking at just NFC replacing the card, you’re missing the whole point of NFC,” he argues. “It’s about value-add. One thing NFC does do is to allow you to harvest the data and know more about your customers. It’s a completely different ecosystem for the retailer.

“For NFC to succeed it needs to be done together – there are so many different people needed for it to come together. It is going to require all of the players to work there and this collaboration is going to take time.”

Full article in Mobile News issue 538 (May 6, 2013).

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