No Contact: Could smart phones spur contactless payment card adoption?

RFID-based contactless payment cards are fast, secure and largely unused. Smart phones may be called in to help.

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In the past, mobile operators and payment associations wrestled over who controlled the real estate where the application resided, says Ken Warren, smart card business manager at Cryptography Research Inc., a developer of mobile security intellectual property in San Francisco. That has changed. The trend is toward integrating the applications into the phone but allowing banks to manage that piece. “A lot of telecom operators realize that they don’t want to be banks and are happy to let the banks keep control of that side of things,” Warren says.

> But another roadblock to mobile payments is the fact that the major mobile operators in the U.S. aren’t fully on board yet. While pilots with phones from Motorola Inc. and Nokia have taken place, the carriers don’t currently offer NFC phones in the U.S. “Products aren’t coming through the channel,” says Peter Wakim, Nokia’s director of corporate venturing for the Americas.

> The phone maker will soon offer its model 6131 NFC flip phone directly to consumers online. But until the mobile operators embrace the technology, mass-market acceptance won’t come, he says.

> Other stakeholders are more bullish. “By 2010, 23% of all middle- and high-end mobile handsets will have the NFC feature on board,” says Manuel Albers, director of regional marketing for the Americas at NXP Semiconductors, an Eindhoven, Netherlands-based maker of NFC chips for cell phones.

> In a March survey of 800 Visa credit card customers, 58% of the respondents said they were interested in having a cellular phone with mobile payment capabilities, and 90% said they would be willing to pay more for a phone with those capabilities.

Art Kranzley, executive vice president and group executive of the advanced payments customer group at MasterCard, predicts that “in six months, every network operator will sell phones with near-field capability.”

> Both contactless technology and the underlying business processes to support it are still maturing. The Philips Arena trial involved four partners, and many details had to be worked out. “We want everything to tie in on the back end. There was a lot of testing of those components,” Lee says. Having a limited number of partners to work with also meant less flexibility. Going forward, Lee would like to offer prepaid cards and expand the trial to more users, once Atlanta Spirit’s partners are ready to support them.

> A bigger issue for Lee is figuring out how to integrate the technology into current business processes. Functionally, using contactless technology doesn’t change the basic transaction. But, for example, “how do you leave a tip when you pay by [contactless] phone?” he asks. Or if the customer orders food from his stadium seat, how do you arrange for pickup at the concession window? “The one thing we can’t allow,” he says, “is for the technology to get ahead of us.” 

Copyright © 2007 IDG Communications, Inc.

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