Handset Proximity Payments: Industry Report

Handset Proximity Payments

Product Type: Market Research Report
Published by: ARCchart
Published: March 2006
Product Code: R462-18

Description

With proximity technology embedded, swiping a mobile phone across a reader turns it into a transactional tool: whether the transaction is a purchase of a newspaper or a cappuccino, or the debit of a single-journey on the metro. In this report, ARCchart examines the market emerging around handset proximity payments and the impact it will have on industry players.

There are still technical and industry hurdles which must be overcome before handset proximity payments become a mass market reality. While network operators stand the most to gain, they risk ceding control to the handset vendors, or even the financial companies, if they do not engage the industry more proactively. By positioning themselves as the gatekeeper of the proximity applications resident on a handset, subscribers moving to a competing operator would be forced to obtain a new set of payment applications - switching operators would be like losing a wallet, and this would have a significant impact on churn.

This report provides an extensive analysis on handset proximity payments: the technologies, players, the market movements and the trends which are emerging. Topics of coverage include:

Discussion of credit, debit and stored-value payment systems
Security techniques used in card systems
Consumer attitudes to proximity payments
The handset proximity payment ecosystem - technology companies and standards bodies
The architecture of a proximity payment system
Issues with proximity security
Review of technologies capable of deliver proximity functionality on a handset
The structure of an NFC payment system
Case studies of commercial and trial mobile phone proximity payment systems
Innovative applications made possible with handset payments
Effective deployment strategies
Threats facing the deployment of handset proximity payment systems
Forecast timelines for the deployment NFC and handset payment systems going forward

Answers and opinions are provided with respect to the following essential questions:

Who are the technology and financial companies driving this market forward?
What strategies are the financial companies adopting to drive handset payments?
What is FeliCa, and how is it related to the EDY payment system?
Why is NTT DoCoMo aggressively pushing forward FeliCa, and why have competing operators (KDDI and Vodafone) also decided to use FeliCa?
What are the issues which must be resolved before NFC is ready to support proximity payment functionality on handsets?
Are there roles for the SIM and/or removable media?
Is there a revenue position for handset vendors, and what strategies should they adopt?
What are the direct and indirect revenue opportunities for operators?
What should operators be doing in order to control this market?
Can operators' prepaid system be leveraged for proximity payments?

Table of Contents

CHAPTER A: INTRODUCTION: A.1 The rise of the currency; Types of currencies; A.2 Payment mechanisms; Credit 4; Debit 4; Prepaid

A.3 The rise of plastic

Credit card usage

Card fraud and forgery

Smart Cards

A.4 The basic payment architecture

Online Authorisation

Off-Line Authorisation

A.5 The handset as a proximity payment platform

Handset proximity payment ecosystem

A.6 Report outline

Definition of transaction terms
CHAPTER B: PROXIMITY PAYMENT SYSTEMS AND TECHNOLOGIES: B.1 Architecture of proximity payment systems; Basic System; Two-way communications; Enhancing security (proximity EMV); B.2 The proximity advantage; More transactions at greater speed; Greater customer satisfaction; B.3 New charging models; Other Applications; Company-backed currencies; B.4 Security considerations; Good enough security; Enhanced security procedures; B.5 Proximity technology: General architecture; The architecture stack; B.6 Proximity technology: Wireless/radio component; Infrared; Bluetooth; ZigBee; RFID 31; Bar Codes; B.7 Proximity technology: Interface and application environment; NFC 34; Case study: FeliCa; B.8 Currently deployed proximity payment systems; MOPASS; MiFare42; SpeedPass; PayPass; Octopus; B.9 Standards bodies; The Smart Card Alliance; ISO (7810, 7816 & 14443); RFID Forum; EPC Global; Mobile Payments Forum; GlobalPlatform
CHAPTER C: MOBILE PHONE PROXIMITY PAYMENT: C.1 The handset as a carrier; C.2 The advantages of active integration; Network connectivity; Interaction of payment applications; C.3 Active integration challenges; Secure application deployment and ownership; Granular security; Secure micro environment; User interfacing; C.4 Case Study: EDY payment system; Customer Experience; Technology; Development plans; Funding & Profit; C.5 Case Study: Caen NFC Trial; Customer Experience; Technology; Development plans; Funding and profit
CHAPTER D: THREATS AND DEPLOYMENT STRATEGIES: D.1 Threats to proximity payments; Network-based payment systems; Operator resistance; Technology issues; Regional restrictions; D.2 Successful deployment strategies; Killer applications; Stealth deployment; Geographical and/or merchant focus; D.3 Effective handset integration; D.4 Managing the customer experience; Brand and trust; Balanced security; D.5 Appropriate technology selection; The secure micro-environment
CHAPTER E: HANDSET PROXIMITY PAYMENT OPPORTUNITIES: E.1 Network operators; The application authority; Fostering brand loyalty; Branded payment systems; Billing and fees opportunities; E.2 Operator business case: The revenue proposition of a handset proximity payment service; Overview; Technology; Assumptions; Deployment; Costs 94; Revenue; Analysis; Conclusion; E.3 Handset vendors; Vendor opportunity; The secure micro-environment dilemma; The ultimate arbiter; E.4 Financial service companies; E.5 Technology providers; E.6 Technologies and companies; Nokia 103; DoCoMo; Sony 104; Visa 105; MasterCard; Dexit 107; Motorola; Samsung
CHAPTER F: RECOMMENDATIONS AND CONCLUSIONS: F.1 Recommendations; Operators: Seize the day; Handset vendors: Drive the replacement cycle; Finance and ticketing companies: The operators are key; F.2 Timescales and likely roll-out scenarios; F.3 Simplicity through complexity; Mobile phone as wallet; F.4 The future is wireless
List of Figures: Figure 1 - Romans coins; Figure 2 - US bank note; Figure 3 - Western Europe credit and debit card usage: 2003; Figure 4 - US spending mechanisms (cash, credit card and debit card): 1995 - 2003; Figure 5 - Growth in US credit card fraud: 2003 - 2005; Figure 6 - Construction of a Smart Card; Figure 7 - Handset shipment forecast: 2005 - 2010; Figure 8 - Mass transit proximity payment system in London; Figure 9 - The handset proximity payment ecosystem; Figure 10 - RFID to magnetic swipe converter for EPOS machines.; Figure 11 - Schematic of proximity token detection, authentication and data transfer; Figure 12 - Transaction process for locally stored balances; Figure 13 - Merchant cost for a typical $25 transaction; Figure 14 - Customer satisfaction levels for selected proximity payment systems; Figure 15 - Proximity payment system mapped to the OSI 7-Layer model; Figure 16 - EDY proximity payment application mapped to the OSI 7-Layer model; Figure 17- OSI 7-layer model mapped to ARCchart’s representation of a proximity system on a handset; Figure 18 - The standard Bluetooth 1.0 handshaking process; Figure 19 - RFID architecture; Figure 20 -Example of a Mobiqa MMS bar code; Figure 21 - Schematic of NFC within the handset environment; Figure 22 - A FeliCa handset used in a proximity payment scenario; Figure 23 - Customer attitudes to FeliCa handsets at time of purchase; Figure 24 - SpeedPass key-ring (left), in-car tag (centre) and embedded watch (right); Figure 25 - Chase Manhattan Blink Card; Figure 26 - PayPass Keyring Tag; Figure 27 - PayPass Nokia Handset; Figure 28 - Octopus tag built into a wrist watch and pocket watch; Figure 29 - The secure micro-environment as envisaged within NFC; Figure 30 - EDY user interface on a FeliCa handset; Figure 31 - A FeliCa handset used in a proximity payment scenario; Figure 32 - EDY Handset and Reader; Figure 33 - Ratio of credit card payment to consumer spending for selected countries; Figure 34 - FLYCARD reader; Figure 35 - Active Posters for bus timetables (left) and download a movie trailer through a film poster (right) 68; Figure 36 - NFC handset forecast: 2007 - 2010; Figure 37 - Sought-after services for contactless handsets; Figure 38 - The current state-of-play of the NFC Standard - issues outstanding; Figure 39 - Quarterly voice revenue growth for European operators: 2003 - 2005; Figure 40 - Quarterly data revenue growth for European operators: 2003 - 2005; Figure 41 - Prepaid customer mix for European operators: 2003 - 2005; Figure 42 - Churn and SAC for selected Vodafone European operations: 2005; Figure 43 - Example of a PayMoB NFC handset and RFID sticker; Figure 44 - The average handset replacement cycle: 2000 - 2010; Figure 45 - Handset shipment forecast: 2005 - 2010; Figure 46- The Nokia 3220 with NFC tag embedded in ExpressOn covers; Figure 47 - MasterCard’s view of proximity payments; Figure 48 - TELUS handset with a Dexit proximity sticker; Figure 49 - Forecast deployment timelines for handset proximity payments

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