Mobile Payments: Lost in Translation?

The Immediate Opportunity Is in Non-NFC, Emerging Markets

Japan has brought us sushi, Manga comics and cool superhero-themed street fashion. But ironically, there’s been so far little success in importing something much less niche-oriented than raw fish: namely, mobile payments. The reason? Sheer complexity.

In Japan, consumers use their mobile phones to pay for all kinds of tangible goods and services, from the fish-flavored chips in vending machines to clothes to books. It’s a technology with appeal due to its user-friendly simplicity. A chip inside the handset contains multiple, encrypted forms of information, like bank account numbers, balances, credit information, personal IDs and even subway pass info. Users simply wave their devices in front of infrared readers and they’re off to the races. What’s not to love?

It would seem this is ripe for importation stateside. In fact, trials in New York, San Francisco and other places have showed promising consumer interest in the technology. But rather than grow in deployment, this idea, known as near-field communications, or NFC, seems to have gotten lost in translation.

“There are many business and market factors which can inhibit the success of NFC payment solutions [here],” explained Humera Malik, director of product line management at Redknee Solutions Inc. (RKN.TO), which has a mobile wallet payments solution called Mobile Money in commercial deployment in the Middle East and Africa. “There is a need to reach agreements between financial institutions, network operators, retailers and handset vendors in terms of creating the ecosystem to enable widespread adoption and establishing the business model.”

Put simply, NFC is simply a complex initiative to implement in a country like ours, while Japan’s adoption of NFC was a different animal. First introduced by NTT DoCoMo (DCM) there in 2004, the carrier had more than half the population as its subscriber base and was able to use its clout to negotiate with the one or two major financial institutions on a standard revenue share. On the technology front, when KDDI and Vodafone Group plc (VOD) launched the same service based on the same Sony Corp. (SNE) chip that DoCoMo was using, it simplified the interoperability and made for a better case for retailers to adopt the technology.

In contrast, in the United States there are several competing technologies that could be used for NFC. Also, there are the revenue share issues: a credit card company could charge users a fee for the mobile PoS transaction; or, the carrier could collect a subscription and then dole out micropayments to those involved. And to scale the solution for retailers, there would need to be a middle man to take care of the secure back-end processes for settlement/clearing of funds.

Another gating factor is the multiplicity of existing PoS options. “The challenge is further complicated by the fact that these solutions are a substitute for existing established electronic payment methods in the developed market, i.e. debit, credit and stored value chip cards,” said Malik. Put another way, Forrester Research says that while mobile payments promise to change online financial and retail services fundamentally, customers today simply do not see the need for the payment functionality that banks are developing.

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