Smart Card Talk : June 2011 : Executive Director's Letter
Executive Director’s Letter
Dear members and friends of the Alliance,
The competing strategies for the power position in the world of NFC and the determined efforts to achieve an early advantage in the lucrative mobile payments market have started to come into focus. Last month’s flashy New York announcement by Google about the Google Wallet pilot planned for the fall in New York and San Francisco included a “dream team” of notable NFC ecosystem partners along with more than a dozen notable retailers including Macy’s, Bloomingdales, American Eagle Outfitters, Subway, Foot Locker, and Walgreens.
What makes Google’s announcement a very bold statement for the rest of the industry is that they have managed to align under one marketing banner–Google Wallet–a payment brand (MasterCard), a bank (Citi), and a [trust] broker (First Data), plus the lone mobile operator (Sprint) not currently in the other competing mobile operator-led joint venture, Isis. Previously, Google’s reach into the still-evolving NFC ecosystem had been more closely associated with mobile device hardware and software as the provider of the Android operating system which runs on a large variety of mobile devices. Android OS devices support NFC through the embedded secure element built into the handset. Adding Google’s dominant merchant- and consumer-facing Internet services business can now enable advertising and retail promotions. Google’s relationship with major retailers will leverage the NFC features on Android-powered phones and enable contactless payments-enabled retailers to drive traffic for mobile promotions. Combining this with mobile payments create an exciting new experience for technology-savvy consumers. The Google-powered hardware connection to the Google Wallet creates a barrier for users of iPhones and Blackberry mobile devices, and possibly future Microsoft-powered Nokia devices, unless Google opens up its architecture to non-Android phones in the future.
Google is attempting to plant its flag next to, or on top of Isis, the U.S. mobile network operator (MNO)-led joint venture involving AT&T, T-Mobile, Verizon Wireless, and Discover. Isis’ use of the NFC secure element is different from Google’s approach, illustrating how mobile operators plan to control how NFC will be commercialized. Isis’ approach is based on NFC and the secure element being contained in a removable mobile UICC (USIM card) to be issued and managed by the MNO, rather than being embedded in the handset hardware (as with the Android approach from Google). (By the way, Sprint does not support UICC handsets, which explains how they fit well with Google, and not Isis.) The UICC is based on the industry-standard single-wire protocol (SWP) and can be used by a wide range of handsets. With access to the handset’s secure element through the UICC , mobile operators are not as constrained by the availability of devices manufactured with embedded NFC. More importantly, they become the gatekeeper to the security component in the handset for the payment card issuers and NFC application providers who want to share a place in the Isis wallet. Once smart phones supporting the USIM become available, mobile operators can offer phones that have a range of features and prices for consumers to choose from, with a reasonable expectation that the Isis wallet will be interoperable across these devices.
The third option for adding NFC functionality to mobile devices, and the one currently favored by the financial institutions, incorporates the NFC chip and the security chip in a removable microSD card, which can be used in existing smart phones that have a microSD card slot. Issuers such as Bank of America, Wells Fargo, and U.S. Bank have pilots running today based on this approach. Issuers can avoid mobile operator involvement since the hardware and software that comes with the NFC microSD does not interfere with the mobile operator’s USIM or the handset’s embedded secure element, and can be used in older mobile handsets. The financial institution can issue the NFC microSD card just like they issue financial cards today, and provision them with the payment or banking application in a secure facility rather than program them into the phone. The challenges with this approach are numerous, including the cost of the microSD card, the readability of the NFC chip, and variations in the location and accessibility of the microSD slot in the phone. This bank-centric model favors the existing business model that financial institutions and merchants follow. That traditional financial model, however, is under severe competitive pressure from mobile operator-led business models and the Internet services or alternate payments channel-oriented solutions looking to plant their flags in the high ground of the competitive landscape.
What does this all mean for NFC market adoption here in the U.S. and around the world? Well, we just discussed three different approaches to NFC before the first mobile payment application has come to the market. We still haven’t heard from PayPal (who filed a lawsuit against Google for theft of intellectual property related to Google Wallet), or Apple. (Will the iPhone 5 due out later this year have NFC? Will Apple support yet another NFC mobile payments scheme under iTunes? ) It is clear that NFC has energized an entirely new group of stakeholders–some as cooperating partners, some as competitors. This new age of “coopetition” will keep the industry on an uncomfortable edge until we get some of these technology and business approaches worked out.
In the meantime, you can depend on the Smart Card Alliance to keep you informed about the NFC marketplace. We recently announced that we have created a new NFC-focused conference that will be launched in Spring 2012 (date and location to be announced shortly). This event will replace the Smart Card Alliance Annual Conference, previously held during this time of the year. We are partnering with the NFC Forum, the NFC standards organization, on this event to help attract the leading NFC technology experts and implementers of NFC payments and non-payments applications from North America and around the world. You will hear more about this exciting event in the next few months.
Enjoy your summer and your vacations with family and friends in July and August.