Mobile Payments: Leveraging NFC and the Contactless Infrastructure

The white paper discusses what is necessary to implement and deploy proximity mobile payment systems, the relevant technical and business issues from the perspective of the various stakeholders (for example, mobile operators, the financial industry, end-users, providers and vendors) and outlines the potential opportunities and barriers that may impact its market adoption.

Today’s consumers increasingly value convenience—services or features that they regard as “useful to me.” Mobile payment pilot projects and implementations carried out here and outside of the United States have shown that consumers value the convenience of using their mobile phones for payment at a physical POS. One forecast predicts that mobile phone-based contactless payments will account for over $36 billion of worldwide consumer spending by 2011, while another indicates that by 2012, some 292 million handsets—just over 20 percent of the global mobile handset market—will ship with built-in NFC capabilities.

Several factors are driving mobile payment deployment according to Randy Vanderhoof, executive director of the Smart Card Alliance. “Consumers are adopting wireless data services, including contactless payments, very rapidly,” he said. “Within North America, the financial industry has rolled out more than 21 million contactless payment cards and devices and over 50,000 merchants are putting in place the point-of-sale infrastructure that accepts contactless payments. Next, mobile hardware with NFC technology, can leverage these experienced contactless payment customers and the POS terminal infrastructure used by merchants to accept contactless payments cards. Finally, mobile operators, merchants, banks, and other service providers recognize that mobile payment initiatives offer business benefits and market differentiation.”

“The addition of proximity NFC technology to mobile phones in combination of contactless financial payments offers opportunities for convergence and compelling business value to all stakeholders,” Vanderhoof concluded.

Proximity mobile payments leverage the financial industry’s contactless payments infrastructure. An NFC-enabled phone is provisioned with the consumer’s payment account (i.e., credit or debit card) issued by the consumer’s trusted financial institution. The application and payment account information are encrypted and loaded into a secure element in the phone.

To pay, the consumer simply brings the phone within a few inches of a contactless-payment-capable POS system and the transaction occurs. The phone uses its built-in NFC technology to communicate with the merchant’s contactless payment-capable POS system. The payment and settlement processes are the same processes used when the consumer pays with a traditional contactless or magnetic stripe credit or debit payment card.

Proximity mobile payments can be made at both attended POS locations (such as stores) and unattended locations (such as vending machines) that accept contactless payments.