London, UK (PRWEB) March 16, 2006
Continuing the trend of extending the mobile phone’s capabilities beyond telecommunications, the mobile industry is now targeting the area of handset proximity payments. In a report just released, London-based research and consulting firm, ARCchart, examines this emerging market and the impact it will have on industry players. While network operators stand to gain the most from proximity payment functionality on a mobile phone, they risk ceding control to the handset vendors, or even the financial companies, if they do not engage the industry more proactively. By positioning themselves as the gatekeeper of the proximity applications resident on a handset, subscribers moving to a competing operator will be forced to obtain a new set of payment applications - switching operators would be like losing a wallet, and this will have a significant impact on churn.
Only the wrist watch and the wallet are as closely linked to their owner’s identity as the mobile phone, and as the watch is displaced by the phone (which also has a clock function), so the handset industry is setting its sights on the functionality provided by the wallet. At the heart of this new capability are proximity payments. With proximity technology embedded, swiping a mobile phone across a reader turns it into a transactional tool: whether the transaction is a purchase of a newspaper or a cappuccino, or the debit of a single-journey on the metro.
This development would be welcomed by the retail industry which estimates the cost of a $25 cash transaction to be as much as 60 cents. Tesco, the UK’s largest retailer, is considering ‘cashless stores’ where only electronic payment will be accepted, and users of American Express’ ExpressPay proximity system are exhibiting 30% higher spending activity than equivalent cash-spending customers. French retailer, Groupe LaSer, has joined Orange and Philips in a proximity payment trial using Samsung handsets in North Western France.
In Japan, phones equipped with FeliCa, the proximity platform backed by NTT DoCoMo and Sony, are already being used to conduct millions of transactions each day. An ecosystem has now emerged around handset proximity payments, including the financial companies, network operators, handset vendors, technology companies and the various standards bodies. Companies such as Visa, MasterCard, Nokia, Motorola and Samsung have been quick to define their handset payment strategies.
ARCchart concludes that NFC, which uses RFID as its communications layer, is the proximity technology most likely to be adopted in handsets. However, according to the research firm, there are still technical and industry hurdles which must be overcome before handset proximity payments become a mass market reality. According to Bill Ray, the report’s lead analyst, “These hurdles really boil down to issues of security and control. For example, the nature of the application certificate store has to be decided, as does the location of the secure micro-environment – should it sit on the SIM or be embedded in the handset?” Bill adds that, “There are also questions over who should act as the application signing authority: should it be the financial companies, the handset vendors, the operators or even the handset operating system provider - such as Symbian or Microsoft?”
ARCchart suggests that operators need to adopt a leading position within the industry, or risk being sidelined by the financial companies, the handset vendors, or even organisations like MOPASS which has developed a proximity platform based on removable media. At the very least, operators should establish themselves as the signing authority for the proximity applications installed on their subscribers’ phones.
The report identifies the opportunity for operators to add a new revenue stream to their business by launching their own proximity payment service. Many operators have trusted brands and are already supporting a stored-value platform in the form of their prepaid system. The report presents a business case for a typical European operator and shows that, while the revenues from a handset payment service has the potential to boost ARPU by 5 to 10% within five years, the bigger opportunity is the substantial cost savings from lower churn and reduced subscriber acquisition costs.
“It is surprising that operators are not being more proactive about pushing this industry forward. By positioning themselves as the gatekeeper of the proximity applications which reside on the handset, subscribers moving to a competing operator would be forced to obtain a new set of applications from their new provider," says Matt Lewis, Research Director at ARCchart, “It’d be like losing your wallet every time you switched operator. The impact this would have on churn is obvious.”
The report also examines the market from the handset manufacturers’ perspective. Both Visa and MasterCard are prepared to offer a ‘bounty’ to vendors in exchange for pre-installing their payment applications. However, ARCchart warns that if the secure application environment resides on removable media, instead of being embedded within the device, then it will be difficult for vendors to take advantage of this.
For more information on the report, contact Selma Liemborg, on + 44 207 826 9004
Report title: Handset Proximity Payments
Publication date: March 2006
ARCchart is an independent research and consulting firm focusing on all aspects of the wireless communications sector. Based in London, ARCchart’s depth and breadth of analysis provides a global perspective on wireless technology and industry developments. Combining original thinking with exceptional knowledge and experience, ARCchart assists clients in making sound commercial decisions about technologies, market strategies and competitive positions. ARCchart’s strategic advice covers all aspects of the wireless value chain - ranging from semiconductors and WLANs to network operators, handsets and mobile applications.