Contactless Payment Comes to Cell Phones

Flash your handset and buy. An industry group wants to bring that facility to the world. But is it secure? And who gets what share of the profits?

by Kate Norton

Thirsty? Short of cash? As long as you've got your mobile phone with you in Japan, that's not a problem: simply by pressing your handset onto a sensor on a vending machine, you can buy a can of Coke.

Such "contactless" forms of mobile commerce have been a hit with consumers in Japan and a handful of other Asian countries for several years. But now an industry group of handset makers, mobile operators, and service providers have been working feverishly to develop a universal standard that will give it widespread appeal.

It's easy to see why so many players are keen to get in on the act. Consultancy Strategy Analytics, in Milton Keynes, England, forecasts that mobile-phone-based contactless payments will account for more than $36 billion in consumer spending by 2011, up from $900 million now. The bulk of that should be in Asia.

Security Issues

But while the concept of a mobile "wallet" is intriguing, experts caution that industry players will need to allay consumer concerns about security to ensure wide uptake. What's more, they say, industry players could be shooting themselves in the foot and hampering momentum unless they resolve payment issues that currently discourage mobile operators to adopt the service.

Those living in large cities such as New York and London are already familiar with the technology, so-called near-field communication. It's the same short-wave wireless communication commonly used in contactless subway tickets.

Migrating the technology onto your mobile is the next logical step says the industry group, known as the NFC Forum. A mobile NFC device can act in the same way as a contactless smart card, which communicates with a reader over just a few centimeters. This leaves little margin for error and minimizes security risk.

Wider Applications

Forum members including former Philips chip unit NXP Semiconductors, handset maker Nokia (NOK), and Visa International and MasterCard (MA) are at the vanguard in promoting the effort and have been conducting trials for more than two years. Most schemes entail using phones such as Nokia's 3220 in the same way a person would use a debit card to pay for small items such as bus or train tickets, or retail goods at sporting events.

While most of the focus now is on using it as a cash substitute, possible applications are far wider. Norway's Telenor (TELN) is piloting NFC in a business setting to help departments check goods, for example, and find other ways to manage assets more efficiently. The NFC forum has recently come out with a standardized format for a so-called "smart poster" which will enable a handset user to obtain data such as a URL or a ringtone from a poster or other printed material.

And downloading film promos and movie times is not far off, says Christophe Duverne, senior vice-president and general manager for identification at NXP Semiconductors, and chairman of NFC Forum.

Success in Japan

If Japan is anything to go by, the contactless pay system should be a roaring success with European consumers when it's rolled out commercially. Since NTT DoCoMo (DCM) debuted mobile phones using Sony's (SNE) FeliCa contactless system three years ago, it has sold more than 13.8 million handsets, for a penetration rate of 27%, according to Strategy Analytics.

Applications are increasingly sophisticated and two-way. The readers can be programmed to zip coupons, ads, or other promo information to the phone while the payment is being made.

That's what the NFC Forum envisions on a global basis.