NFC payments a solution seeking a problem

April 4th, 2012 by · Leave a Comment

This article was authored by Don Sambandaraksa, and was originally posted on

Smart mobile devices have long been hailed as the solution to the digital divide and many speak of the wonders that contactless payment technologies enabled through NFC and online payment apps can bring. But all too often, technology seems like a solution searching for a problem.

Back in 2009 I interviewed Visa at the launch of a pilot project for NFC with Nokia and Kasikorn Bank here in Bangkok. Bank executives were given phones with a NFC-enabled SIM in it to test out with a certain pretzel merchant.

The benefits of a phone with an NFC interface over a regular contactless smart card included the ability to turn the credit card on only after a PIN was entered, adding a layer of security. It also allowed the card to have its risk profile updated on the fly.

For the bank and telco, the opportunity lies in one day issuing all SIMs with secure NFC components on them in a dormant state. This would mean that a potential customer could pop into a shopping center, sign up for a new credit card and instead of waiting a week or more for the card and PIN to be delivered, walk out walking with a fully functional NFC Paywave card enabled on the existing SIM within in minutes of the credit check being approved.

The pilot sort of fizzled out and the formal launch a year later has failed in gaining traction. Explaining that they wanted to pay by phone and that they were not checking their email to the few merchants who accepted NFC credit cards was probably too much of a hassle. That, and the decline from ubiquity of partner Nokia.

But it was in Pakistan of all places that someone finally convinced me that NFC payments were more than a solution looking for a problem. Back in 2010 think-tank LirneAsia was hosting a seminar on mobile payments at the bottom of the pyramid and I was quite taken aback by the number of practical, out-of-the-box projects presented.

Telenor Pakistan bought a bank, but rather than provide the usual technical mobile banking solutions everyone talks about (that came much later), the telco leveraged its strength in having a nationwide dealer network which already dealt in cash turned many of its branches into banks. It was the security of its logistics network that allowed it to offer financial services in a country not renowned for its security, not mobile technology, that was the answer people wanted.

But it was Dr. Harsha De Silva from the University of Missouri whose presentation convinced me that some academics actually do have a practical side to them.

He conducted a study on mobile phone-based NFC payments for buses in Sri Lanka. Yes, everyone’s been talking about that and every modern city has NFC cards for public transport, some integrated, some not so. But mobile? Surely that was a technology geek’s overkill in a relatively poor country. Or was it?

The pilot showed such a project to be financially beneficial as leakage from handling cash was estimated at a whopping 25%. Consumers also win as for with each typical 6.50 Rupee ride (5 US cents), 60% of the time, change was not given when 7 Rupees were handed over. Those 0.50 Sri Lankan Rupees (0.3 US Cents) quickly add up.

But what a phone based solution could deliver which mere NFC cards were unable to would be to allow for perfect pricing. Travellers could avoid peak times and travel earlier or later for cheaper off-peak tickets based on real-time traffic and bus loads. Perfect pricing would be an economist’s dream and would only possible through a combination of the feedback made possible through a mobile phone and mobile payments.

This is definitely something for banks and telcos to consider as they prepare for a PR campaign with pretty urbanites running through department stores and cities in a pointless, if contactless, shopping spree. The greater benefit where mobile can make a difference is at the bottom of the pyramid, not at the top.

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Categories: Wireless

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