Nokia wants to sell services that will enable mobile phones to be used for a range of payments.
The Finnish mobile giant formed a joint venture, called Venyon, with German smart card maker Giesecke & Devrient in December 2006. The joint venture aims to make possible mobile phone payments based on near-field communication (NFC), which uses a RFID chip and antenna to exchange information with a payment station from a range of a few centimetres. Typically it would involve tapping the phone against a subway turnstile, a vending machine or a payment device at a checkout stand, according to CEO Lauri Pesonen.
Phones are perfect for payment because people carry them almost everywhere, Pesonen told journalists at an event in San Francisco yesterday. NFC is already available on some credit and debit cards and NFC phones will get cheaper when they no longer need a separate smart card. Such phones should hit the market next year, he said.
Like 3G mobile data services, NFC started in Japan with slightly different technology, in this case Sony's FeliCa system. Now big names including Sony, Microsoft, HP, Visa International Service Association and MasterCard International are backing the technology through the NFC Forum and there are trials taking place in several places around the world. But outside Japan and South Korea, there are few phones equipped to use it.
Venyon isn't aiming at the hardware end of the problem but at the need for an infrastructure through which retailers and financial services companies can work with carriers and handset makers. Although standards bodies are working on specifications for this, Venyon is worried that the market will be in full swing by the time those standards are finished. If each set of partners develops its own technology, fragmentation would slow down adoption, Pesonen said.
Venyon is offering services to support mobile NFC applications that can be downloaded and managed over the air. For example, a service that lets the user prepay for subway rides would involve the transit operator, the mobile carrier, a financial institution and software that needs to be downloaded to the phone. Venyon would provide that service behind the scenes, Pesonen said.
Ovum analyst Roger Entner thinks many people eventually will embrace payment by phone for its convenience. The practice might be even more popular in countries where consumers don't yet have credit cards, he added. But Entner is less worried than Venyon about fragmentation. The company wants to jump out ahead and grab market share but more competitors means better ideas, he said.
"I have great trust in the market forces," Entner said.
NFC could well succeed but faces an uphill battle in the US, in the view of analyst Clay Ryder at Sageza Group. Fewer US consumers make small, daily payments on transit systems. Phone payments initially would appeal most to people in their early 20s, he said.