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Uneven Development of NFC Technology Infrastructure

Key Facts

  • Problems arise in development of NFC technology infrastructure

  • Option of paying via NFC-enabled smartphone at Olympic Games in London is postponed

  • Additional pilot projects in various areas besides mobile payment

  • PayPal builds on traditional ecosystem and targets medium-sized companie

 

REPORT

Near Field Communication (NFC) is a promising technology. Its continued development and the tapping of new areas for applying it beyond contactless payment is currently being hampered more by infrastructural than technological problems. This is demonstrated by the fact that, NFC will not be introduced as a payment method for public transport in London during the summer Olympic Games, contrary to previous plans. Instead, different firms are working together on other pilot projects. Other providers such as PayPal, who are building on the traditional ecosystem and thereby accessing additional customer bases, are profiting from NFC’s halting development.

Transport for London, the umbrella organization for transportation providers in London, has postponed the introduction of NFC as a means of contactless payment. Instead of being available at the summer Olympic Games in July 2012, as previously announced, the technology will not be ready until 2013. The organization has pointed to the complexity of the infrastructure as the reason for this delay. Different applications in various systems – EMV and Oyster cards as well as ITSO – must be integrated in order to provide a comprehensive system for different customer groups. However, Transport for London is still planning to introduce payment via NFC and NFC-enabled smartphones for London public transport – but not until 2013.

In terms of operational production, NFC is still in the phase of infrastructural development. By contrast, several companies have announced pilot projects whereby NFC will be tested in individual regions with specific target groups and for certain functions. Orange and Stagecoach, a transport operator in the region around Cambridge, are collaborating on a payment option via NFC-enabled smartphones. Using Orange’s Quick Tap, 40 customers can purchase weekly, monthly and unlimited tickets online and activate them with their NFC-enabled smartphones. The tickets are automatically downloaded onto the SIM card of the customer’s smartphone.

Isis, the joint venture of AT&T, T-Mobile and Verizon Wireless in the US, has taken the final steps towards launching its pilot projects in Austin and Salt Lake City. It has published its list of just over 50 retailers who are willing to participate in the program in about 300 locations. It has yet to be confirmed whether the merchants will offer only the payment function of the Isis NFC-wallet, or whether they also want to use the additional function of gift cards and vouchers.

In France, Orange, together with the Blackberry manufacturer Research in Motion and SITA, the service and IT agency belonging to the large airlines, have launched a pilot project at the regional airport in Toulouse-Blagnac. This project gives 50 specially selected customers the opportunity to gain access to specific parts of the airport via their NFC-enabled smartphones. Although airline tickets themselves are not available via this service, customers can use it to gain faster access to areas ranging from parking spaces to airline lounges. In addition, they are kept informed about their individual itineraries via updates on their smartphones as soon as they have registered with the system via their NFC function.

In contrast to NFC technology, PayPal has successfully situated its PayPal Here program on the market and is experiencing rapid growth. After Home Depot, PayPal’s first partner in this effort, expanded its PayPal Here integration from five to over 2,000 branches within two months, PayPal has now gained another 15 US retail chains for its solution, including Abercrombie & Fitch, Barnes & Noble, and Toys R Us. PayPal’s next strategic step is to target medium-sized retail companies and either expand their systems or tap new target groups. The partnership between PayPal and the Berlin subsidiary of the SinnerSchrader Mobile company, which specializes in mobile websites and apps, also points to PayPal’s developments in this direction.

These news items point to the fact that NFC is currently still in the development phase of the infrastructure it requires in order to be a viable market contender. While the companies involved in this development must bear high investment costs, other providers are profiting from offering mobile solutions within the existing ecosystem. In a new study, even Gartner assumes that NFC will not be available until 2015/16, and that more intense efforts are required from the groups involved in order for it to succeed. It remains to be seen whether other solutions will have achieved a level of market penetration by then that will make it even more difficult for NFC technology to establish itself.