Most NFC mobile wallet talk is 'half-baked,' analyst says

Retailers have to accept NFC for mobile payment services to move forward

Sprint's entry into the mobile wallet business could come as early as this year, according to a Sprint executive, but several analysts urged U.S. consumers not to believe much of the mounting mobile payment hype from wireless carriers and other companies.

Kevin McGinnis, vice president of product platforms at Sprint, this week told the Bloomberg news service that the wireless carrier plans to start a mobile payment service based on contactless Near-Field Communication (NFC) technology in 2011.

If Sprint launched such a service this year, it would hit the mobile payment market earlier than the Isis consortium, which announced on Tuesday that it's planning a pilot of a smartphone-based payment system in Salt Lake City next year. Isis is made up of Sprint's major wireless rivals, Verizon Wireless, AT&T and T-Mobile USA.

A Sprint spokeswoman confirmed Wednesday that Sprint "expects to enable NFC technology" and is in talks with other companies that Sprint would not name. Sprint would have mobile payments billed to a user's credit card, not to Sprint; the carrier would earn money by selling targeted ads and coupons that would appear on users' phones, the spokeswoman added.

She clarified what McGinnis told Bloomberg by noting that Sprint might not have the NFC capability fully in place by the end of 2011. "Rather than rolling out [an NFC] service, we look at this as enabling a capability," said the spokeswoman, Jennifer Walsh Keifer. "And [McGinnis] mentioned that we could do this by the end of 2011, which of course means we can do it, but not necessarily that we will do it."

Several trials of mobile payment systems that use contactless NFC technology on smartphones and mobile devices are under way in the U.S. Of those, the one undertaken by Visa may be the furthest along. Visa officials recently said that they're prepared to move to a rollout soon, based on the results of trials in New York, Washington and San Francisco. Visa tested a system that works with multiple smartphone operating systems, and it has partnered with four major banks on its mobile payments initiative.

But the days when it will be common to see people waving smartphones near NFC terminals to quickly pay subway fares or make retail purchases are still a long way off in the U.S., analysts said, and Sprint is unlikely to change that. South Korea, Japan and some European countries are far ahead of the U.S. when it comes to adoption of mobile payment systems and deployments of NFC-ready phones.

"Sprint has been kicking the tires on mobile payments and wallet initiatives for at least three years," said Bob Egan, an analyst at The Sepharim Group, putting the recent report of a possible 2011 rollout in perspective.

Others said it seemed like McGinnis was trying to prop up Sprint's image without offering specifics.

"I take McGinnis' comments as kind of showing that Sprint still exists, and they are not completely out of the loop with NFC," said Nick Holland, an analyst at Yankee Group. "They are definitely a kind of third wheel, since their concept is lacking in detail."

Holland said mainstream press reports about NFC projects in the U.S. often quote anonymous sources, further casting doubt on how quickly the various players will roll out the technology. Sometimes executives will provide anonymous comments in the press to stimulate interest in their companies' stock or products, other analysts noted.

"News reports on Apple and Google and others in NFC are often a lot of conjecture," Holland said. "These companies are just making land grabs" as they jockey to set up mobile payment systems that they hope will one day be widely used in the U.S.

The biggest drawback with mobile payments in the U.S. is not that it's difficult to add NFC chips to smartphones, but that retailers would have to agree to install NFC reader terminals. Also, banks and credit card companies would have to agree on sharing fees applied to any purchases.

Holland and others acknowledged that there are 150,000 NFC retail terminals in the U.S., but they noted that those terminals are several years old and probably would have to be replaced with models capable of collecting information on customers' buying habits.

"The older terminals are not versatile enough for coupon or loyalty programs," Holland said, so retailers might have to pay thousands of dollars apiece to install newer intelligent terminals -- unless a carrier or another party agreed to pay for them.

"The fact that mobile operators in the U.S. are making bold announcements of bringing out NFC payments is all well and good, but retailer acceptance is what matters," Holland added. "The announcements by Sprint and Isis seem very half-baked at this point."

Egan agreed. "If Sprint is going to move the needle on NFC, it needs to partner with a large issuing bank and get some major retailers on the hook," he said. "Otherwise, it's just another science experiment."

Analysts have also noted that, in order to succeed, Isis needs payment networks such as Visa and MasterCard to join its venture.

If several mobile payment providers end up offering their own custom payment systems for use with NFC-capable smartphones, Holland said, terminals might have to be programmed to recognize multiple systems -- or a single retail location might have to install multiple terminals.

"We're generally lacking a lot of detail in the talk of NFC, and it's not enough to say that putting NFC handsets in the market will make mobile payments happen," Holland said.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen, or subscribe to Matt's RSS feed. His e-mail address is mhamblen@computerworld.com.

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