Money For Nothing – The odyssey of SIM-centric NFC payments
Some time ago I wrote about the relevance that “platform wallets” (e.g. Google Wallet, Windows Phone Wallet, Apple Passbook) would have over the near future in the mobile commerce arena. At that time I did not touch upon payment applications, as I wanted to bring to light that mobile commerce is much more than just payment, but now the turn has come to dive deeper into the payment area.
Following the announcements at the recent MWC and some of the relevant news over the last few weeks, I would like to reflect on how the mobile payment landscape, especially when using a mobile device at the point of sale, is changing and evolving from a mobile network operator point of view.
Nowadays operators’ overall revenues tend to be flat, and with those coming from traditional services such as voice and SMS are declining. In this challenging environment, management has to decide whether or not (and how) to go forward with mobile payment and mobile wallet solutions. It’s a tough call, because the legacy of several years of investments in such areas have generated almost no revenues while innovative solutions from the Over The Top (OTT) space are undermining operators’ relevance.
Over the last ten or so years, GSMA and many of the major MNOs have devoted a great deal of effort to standardization of SIM-centric NFC solutions for mobile payments at the point of sale. However, things have not turned out to be the way GSMA envisioned them. The reason is very simple; Such an ecosystem is complex, it is overcrowded with too many players, each one trying to get a cut on every transaction and hence result in very low if any margins for most involved. No wonder these operator-driven initiatives are struggling to gain market share. ISIS, the US-based initiative of T-Mobile, AT&T and Verizon, has witnessed very slow consumer adoption, and apparently a new company has been assigned to re-design the app to make it more appealing to consumers. Whether that will make the day remains to be seen.
To no big surprise, alternative business models are therefore challenging the SIM-centric NFC model on multiple fronts, essentially by simplifying the ecosystem value chain (e.g. removing the need for secure elements, trusted service managers, etc).
It was thus not earthshaking to hear the announcement at MWC that Bankinter has been trialing an NFC-based EMVco payment solution without the need for a hardware secure element. At the same time, Samsung has announced a partnership with VISA, which aims at preloading VISA NFC payment cards into their new smartphones. Although details, such as the issuing bank, have not yet been revealed, the initiative clearly indicates that its strong position in the consumer segment has allowed – or even encouraged – Samsung to enter into direct competition with operators’ ambitions. And it’s one of the players that have the market power and financial strength to drive and possibly succeed with an end-user payment solution outside the operators’ realm.
Clearly, the mobile payment space is quite broad and mobile wallet (or mobile at the point of sale) is only one part of this multi faceted space, though probably the most hyped. Betting on a single horse is however never a safe bet, and operators should not ignore the importance and relevance of other areas such as direct carrier billing, which after all is the one that works reliably today and is widely used by many people, especially in developing countries.
So, where am I going with all this? Well, I believe operators should make a sober reality check to see what does not work and what may do. They should take a look at innovative NIH solutions and embrace new business models when it comes to mobile payments and mobile wallets instead of focusing on SIM-centric NFC models only. There’s nothing wrong with the latter, but success so far has been very limited, to say the least. Instead, for example, operators could differentiate from competition by embracing 3rd party solutions, or operators could focus on evolving direct operator billing for 3rd party services, including integration with NFC-based solutions to be used for mobile payments at the point of sale. In either case, mobile payments will be big some day, and even though operators may not be the ones making the break or leading the crowd they do indeed sit on a vital position in the ecosystem, and with some openness for new thinking there is indeed a buck or two to make.