THE FUTURE OF THE MOBILE WALLET

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The American author and critic Henry David Thoreau said “our life is frittered away by detail: simplify, simplify”. As Near Field Communication (NFC) transactions emerge from their infancy into the mainstream this year, the desire to simplify the lives of both retailers and consumers is one of the main drivers behind its adoption. However, operators also stand to benefit from developments in and consumer adoption of the technologNFC is a short-range wireless connectivity standard designed for simple and safe communication between electronic devices. Applications of NFC technology include contactless transactions, such as the Oyster system that has been in use on London’s transport system since 2003. Having proven their worth, contactless credit and debit cards issued by the major banks will soon be in everyday usYet this technology can be taken a stage further when combined with mobile handsets. Mobile NFC technology allows a single handset to contain multiple functionalities, such as payment, content sharing, ticketing and interactions with smart posters and other NFC media. Essentially, anything that was once paper or plastic-based can now be stored securely on a mobile phone. In essence, over the next 5 years, your mobile phone will become your digital “wallet”, with an integrated user interface that will allow consumers to easily select which service they wish to use.

However, to be successful NFC technology must be designed with the end user in mind. For this reason, O2 pioneered the UK’s first large-scale NFC trial with 500 participants from November 2007 to the end of May 2008.  The aim of the trial was to assess customer demand for NFC on mobile phones and to streamline the user experience. Participants were able to use their mobile to travel on London’s transport system or to make payments in retail stores, simply by touching their phone against an NFC reader. The trial was run in cooperation with a range of industry leaders including Transport for London, Barclaycard, Visa Europe, TranSys, Nokia and AEG.

Having recently celebrated the first anniversary of contactless payments in the UK, using dual mode plastic cards, we are entering a key time for mobile operators, handset manufacturers, banks and retailers. The desire for services to move from plastic cards to mobile handsets is gathering momentum and it is imperative that these organisations now come together to flesh out how this eco-system will function on a national scale. This is essential because, while the benefits of mobile NFC transactions cannot be denied, problem areas still exist that must be addressed before this technology can become widespread.

Retailers, as well as consumers, stand to benefit most from the mobile payment revolution. Through fast, contactless transactions, retailers can greatly increase footfall through their stores. The speed of mobile payments is substantially faster than either cash or chip and Personal Identification Number (PIN) systems. Thus mobile payments have the potential to reduce queues, improve the customer experience and allow more purchases to be made in a set time, such as lunch hours. These instant transactions also mean that retailers need to invest less time at the end of each day undergoing a tedious cash-reconciliation process. Furthermore, since tickets and discount vouchers can be sent directly to NFC handsets, retailers will need to spend less time and money printing and posting tickets to customers.

The effect of mobile payment technology on consumers will also be profound. By replacing wallets, it means one less thing that consumers have to remember to take with them every day. As a whole, the technology will allow transactions to become faster, easier and more straightforward to monitor. For example, pre-paid store-cards can be loaded onto a phone’s SIM card, allowing consumers to control exactly how much money they spend on different expenses and ensuring they never exceed their budget. Regular mini-statements of their last five transactions can be accessed through the user interface and alerts can be sent to customers by text message. Users can also instantly check balances on their handset.

NFC has the potential to herald the emergence of a new revenue model for network operators and handset manufacturers, although there needs to be a consensus on how such a model would operate. The results of our O2 Wallet trial revealed that customers would be prepared to pay an annual charge for the added convenience of mobile NFC transactions. In addition, 47% of the participants would be influenced in their choice of mobile handset by the addition of a payments feature, whilst 87% said they would be influenced by the ability to use Oyster via their phone.

The implementation of mobile payments across the UK requires banks to extend contactless infrastructure to support NFC. In addition, consumers will demand a choice of handsets that support NFC transactions. Nokia has been leading the NFC handset space, but other vendors are starting to make significant investments in the technology. If handsets are to take over from the traditional wallet, manufacturers must also solve a number of current technological restrictions, such as improving battery life and operating systems. Sustainable business models need to be agreed between organisations across the different sectors involved in NFC, such as transport, banking and retail. Until now the emphasis has been on developing the technology behind NFC rather than creating the commercial infrastructure to support it. GSM operators have perfected the technical standardisation of NFC technology, with very few approaching NFC from a marketing and customer experience perspective.

As NFC payment technology becomes more widespread and transaction values increase, handsets will be ideally placed to add an additional level of security, since a PIN number can easily be entered onto the handset when a transaction is made. Additionally, handsets could require users to enter a passcode whenever an NFC transaction takes place.

In the immediate future, operators need to keep abreast of what banks are doing in this sector and must continue to ask what they can do to add value to the NFC transaction model through mobiles, for both corporate and consumer purposes. NFC will only be financially sustainable and garner mass market appeal if it has multiple uses. Close partnerships with other organisations will be essential to ensure a good quality customer experience. The UKMCF, a consortium of mobile operators in the UK, aims to develop a shared vision of what future NFC commercial services will look like and how they can simplify our lives.

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