NFC makes m-payments sexy again

Earlier this year Etisalat announced the commencement of a trial with a local bank to utilise Near Field Communication (NFC) in order to support an array of mobile payment transactions. The initiative is a pioneering one given the few examples of commercial NFC deployments any where in the world. Comm. goes in search of what are the technology’s drivers, positioning and prospects.

A joint initiative between Etisalat and Emirates National Bank of Dubai to pilot Near Field Communication (NFC) is a move that many of the technology’s supporters and detractors will no doubt be paying attention to in order to ascertain whether a solution has finally been developed to fully leverage the mobile device’s natural affinity to banking and payment settlement services.

The pilot taking place in the UAE will allow the bank’s subscribers to  use their mobile phones as a  means  to  pay  for  everyday purchases at retail outlets or for transportation  services. These payments will  be charged to their bank cards and would typically be low value payments.

Emirates National Bank of Dubai is amongst a small group of banks around the world trialling NFC, including Maybank, Malaysia; Credit Mutuelles CIC Group, France; OCBC Bank, Singapore; Citibank, Korea and Bank Of America, USA.

Put simply, NFC is a contactless technology that enables data to be transmitted wirelessly over very short distances, with the advantage of a PIN to make transactions more secure. According to a report published in 2007 from analyst firm Frost & Sullivan, one third of all mobile phones will be NFC equipped in a span of three to five years.

In June, around the same time Etisalat announced its NFC pilot, the GSM Association (GSMA) revealed its intention to release a preliminary set of minimum requirements for handsets containing NFC chipsets.

Developed by mobile operators supporting the GSMA’s Pay-Buy-Mobile initiative, the requirements are aimed at helping handset manufacturers develop NFC-enabled phones that are compatible with operators’ planned mobile NFC services and quickly realise economies of scale. As of the end of June this year, forty-four mobile operators from across the world supported the Pay-Buy-Mobile initiative.

The GSMA expects its requirements to build upon the standardisation work completed by the European Telecommunications Standards Institute (ETSI), which selected the Single Wire Protocol to provide the interface between the Universal Integrated Circuit Card (also referred to as the SIM card), recommended by the GSMA as the secure element for NFC applications, and the embedded NFC chipset within the handset.

Alex Sinclair, chief technology officer of the GSMA predicted mobile operators would begin placing orders for these handsets this year as they prepare to rollout mobile NFC services, a prediction that has proven accurate.

Other operators trialling UICC-based NFC include Softbank in Japan, with six other operator trialling the technology under the GSMA’s Pay-Buy-Mobile initiative. These include AT&T, FarEasTone, KTF, Orange, SFR and Turkcell, with further operators set to begin trials in the near future.

The world’s leading handset manufacturer has supported the development of NFC enabled mobile devices for some time, and last January announced the world‘s first fully integrated, commercial NFC handset, the Nokia 6131 NFC, at the 40th annual Consumer Electronics Show in Las Vegas.

Nokia highlights the advantage of NFC by describing how unlike a simple card or keytag, which only allows for one–way communication, an NFC–enabled mobile phone allows users to realise the benefits of a fully interactive experience. For example, touching an NFC–enabled advertising poster or informational kiosk can automatically link the user to interactive Internet based information, open an audio file, or download new content directly to the handset.

Additionally, an extra layer of security is enabled when making contactless payments since the handset can be set to allow payment information only when the user expressly authorises the transaction via a password, unlike a card or tag, which can be used by whoever has it in their possession.

UK research firm Juniper Research recently published a white paper entitled The Mobile Wallet, an extract from a research report entitled Mobile Payment Markets, Contactless NFC 2008 -2013, in which it identified that user demand for convenient and intelligent ways in which to make payments for goods and services using a mobile phone is creating exciting opportunities for those organisations that are part of the mobile payment ecosystem.

The ecosystem includes mobile operators, banks and credit card companies, retail merchants and transport operators, handset manufacturers (and their suppliers), and a whole range of new software and system vendors and service providers entrants eager to put their innovative mobile payment solutions into the hands of mobile phone users.

The definition of a mobile payment is often open to interpretation and can differ from source to source. Juniper Research has a simple definition of a mobile payment as “payment for goods or services with a mobile device such as a phone, PDA, or other such device.”

Mobile payment schemes vary from the remote methods, such as premium rate SMS schemes for paying for digital content dominating in Europe, to the physical, whereby, in regions such as the Far East and China, users take their mobile phone to the physical storefront to pay for goods via contactless credit/debit card schemes.

Juniper Research’s white paper focuses on point of sale mobile payments which it defines as when a mobile phone is used at a physical location to make a payment.

Point of sale contactless payment is defined as a “wave and pay” transaction where phones equipped with NFC technology are waved in front of a contactless reader in a store or at a purchase point. Purchases usually replace cash and are often for lower value items such as refreshments and newspapers but also public transport tickets which are higher value.

Point of sale m-payments have so far included trials with “point and buy” applications using infrared to communicate with the point of sale, “text and PIN” applications using SMS text message-based message communication between the consumer, the payment scheme operator and the retailer or service provider, Bluetooth applications via a downloadable client, and “wave and pay” applications based on contactless smartcard based technology.

Juniper Research highlights that all point of sale m-payment schemes are heavily dependent on acceptance by merchants and retailers that are looking for payment applications that offer advantages over the existing payment schemes that include credit/debit cards and cash. To be a success a point of sale mobile payment must have most, if not all, of these characteristics:

• Reliability
• Security
• Faster than either plastic or cash
• Ease of use for people
• Equal to, or cheaper, than existing payment schemes
• Interoperable with merchant payment/ settlement systems
• In accordance with sector and national regulation

According to Juniper, the infrared “point and buy” applications have not been successful mainly as a result of the technology not being suited for use at the physical storefront; schemes in countries like South Korea have been largely abandoned. As with a number of m-payment applications and services, there is a degree of overlap between m-payment categories with some SMS based m-payment applications being used for both remote and point of sale based payments.

Establishment of NFC In June 2006, the NFC Forum announced the NFC technology architecture and the first five Forum-approved specifications. NFC provides intuitive, simple, and safe communication between electronic devices. Communication occurs when two NFC-compatible devices are brought within four centimetres of one another.

The underlying layers of NFC technology follow universally implemented standards. NFC operates at 13.56 MHz and transfers data at up to 424 Kbps. One device is an NFC reader/writer and the other is a passive NFC tag which is embedded in an object such as a smart poster. The standard for contactless smart card communications is ISO 14443, dated 2001. It defines a contactless, or proximity, card that uses RFID (Radio Frequency Identification) to communicate with a reader, through the use of a magnetic loop antenna operating at 13.56 MHz.

In July 2007, the NFC Forum announced the specification of the initial tag formats to cater for the broadest possible range of applications and device capabilities:

• Type 1 is based on ISO 14443 A and is currently available exclusively from Innovision Research & Technology (Topaz). It has a 96-byte memory capacity, which makes it a very cost-efficient tag for a wide range of NFC applications
• Type 2 is also based on ISO 14443 A and is currently exclusively available from Philips (MIFARE UltraLight). It has half the memory capacity of Type 1 tags
• Type 3 is based on FeliCa and is currently exclusively available from Sony. It has a larger memory (currently 2Kb) and operates at a higher data rate (212Kbps), which means it is suitable for more complex applications
• Type 4 is fully compatible with ISO 14443A/B and is available from a number of manufacturers, including Philips (typical product example is MIFARE DESFire). It offers large memory-addressing capability with read speeds of between 106Kbps and 424Kbps – making it suitable for multiple applications.

NFC devices are unique in that they can change their mode of operation to be in reader/writer mode, peer-to-peer mode, or card emulation mode.

• In reader/writer mode, the NFC device is capable of reading NFC Forum mandated tag types, such as in the scenario of reading an NFC Smartposter tag. The reader/writer mode is on the RF interface compliant to the ISO 14443 and FeliCa schemes.
• In peer-to-peer mode, two NFC devices can exchange data. For example, you can share Bluetooth or Wi-Fi link set up parameters, and exchange data such as virtual business cards or digital photos. Peer-to-peer mode is standardised on the ISO/IEC 18092 standard.
• In card emulation mode, the NFC device itself acts as an NFC tag, appearing to an external reader much the same as a traditional contactless smart card. This enables contactless payments and m-ticketing, for example.

The most widely installed contactless smartcard technology in the world, with over 500 million smart card chips and five million readers sold, is MIFARE. About 75 per cent of all contactless smart card schemes worldwide use NXP’s MIFARE technology for electronic ticketing in public transport, including London, Seattle, Sao Paolo and more than 130 cities in China.

One example of a MIFARE implementation is the Oyster card used in London.

Juniper forecasts that NFC will achieve traction initially in developed countries and regions, with Japan already leading the way with FeliCa-enabled phones. North America, Western Europe and countries such as Korea, Singapore and Australia are likely to see service take-up.

After a predicted slow start in 2008/09, when a lack of supporting handsets and infrastructure and viable business model restricts growth, global NFC mobile phone payment transaction values will exceed US$75 billion by 2013. The top three regions (Far East & China, North America and Western Europe) will represent nearly 90 per cent of this market, Juniper predicts.