Bangalore: Mobile payments company mChek India Payment Systems Pvt. Ltd recently sent some of its staff on a working lunch to a restaurant and when it was time to pay, they didn’t flash a company credit card. Instead, they tapped a mobile phone on a contactless reader.
The mChek employees were testing a technology called near field communication (NFC) that could potentially turn mobile phones into smart wallets.
Much like Bluetooth, NFC is a short-range wireless application that allows devices to transmit data, but intuitively and without the need for manual configuration. Several companies in India, including mChek, are now field-testing NFC applications.
Once fully developed, NFC will allow users to make instant payments by tapping a mobile phone against a reader terminal—similar to how commuters on Mumbai’s suburban railways and buses can swipe prepaid smart cards against fixed or handheld readers to buy tickets.
“We are looking at more pilots...”, said Sanjay Swamy, chief executive at Bangalore-based mChek. “In this trial we tested the usability and the viability of the technology.”
He didn’t want to reveal the handsets used or the name of the restaurant, but said the firm is now looking for a business model around NFC.
“As the single fastest growing mobile phone market in the world, India is well suited to commercial adoption of the NFC technology,” Jeff Semenchuk, executive vice-president and head of growth ventures, Citi Innovation, at Citibank NA, said in an email. “We hope to explore its potential…for our customers in India in the near future.”
India has at least 391 million mobile phone connections, according to the Telecom Regulatory Authority of India. And with 15 million users added just in March, it’s home to the world’s fastest growing mobile phone industry.
Sam Pitroda, chairman of the National Knowledge Commission and widely credited with giving the early push to India’s telecom sector in the 1980s, is an early believer in both the technology and India.
His Chicago-based C-SAM Inc., in a tie-up with US-based Discover Financial Services Llc, has already conducted trials with 1,000 customers at retail outlets in Riverwoods, Illinois. The mobile payments firm’s local arm, the Mumbai-based C-SAM India Pvt. Ltd, is talking with various banks in India to begin trials.
Nokia Oyj, the world’s largest handset maker, is also carrying out NFC trials in India. The firm has conducted at least 20 trials globally, including one with State Bank of India.
G.K. Chakrapani, Nokia India Pvt. Ltd’s director of corporate business development, said the handset maker is evaluating “consumer and ecosystem adoption” from its trials and he’d be able to share details only later.
Handset makers such as Nokia play a key role in the adoption of NFC technology. In its current state, the technology works only on select devices. Nokia has at least two models—6131 NFC and 6212 Classic—and Samsung Electronics Co. Ltd has some including the SGH-X700n that are NFC-compatible.
None of these or other compatible models is currently sold in India. There may be a less expensive option: a patch that can be attached to the subscriber identity module (SIM)—the chip that connects a handset user to a mobile network with a unique number. Smart card firm Watchdata Technologies (India) Pvt. Ltd’s SIMpass is one such, capable of transforming an ordinary handset into an NFC-friendly device.
Vijay Parthasarathy, director at Watchdata, says SIMpass is compatible with 80% of the handset models currently in the market, and that the firm plans to commercialize it in India next year. “We are currently working on business models in India,” he said, without revealing more.
As for the readers, point-of-sale terminals that are used for making debit and credit card payments can be made compatible by plugging in an NFC adaptor.
The big question in India is who will pay for building the infrastructure, says Nehal Maniyar, vice-president, core products and delivery, C-SAM India.
Sorting this out will be a key hurdle off the list. In many of the other nations where NFC experiments are at more advanced stages, the infrastructure costs of setting up the readers is typically borne by transport authorities, retail establishments and banks, while the phones are subsidized by mobile phone operators and handset makers.
For instance, in C-SAM’s trial with Discover Financial, Motorola Inc. provided the NFC-compatible phones while Discover funded the NFC readers. It’s easier in countries that already use contactless readers extensively.
In Malaysia for instance, Maybank Group, the country’s largest bank, tied up with telecom operator Maxis Mobile Services Sdn Bhd to enable NFC payments across 1,800 retail merchants as well as in transport, highway tolls and even parking areas.
Contactless readers such as Visa payWave equipped for debit and credit card transactions are widely deployed in Malaysia’s retail outlets, public transport and highway tolls, making adoption of NFC technology easier. Maxis bundled the service with compliant Nokia 6212 handsets.
In India, the lack of such infrastructure in terms of devices and readers may pose initial hurdles, but once crossed, the adoption of the technology could be quick.
To draw a parallel, credit card growth in India after Citibank’s local arm introduced the concept in 1990 has to be described as gradual, both because of a lack of infrastructure and as potential users feared misuse and a likely reliance on credit.
But over the past few years, the local credit card market has galloped at 30% with the total number of cards in use touching 25.51 million, according to recent Reserve Bank of India data. Even today, the percentage of active cards in banks’ portfolios in India is 56%, much lower than the 80% in Australia and 75% in Singapore, says a study by Edgar, Dunn and Co., a financial services and payments consultancy.
Technology research firm Gartner Inc. predicts the number of mobile payment users worldwide will increase 70% over the previous year to 73.9 million in 2009. By 2012, at least 190 million people, or 3% of mobile phone customers globally, will use their handsets for payments, it said.
“Momentum in the mobile payment market gathered further in 2008 with a number of high-profile launches of mobile money transfer services in multiple markets, participation of major global institutions in near field communication payment trials, as well as new payment solutions entering the market,” Sandy Shen, a research director at Gartner, said in the statement. “...At the same time, security concerns, an inadequate ‘ecosystem’ and undefined areas in banking regulations remain challenges for mobile payment.”
To protect against misuse, Indian regulations require any wireless transaction to be routed through banks, and technology vendors typically incorporate measures such as password protection for each transaction.
Shen does not expect NFC technology to be deployed in India in the near future due to the missing infrastructure for contactless payments. “Another big hurdle (in many markets including India) is mobile phone operators and banks have to work together; there is a tug of war going on (on who will spend on infrastructure),” she said in a phone interview.
Ajay Adiseshann, founder and managing director of Mumbai-based mobile payments firm PayMate India Pvt. Ltd, also doesn’t believe India is ready for the technology. “In developing countries you need an economical solution, not a capital intensive one. Developing countries will depend on cost effective, SMS and IVR (interactive voice response)...I don’t think NFC will catch on in India or China.”