Near field communications: Are UK retailers ready for Google's mobile wallet?

As Google begins trialling its new Google Wallet application, Jenny Williams investigates the obstacles to retail adoption of near-field communication (NFC) mobile payment systems

The Google Wallet is currently being piloted in New York and San Francisco and uses near field communication (NFC) to make secure payments by simply tapping a mobile phone on any Mastercard PayPass-enabled terminal.

Orange and Barclaycard recently introduced the first NFC mobile payment system in the UK. O2 also plans to launch its own mobile wallet before the end of 2011.

The latest research by Juniper Research shows the adoption of NFC mobile payments will surge over the next three years to reach 300 million devices worldwide, with one-fifth of all smartphone devices having NFC capability.

Another survey by Monitise shows the number of people in the UK managing money on their mobile devices has doubled over two years to almost 10% of the population. Monitise expects this to increase to over 50% of the UK population in the next few years.

But some experts are concerned about the transactional practicalities and security implications of the m-wallet.

 

NFC technology has retail cost barriers

 

 

Gartner vice-president Avivah Litan says retailers will have to invest money into upgrading POS equipment to support contactless payments and the Durbin amendment threatens to dramatically reduce bank debit card interchange fees, putting retailers at a loss.

Litan believes contactless debit payments cost merchants more than debit card swipes and some retailers have previously shut down contactless payments over "interchange disputes" with banks.

"BestBuy's dispute with Visa [in 2009] over its contactless debit card payment interchange policies and fees led the mega-retailer to stop accepting Visa's contactless transactions," said Litan.

Steve Owen, vice-president of sales and marketing at NXP Semiconductors, which provided Google Wallet with its NFC technology, agrees there is still uncertainty about how retailers can make money from mobile payments and whether retailers will accept banks' transaction fees.

"Cash converted to digital is more money for [the banks]," he said.

But Howard Wilcox, principal analyst at Juniper Research, says retailers with a high throughput of customers need to support NFC payments to remain competitive and meet consumer expectations.

 

Technology tailored to consumer demand

 

 

Despite developments in mobile technology, some retailers are still opting for traditional loyalty card schemes.

Clinton Cards is launching a loyalty card scheme later this year, as well as a new website, in a bid to address a decline in sales. Superdrug introduced its new loyalty card, the Superdrug Beautycard, at the beginning of May 2011.

In a report by Forrester Research, Suresh Vittal, principal analyst at Forrester, said retailers must prepare for emerging investments and upgrades as loyalty schemes increase focus on real-time customer offers and mobile technology.

Groupe Aeroplan, which owns the Nectar card loyalty scheme, is considering how it can use NFC technology in the future. Roger Sniezek, operations and digital director at Groupe Aeroplan, confirms its infrastructure is prepared. "We do not see any such integration as being a huge undertaking," he said.

 

Security issues with contactless payments

 

 

Google Wallet uses NXP's contactless technology, which is currently used for e-passports and Transport for London's (TfL) smart travel cards and Oyster cards, as well as RFID tagging on gaming products such as Microsoft's Xbox 360.

Google Wallet will require an app-specific PIN and, in the first release, all payment card credentials will be encrypted and stored on a SmartMX security chip - the secure element, separate from the Android device memory, which is only accessible by authorised programs.

In addition to retailer considerations, Phil Lieberman, CEO of Lieberman Software, says security issues remain despite wireless data transmissions being encrypted.

"The problem comes if the smartphone itself is less than secure [as the devices lack a high level of API-driven security]," he said.

While organisations such as GlobalPlatform are trying to standardise the management of applications on secure chip technology to ensure interoperability, Dave Birch, chair of the digital money forum and director at Consult Hyperion, previously said: "The chips put into the phones are secure. But that is not enough. They need to be part of a secure value network."

Even with a large organisation such as Google championing the new technology, it is clear that conflicting interests between retailers and banks have yet to be resolved. But, as retailers weigh up the costs and benefits of offering contactless payments, consumer demand for mobile services will no doubt eventually drive a complete overhaul of Chip and PIN readers and resolution with banks.

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