It was way back in 2003 that Oyster cards came out to make it easier to pay for the tube. Everyone thought that that would be the start of contactless cards or devices replacing cash. Many talked of it only being a couple of years away before your phone had the relevant technology within it so that you could go buy your can of coke in the store by just swiping your phone. Six years later, we’re still waiting.

It hasn’t gone away. People are still talking about it. There have been about 10 pilots of NFC (Near Field Contactless) technology and the results have been astonishing. The tests have shown 80-90% acceptance levels. So, now we’re in a position where the consumers want it, the technology exists and we’re still waiting. Why? How hard can it be?

To understand that, you need to understand a little but about the technology. Very simply, there is an NFC chip implanted in a phone. That communicates to a payment application on the SIM card (examples include Visa payWave and MasterCard PayPass). And the communication is done via a single wire protocol (the only free wire that connects to the SIM left in a phone at the moment). This means you need four players to make it happen: The device manufacturers (to put the chips in), the Mobile Network Operators (to enable the SIM), the financial institutions (to run the banking end) and an intermediary to pull it all together (known as a Trusted Service Manager).

The reasons we’re still waiting is because it’s proved mighty difficult to bring all these giants together.

Nav Bains, Senior Director of the GSM Association, put it down to three reasons as to why this hasn’t happened yet.

1. Lack of availability of single wire protocol devices

There aren’t enough devices with the NFC chip in yet. This is starting to change with the Nokia 6212 recently coming out but will take time.

2. Deployment of contactless infrastructure

It simply costs money (and I mean mega bucks) to roll out the infrastructure. There’s potentially a tipping point when 30% of merchants/retailers offer it, but getting to that 30% is expensive. None of the operators on their own have the appetite to invest in it so that their competitors can then enjoy the spoils. There was hope that Barclaycard would break this ground with their contactless card (which uses the same infrastructure) but there hasn’t been the take-up. This is the biggest sticking point.

3. Lack of clarity of the role of the Trusted Services Manager (the intermediary between the banks and the Mobile Network
Operators).

No one could agree what this role was which made it impossible for TSMs to set up. The GSMA is now taking a lead in documenting what it is. Hopefully that’ll help.

In short there are major hurdles still to overcome and whilst everyone wants it in place, the tensions between giants are standing in the way. It’s actually a great demonstration of game theory at work: in the long term everyone would like it (heck, it might be a major saving grace for the MNOs in an increasingly commoditised market), but in the short term because they can’t co-ordinate themselves. Therefore the default position (or nash equilibreum in game theory speak) is to do nothing.

What’s a real shame is that there should be a real opportunity for an innovative start-up to kick off this market, but with such big beasts waiting to pounce, there seems like very few opportunities for a start-up to seize and hold onto value in this market. I’d love to be proved wrong on this!

My guess is that it’ll be another 4 or 5 years before we see NFC hit a tipping point … which is a real shame.

Photo courtesy of the brilliant Barclaycard Advert for their Contactless Card

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