[Dave Birch] The always excellent Payments News site points me to a report from ABI Research. They have revised their NFC mobile phone forecast downwards (to only 450 million units shipped per annum in five years time — about 30% of total handset shipments) because of “continuing challenges surrounding the contactless payments business model for mobile operators.”

What are these “challenges”? I think they are alluding to a tussle between service providers (eg, banks) and mobile operators over NFC. The mobile operators want everything to go through the SIM, generally speaking, including NFC applications. This frames NFC applications in the kind of portal strategy that was so successful for the operators when they introduced WAP. Naturally, the service providers want NFC applications to be directly addressable without going through the SIM, so that anyone can load any NFC application into their phone.

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I have to say that my sympathies are with the service providers here. We’ve been having fun building and loading NFC applications for a variety of clients using — for instance — the Nokia NFC phone (see diagram below) and it would be crazy to have get permission from (or, indeed, pay) an operator to load a new application: it would kill creativity.

Basic Handset Architecture

In fact, I’m sure it would it be bad (even for the operators) to have NFC locked down by the operators. For one thing, contactless payments are only one potential use of NFC phones and the operators should not let this one application (and the ideaof charging banks a transaction fee) to dominate their roadmap. There is a much bigger picture, which is around the integration of mobile phones into their local environments. Look at smart posters, as an obvious example: we’ve been playing with these for a while now. Incidentally, one of the demonstrations that we will be presenting at the Intelligent Transport Systems World Congress in London next month allows someone to find out a bus timetable by holding their phone up to a poster at a bus stop and then subsequently buy a ticket by waving their phone over a “purchase ticket” label (we’ll also be demonstrating phone-to-phone transfer of tickets, which is pretty interesting). Anyway, the point is that no-one accesses these kinds of services by typing URLs into WAP screens: no smart posters means no servicediscovery and therefore no data usage.

I wonder how this is any different to cameras in phones? After all, the operators were presumably in favour of adding cameras to phones because they thought it would generate extra revenues because of picture messaging. In fact, as far as I know, picture messaging has been pretty slow to take off. The average UK mobile phone user must send 500 text messages for every picture message. Yet other new services did spring up — mobile blogging for example, which is implemented in a very user-friendly way on my new K800i — and now it’s hard to buy a phone without a camera in it. If the operators had constrained the camera use so that you had to pay the operator every time you took a picture, or you could only take pictures of certain things or in certain countries, then who would want a camera phone?

There was a discussion about this on the Oxford Mobile Forum recently. I was of the opinion that we should help to operators to develop “internet” business thinking around NFC: open it up and let a thousand flowers bloom, all of which would use SMS, GPRS, 3G or even voice communications, all of which generate more revenue for operators. Otherwise why use a phone and NFC?

1 comment

  1. At the risk of being accused of being a heretic, I would argue that there are some good reasons for having the operator (and hence the SIM) having some level of role in this coming world of NFC.
    (Incidentally, the SIM’s role could simply be key management. i.e. I am not arguing that the applications themselves have to be on the SIM.)
    So what are these good reasons?
    Firstly, the operators are better-placed than most potential participants to make this NFC world easy for and feel OK to the consumer, hence accelerating uptake. For example:
    – operator-driven pre-loading of applications; and subsequent porting of existing applications when one changes handset
    – operator communications explaining how it works (“when you see the xyz logo at a shop you can just waive your phone and……”)
    – operator customer care and/or retail channels being willing / able to help with problems
    Secondly, if NFC is to take off there are real costs to the operator. Notably hardware – there is an extra cost for equipping a phone with NFC capability. In most European markets it is the operators who buy the phones, reselling them at subsidised rates to consumers. Operators are unlikely to be all that enthusiastic to incur such costs unless there is a financial return to them. I believe that this RoI will be dominated by churn reduction. (Certainly this is the case for DoCoMo with their FeliCa offering in Japan).
    The logical consequence of all this is that the SIM has to be involved somehow, since (in GSM) it is the embodyment of the operator. The handset might be Nokia, Motorola or Samsung but the SIM is the operator’s.
    More on this at next Thursday evening’s CISCO / CSFI (Centre for the Study of Financial Innovation) mobile roundtable.

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