A year ago the Nilson Report (10/05) forecast 7 million Visa and MasterCard contactless chip cards in the U.S. market at the end of 2005 and somewhere between 15 and 20 million by the end of 2006. At that time, it was already clear that there would be a general migration towards contactless in the card sector. I think that, one year on, it’s clear that the contactless payment card is a stepping stone, not the destination. The opportunity for the mobile phone to become a contactless chip card is clearly there and attractive. In strategic terms, however, it may not be that disruptive. Assuming that operators and banks can co-operate to a reasonable degree, the idea that a mobile consumers may be able to pay at both physical and virtual POS using the same instrument (ie, a bank-supplied payment application in their phone) seems attractive and I don’t doubt that it will be accepted by all parties. But it’s still a traditional card payment at the heart of it.
A much more interesting, and much more strategically disruptive, integration between the emerging technologies will be the use of mobile handsets as POS terminals (see graphic) because NFC phones can read contactless cards (and other NFC phones of course). As we have been saying for a long time, it is the ability of the mobile handsets to accept payments that is the critical factor in trying to determine the long-term direction of the industry. Whether it is mobile phones in Africa being used to accept SMS-based payments (as in the case study of the Vodafone M-PESA service) or mobile phones in Europe being used to accept contactless debit card payments, this view of the future implies a much greater POS density. and it’s POS density that’s been the barrier to cashlessness in the past. So, in this analysis, the arrival of the NFC is the crucial piece of the jigsaw: when you can use your phone to pay Burger King, that’s great, but when you can use your phone to pay your brother, then cash (and I know I sound like a broken record on this) has a realistic competitor.