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Hold the phone: retailers eye payments via smartphone

Maria Korolov | March 27, 2012
An emerging technology called Near Field Communication will soon give new meaning to the phrase "tapped out."

In addition, since mobile carriers control the security chips on their phones, third-party vendors will have to pay to access them, raising costs.

On the other hand, a payment made through the NFC chip by tapping against a card reader counts as a "card present" payment, which is less expensive to the merchant than Internet-based "card not present" transactions. Whether the cost savings of cloud-based payments make up for the increased cost of "card not present" transactions will depend on the details of the specific deployments.

Can Asia give us a peek at our future?

At a farmer's market in Dongguan, China, shoppers make payments by tapping their phones, equipped with SIMpass cards, against the point-of-sale terminals of the fish and vegetable vendors. According to Beijing-based Watchdata System, the Singapore-based company behind the SIMpass technology, there are over 20,000 such terminals at the Dongguan markets.

In Hong Kong, an estimated 95% of adult residents use the Octopus Card for all public transport, as well as at most fast-food restaurants, supermarkets, convenience stores, parking meters, parking lots, and service stations, according to the Octopus Holdings, the company that produces the card. Launched in 1997, there are now more than 20 million cards in circulation, with over 11 million daily transactions, totaling around $12 million a day.

Japanese commuters also pay for transportation using NFC-enabled cards and cellphones - based on a proprietary, non-compatible version of NFC - to pay for transport and to shop at many convenience stores, restaurants, retailers and vending machines. According to Natsumi Nakamura, a marketing manager for PFU Systems, a Japanese technology-solutions company, almost 60% of cell phones in Japan are NFC-enabled. The country is currently in the process of switching over to the global NFC standard.

"Asian countries, like Japan, South Korea, China, Taiwan, Singapore and Malaysia, are at the front of the smart card integrated chip technology," says Jafizwaty Ishahak, research director at Frost & Sullivan, a market research firm. "In addition, these countries have also taken the lead in implementing the smart card IC contactless interface, which then leads to the adoption of NFC," says Ishahak.

"Then there is the 'early adopter' mentality in Japan and Korea which has also helped rapid deployment from the user side," says David Snow, an analyst at U.K.-based Juniper Research.

But the Asia deployments are isolated systems -- and the existence of those systems might actually hinder those countries from moving forward quickly.

"We think that the future of NFC-based commerce is actually going to be here in the U.S. initially rather than in the rest of the world," says Stuart Taylor, vice president of systems product management for ViVOtech. ViVOtech is the technology company behind the Google Wallet and nearly every other major player in the NFC ecosystem, including 45 other NFC pilot projects in around 30 countries.

 

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