NFC Phones Poised for a Worldwide Boom, But U.S Mobile Payments Will Lag

The global market for smart phones with near-field communication technology (NFC) will heat up in 2011, opening the way for contactless payments via mobile phones, according to a new report from Mercator Advisory Group Inc. But while the U.S. is poised to be a breakout market for NFC at some point, it is not likely to be among the first countries to roll out contactless mobile payments.

Mercator forecasts that a total of 116 million smart phones equipped with NFC will be shipped globally in 2011, barring a major setback. The firm expects the number of NFC-equipped smart phones to more than double in 2012 to 260 million and exceed 510 million by 2015.

While the U.S. market has seen some major developments in NFC mobile phones—including the announced joint venture of major carriers T-Mobile, AT&T Mobility, and Verizon Wireless—no major banks or mobile network operators have announced any plans or timelines for rollout of NFC services, Mercator says.

The joint venture in November announced the establishment of the Isis mobile-commerce network, and its bank partner, Barclaycard U.S., will be launching multiple mobile payment products during the next 18 months, Mercator says. But no specific timelines have been announced. Transactions will flow over Discover Financial Services’ network.

The market for NFC is in danger of being limited to solutions run by specific operational systems, device manufacturers, mobile networks, and the joint venture, says George Peabody, director of the emerging technologies unit at Maynard, Mass.-based Mercator. “As we’ve seen over and over again with new technology, the more open the platform, the more usage,” Peabody tells Digital Transactions News by e-mail. “The NFC ecosystem will succeed if it offers low-cost, flexible access for all participants including merchants, third-party developers, and competing payment systems. Open access to the capability means consumers will find more and more uses for ‘tapping their phones.’”

Another factor that could slow the rollout of NFC smart-phone technology in the U.S. is the selection by the Isis joint venture of Barclaycard as a bank partner and Discover as a card-network partner, Mercator says. The report notes that neither is a leading player in their field in the U.S.

“[Exactly] how much Discover could bring to the table when it comes to NFC and contactless remains a big question. And unlike MasterCard, who has spent lots of time and resources over the past several years building its contactless user base and merchant networks, Discover has not taken on similar initiatives,” the report says. Discover, however, just recently announced the rollout of its Zip contactless card and sticker after a long period of testing.

The U.S. also lacks several factors that characterize countries with more advanced markets in NFC mobile payments, such as Japan, South Korea, and China, Terry X. Xie, director of Mercator’s international advisory group and author of the report, says in an e-mail from China. In those countries, there do exist user bases of contactless payment cards such as the Visa payWave and MasterCard PayPass, and a commitment from banks to offer mobile payments, Xie says.

Also, those countries enjoy “strong interest from the mobile industry in terms of making mobile payments and other NFC-based services part of their core competition strategy,” he says. In addition, the three countries have relatively friendly regulatory environments and government support for mobile payments that allow mobile carriers to actively get involved in mobile banking and payments.

In the U.S., carriers want to get paid for rendering key services in support of NFC traffic, but issuers typically are reluctant to share card-related transaction revenues.