A Report from CTST 2008 in Orlando

“Consumers loved it,” Steve Davidson, product manager, Mobile Commerce Initiatives for wireless operator Cellular South, told attendees, based on the results of their mobile NFC payment pilot conducted with 100 consumers. Surprisingly, despite initial misgivings about security, once they had used it participants ranked security as the number one value of mobile payment, even ahead of payment speed and convenience. That’s because Cellular South required a PIN entry, or a fingerprint biometric verification, on the mobile handset to make a payment. The test took place in Jackson, Miss. and Memphis, Tenn. from April to September 2007.

Citigroup’s Josh McKay, senior vice president at Citi Mobile Financial Services, agreed consumers love mobile NFC proximity payment. “When we tested it in New York City, we saw the same thing. People who saw it asked where they could get it,” he said.

Presenters also addressed the tough questions that must be answered before mobile NFC payment becomes a reality, starting with the business case for both mobile operators and banks. One point of consensus: Consumers are looking for a mobile wallet with multiple applications. Cellular South’s Davidson also sees a comprehensive mobile commerce wallet as essential for a viable revenue model for mobile operators. He cited a range of possible revenue-generating activities in addition to payment, such as: a wallet “mall” in the phone where merchants rent space; commissions on sales made through the phone; advertising revenue; and mobile ticketing fees.

TowerGroup’s Virginia Garcia, research director, said the main reason mobile operators are interested in payment is to fight churn, which is “horrific” in their industry. For banks on the other hand, “Their motivation is new account acquisition and finding a way to add value to their customer in a way the bank down the street doesn’t provide,” she said.

Citi’s McKay reinforced the point. “As banks, we’re interested in cash transaction share, deepening our customer relationship and reducing churn,” he said.

Another important topic was how to enable a mobile NFC payments ecosystem that will let consumers securely add many banks and other service provider accounts, such as transit fare payment, into their mobile phone. Patrick Waters, head of enablers for leading global telecommunications provider Vodafone, sees the need for a third party to act as a Trusted Service Manager as part of the solution. “This is a really critical enabling role linking mobile operators and service providers,” he said. Vodafone has been testing a rail passenger mobile e-ticketing system with Deutsche Bahn AG in Germany, working towards a national rollout of the system in 2010.

Growth in Contactless Payment

“In the United States, total open network contactless cards in circulation reached 35 million in 2007, nearly doubling from 19 million in 2006,” said Ed Kountz, senior analyst for payments at JupiterResearch.

Usage is on the rise too, especially with younger consumers, according to new consumer research Kountz presented. Of all respondents in the 25 to 34 year old age group, already 9.4 percent use contactless payment once a week or more.

Mobile NFC payment is designed for compatibility with open contactless systems, so the growth in the contactless bankcard market is seen as an essential step in the path towards an eventual future of mobile payment. TowerGroup’s Garcia forecast steady growth in contactless payment over the next four years in a period she called “the contactless credit era,” leading to a significant uptake of mobile NFC payment in 2012.

Growing the pool of accepting merchants is also a clear objective during this period. “The more merchants that come in the better the value proposition becomes,” said Citi’s McKay.

Garcia sees contactless gift cards as a good vehicle for accelerating merchant involvement in contactless payment.

In addition to the mobile NFC and contactless payment tracks, the CTST conference also has tracks on identification and policy, security and access control, new technologies and smart cards in Latin America. The conference continues through Thursday.