Deutsche Telekom AG, France Telecom SA and other mobile operators, who lost the battle for online applications stores to Apple Inc. and Google Inc., say they have a fighting chance of winning the corner convenience store.
The operators, along with Google and credit card providers including Visa Inc., are scrambling to offer so-called near- field communication payment systems, which will let people buy everything from milk and butter to clothes with a swipe of their smartphone. NFC may be the last chance for operators to avoid being simple conduits of other companies’ electronic commerce.
“Google’s massive, but Google does not have a billing relationship with 99 percent of its customers,” Deutsche Telekom Chief Technology and Innovation Officer Ed Kozel said in an interview last week. “That’s our opportunity.”
The stakes for losing out on this business development are huge, with NFC payments -- which could potentially replace many cash registers and credit cards -- likely to account for a third of the $1.13 trillion global market in mobile transactions by 2014, according to IE Market Research.
Operators, who “were not as good as the Internet players” for online apps, have an opportunity to get back in the game, said Philippe Vallee, an executive vice president at SIM-card maker Gemalto SA. With NFC, “they can become the applications portal for the secure wallet.”
Deutsche Telekom may buy a payment-processing company for its NFC project or partner with a financial institution, Kozel said. France Telecom, along with other French mobile operators, in May began an NFC experiment in the southern city of Nice. Chief Executive Officer Stephane Richard said in December the Paris-based company is offering new SIM cards for contactless mobile services and expects to have 500,000 clients this year.
For Google, whose Android operating system is activated by about 300,000 new users a day, mobile payments are a “mega- scale” opportunity, CEO Eric Schmidt said at the Mobile World Congress in Barcelona on Feb. 15.
Google, which got 96 percent of its $29.3 billion in sales last year from advertising, is seeking other sources of revenue. The search-engine owner’s flagship Android smartphone, the Samsung Electronics Co Ltd.-made Nexus S, is one of the first commercially available devices with NFC technology installed.
Apple recently hired Benjamin Vigier, an NFC expert, from mobile-payments startup mFoundry, sparking speculation the iPhone maker also has NFC plans. Apple already has an extensive billing system through its iTunes entertainment and apps portal. Still, Apple’s preference for proprietary systems may be a hurdle, said Deutsche Telekom’s Kozel.
“Do you think any company could be successful with a vendor-specific NFC solution -- Apple terminals, Apple everything?” he asked. “Do you think they could succeed in the marketplace? That would be difficult.”
On top of transaction fees, handlers of mobile transactions will aim to earn revenue from targeted advertising and offers using discount services like those provided by Groupon Inc. Credit card, phone, and software companies are also exploring how to offer easy payments between individuals, or practical services like dividing restaurant bills between mobile devices.
Still, taking full advantage of the growth of NFC payments may require a daunting series of investments for any one type of company. A commercially viable NFC system will require the physical infrastructure of an entirely new way of paying for goods -- point-of-sale terminals and NFC equipment in handsets - - along with software, security, and processing platforms.
The scale of those investments makes it unlikely phone companies can go it alone, said Bill Gajda, the head of mobile innovation for San Francisco-based Visa.
“I’d be interested to see if any operator goes as far as trying to process payments,” he said. “That’s a big job. The best route forward to operators is to work with banks and payment companies. At the time of transaction, do you really want to do dispute resolution, risk, fraud? You don’t. Let the payment companies do what they do.”
Late last year, U.S. carriers AT&T Inc., Verizon Wireless, and Deutsche Telekom’s T-Mobile unit began efforts to build a joint national payments network, ISIS. The system will be made available to all banks and merchants with help from Discover Financial Services and Barclays Plc -- posing a possible threat to parallel efforts by Visa and Mastercard Inc.
The widening availability of NFC-capable handsets is pushing companies looking for a piece of the market to move more quickly. In addition to the Nexus S, “many if not most” new Research in Motion Inc. BlackBerry devices will be NFC-capable this year, and Apple’s next iPhone model may include the technology.
As a critical mass of users builds, operators are pointing to their experience with secure billing -- and existing access to customers’ bank details -- as an advantage in the NFC race.
To be sure, a widespread move to universal mobile payment is far from certain. A “long tail” of merchants may go years before installing payment terminals, even if major retailers move to do so in the next two to three years, Visa’s Gajda said. NFC’s growth may also be limited by the spread of smartphones capable of handling the technology.
Some similar payment systems have had only slow uptake. Contactless credit card payments, using existing technologies such as MasterCard’s PayPass and Visa’s payWave, are “still pretty niche in terms of usage,” said Pete Cunningham, an analyst at research firm Canalys in Reading, U.K.
While contactless card payments are slowly becoming more popular, operators shouldn’t expect a sudden revenue boom from payments, he added.
“It’s not going to be a floodgate.”
To contact the editor responsible for this story: Vidya Root in Paris at email@example.com;