WHITEPAPER

The Mobile Wallet

This whitepaper is an extract from:

Mobile Payment Markets

Contactless NFC 2008-2013

. . . information you can do business with

White Paper ~ The Mobile Wallet

The Mobile Wallet

1. Introduction
User demand for convenient and intelligent ways in which to make payments for goods and services using a mobile phone is creating exciting opportunities for those organisations that are part of the mobile payment ecosystem. The ecosystem includes mobile operators, banks and credit card companies, retail merchants & transport operators, handset manufacturers (and their suppliers), and a whole range of new software and system vendors and service providers entrants eager to put their innovative mobile payment solutions into the hands of mobile phone users. The definition of a mobile payment is often open to interpretation and can differ from source to source. Juniper Research has a simple definition of a mobile payment as payment for goods or services with a mobile device such as a phone, PDA (Personal Digital Assistant), or other such device. As is the case with other, older, payment schemes like cash, the current mobile payment market does not have a single, definitive, payment method and there is substantial variation between what particular scheme is adopted from region to region. Mobile payment schemes vary from the remote methods, such as PRSMS (Premium Rate SMS) schemes for paying for digital content dominating in Europe, to the physical, whereby, in regions such as the Far East and China, users take their mobile phone to the physical storefront to pay for goods via contactless credit/debit card schemes. There are many different and often competing categories of mobile payments currently available. Juniper Research has identified two distinct categories based on the location of the mobile user in relation to the merchant:

Remote Mobile Payment: this is when the storefront or retailer is remote to the mobile phone
user, e.g. paying for digital goods or physical goods via a mobile web enabled retailer.

POS (Point of Sale) Mobile Payment: this is when the storefront or retailer is physical and the user

is located at or near to the storefront or retailer, e.g. the payment is made in a physical storefront in the same way we would use cash or a plastic debit/credit card or at an unattended vending or ticketing machine. Mobile payment applications and services are already available in most regions in a variety of formats, and where they are being adopted, either in trial or commercial mode, the user feedback has been very favourable.

This white paper focuses on POS mobile payments which Juniper Research defines as when a mobile phone is used at a physical location to make a payment. Juniper Research further segments point of sale payments into the following:

POS Text & PIN and Bluetooth: this is defined as text-based purchases with the user located at
the physical storefront or merchant, with the text or Bluetooth payment essentially replacing a traditional means of payment such as cash or card.

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POS Contactless: this is defined as a Wave & Pay transaction where phones equipped with NFC
(Near Field Communications) technology are waved in front of a contactless reader in a store or at a purchase point. Purchases usually replace cash and are often for lower value items such as refreshments and newspapers but also public transport tickets which are higher value. With the exception of SMS text based and Bluetooth applications, POS based mPayments are reliant on advances in handset technology. This means that there is a dependency on the availability of suitable handsets before widespread adoption can take place. However this is a chicken and egg situation because the handset vendors themselves may be reluctant to commit large manufacturing volumes for services whose popularity and take-up is unproven and in the future. POS mPayments have so far included trials with point & buy applications using infrared to communicate with the point of sale, text & PIN applications using SMS text message-based message communication between the consumer, the payment scheme operator and the retailer or service provider, Bluetooth applications via a downloadable client and wave & pay applications based on contactless smartcard based technology. All POS mPayment schemes are heavily dependent on acceptance by merchants and retailers who are looking for payment applications that offer advantages over the existing payment schemes that include credit/debit cards and cash. To be a success a POS mobile payment must have most, if not all, of these characteristics:

Reliability Security Faster than either plastic or cash Ease of use for people Equal to, or cheaper, than existing payment schemes Interoperable with merchant payment/settlement systems In accordance with sector and national regulation
The infrared point & buy applications have not been successful mainly as a result of the technology not being suited for use at the physical storefront; schemes in countries like South Korea have been largely abandoned. As with a number of mPayment applications and services, there is a degree of overlap between mPayment categories with some SMS based mPayment applications being used for both remote and point of sale based payments. For instance Indias PayMate scheme is being used at both the physical storefront and online and PayPal Mobiles text to buy service is also available for physical payment use. This white paper will concentrate on NFC.

2. Payment Schemes: The Big Picture

The following table details the different types of mobile payment schemes in each segment. Whilst the classification is by no means definitive, it does provide a structure for organising and evaluating the numerous distinct types of mobile payment schemes. It is important to note that service providers quite often straddle the categories shown here.

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Table 1: Mobile Payment Classification Mobile Payment Segment/Scheme Remote Digital/Payment to mobile phone bill Remote Digital/Premium SMS Description Run by operators & aimed at low value payments for mainly digital content To pay for digital content & for interactive TV. Non-SMS based payments for mobile web digital content via WAP billing SMS based using a pre-registered account and/or mobile wallet SMS based transfer of funds between two mobile phones to redeem for cash or goods; can be also provided by mobile wallet or account based Mobile web browser user interface with WAP billing Text-based and Bluetooth transactions at the physical storefront Wave & Pay scheme where phones are waved in front of reader, e.g. NFC or FeliCa
Source: Juniper Research

Example Provider(s) Most Operators Content Providers such as Jamster & TV companies UKs PayForIt PayPal Mobile, China based SmartPay Jieyin & PayMate Obopay, Globe Telecom and Trumpet

Remote Digital/Mobile web & WAP billing Remote Digital & Physical/SMS mobile wallet & account based Remote/Person2Person (P2P)

Remote Physical/ Mobile web & WAP billing Point of Sale/Text & PIN & Bluetooth Point of Sale/Contactless

mPoria, Rakuten, Digby PayMate, Vodafone New Zealand, ROLLCOMM NTT DoCoMo, MasterCard PayPass and Visa

3. Near Field Communication (NFC)

In June 2006, the NFC Forum announced the NFC technology architecture and the first five Forumapproved specifications. NFC is a short-range wireless connectivity technology (also known as ISO 18092) that provides intuitive, simple, and safe communication between electronic devices. Communication occurs when two NFC-compatible devices are brought within four centimetres of one another. The underlying layers of NFC technology follow universally implemented ISO, ECMA (European association for standardising information and communication systems), and ETSI standards. NFC operates at 13.56 MHz and transfers data at up to 424 Kbits/second. One device is an NFC reader/writer and the other is a passive NFC tag which is embedded in an object such as a smart poster. The standard for contactless smart card communications is ISO 14443, dated 2001. It defines a contactless, or proximity, card that uses RFID (Radio Frequency Identification) to communicate with a reader, through the use of a magnetic loop antenna operating at 13.56 MHz. ISO 14443 consists of four parts and describes two types of cards: type A and type B. ISO 14443 uses the term PCD (proximity coupling device) (or reader) and PICC (proximity integrated circuit card). The NFC Forum also announced four initial tag formats based on ISO 14443 Type A and 14443 Type B standards, and on the NFC standard ISO 18092. NFC Forum-compliant devices must support these formats. In July 2007, the NFC Forum announced the specification of the initial tag formats to cater for the broadest possible range of applications and device capabilities1:

Source: Innovision White Paper Near Field Communication in the real world part II Juniper Research Limited Tel: +44 (0)1256 830002

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Type 1 is based on ISO 14443 A and is currently available exclusively from Innovision Research &
Technology (Topaz). It has a 96-byte memory capacity, which makes it a very cost-efficient tag for a wide range of NFC applications

Type 2 is also based on ISO 14443 A and is currently exclusively available from Philips (MIFARE
UltraLight). It has half the memory capacity of Type 1 tags

Type 3 is based on FeliCa and is currently exclusively available from Sony. It has a larger memory
(currently 2kbyte) and operates at a higher data rate (212kbit/s), which means it is suitable for more complex applications

Type 4 is fully compatible with ISO 14443A/B and is available from a number of manufacturers,
including Philips (typical product example is MIFARE DESFire). It offers large memory-addressing capability with read speeds of between 106kbit/s and 424kbit/s making it suitable for multiple applications. NFC devices are unique in that they can change their mode of operation to be in reader/writer mode, peer-to-peer mode, or card emulation mode. The different operating modes are based on the ISO/IEC 18092 NFC IP-1 and ISO/IEC 14443 contactless smart card standard:

In reader/writer mode, the NFC device is capable of reading NFC Forum mandated tag types, such as
in the scenario of reading an NFC Smartposter tag. The reader/writer mode is on the RF interface compliant to the ISO 14443 and FeliCa schemes.

In Peer-to-Peer mode, two NFC devices can exchange data. For example, you can share Bluetooth or
Wi-Fi link set up parameters, and exchange data such as virtual business cards or digital photos. Peerto-Peer mode is standardized on the ISO/IEC 18092 standard.

In Card Emulation mode, the NFC device itself acts as an NFC tag, appearing to an external reader
much the same as a traditional contactless smart card. This enables contactless payments and mTicketing, for example. NFC is also compatible with the broadly established contactless smart card markets based on ISO14443, MIFARE technology and Sonys FeliCa technology. The integration of contactless IC technology onto the mobile phone is the natural progression for this technology. The mobile phone has a number of distinct advantages over the smart card: the phone has evolved into a very powerful mini computer that can provide value-added services, such as marketing and advertising, to the payment or ticketing operator.

4. NFC Uses
The most widely installed contactless smartcard technology in the world, with over 500 million smart card chips and 5 million readers sold, is MIFARE. About 75% of all contactless smart card schemes worldwide use NXPs MIFARE technology for electronic ticketing in public transport, including London, Seattle, Sao Paolo and 130+ cities in China. One example of a MIFARE implementation is the Oyster card used by Transport for London.

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Figure 1: Oyster Card Using MIFARE Technology

Source: www.tfl.gov.uk

The NFC Forum views the possible applications of NFC as endless: a wide range of devices and machines is likely to become NFC enabled. Here are some examples, apart from mobile phones:

Turnstiles Parking meters Check-out cash registers or POS equipment ATMs Office, house and garage doors Personal computers Posters, street signs, bus stops, local points of interest (with NFC-readable tags only) Product packaging

5. Market Opportunity
The following figure provides Juniper Researchs forecasts for total NFC mobile payment transaction value. It is worth noting that the market forecast is in terms of the gross value of transactions. The value of the items being purchased will clearly represent the largest proportion of the value figures, although the proportions for the various participants in the delivery chain varies considerably according to how many there are, and the nature of the transaction mechanism itself. NFC will achieve traction initially in developed countries and regions, with Japan already leading the way with FeliCa-enabled phones. North America, Western Europe and countries such as Korea, Singapore and Australia are likely to see service take-up. After a slow start in 2008/09, when a lack of supporting handsets and infrastructure and viable business model restricts growth, global NFC mobile phone payment transaction values will exceed $75billion by 2013. The top three regions (Far East & China, North America and Western Europe) will represent nearly 90% of this market. However, Howard Wilcox cautioned: Whilst NFC trial results so far have been encouraging, the industry as a whole will need to convince both consumers and merchants of the merits of yet another payment mechanism on top of cash, cheques, credit and debit cards, and to allay understandable (even if unfounded) fears and scepticism about the security of the mobile wallet.

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Figure 2: Total Value of NFC Transactions ($m) Regional Forecast 2008-2013

$80,000 Africa&MiddleEast $60,000 $40,000 $20,000 $0 2008 2009 2010 2011 RestofAsiaPacific IndianSubContinent FarEast &China EasternEurope WesternEurope SouthAmerica NorthAmerica 2012 2013

Source: Juniper Research

Order the Full Report

Mobile Payment Markets: Contactless NFC 2008-2013
This whitepaper is taken from Juniper Researchs report entitled Mobile Payment Markets: Contactless NFC 2008-2013. In the full report, Juniper provides the most up to date view of the contactless NFC (Near Field Communication) mobile payments market and includes a six year forecasting suite of all the vital data and analysis vendors, service providers, credit card companies, banks and financial institutions need to maximise revenues in this vibrant sub-sector. The report investigates the current state of the NFC mobile payments market and the forecast suite provides market projections for shipment of NFC enabled devices as well as NFC devices in use for payments, NFC transactions traffic and NFC transaction value up until 2013. This report provides six year forecasts, across eight regions of the world (North America, South America, Western Europe, Eastern Europe, Far East & China, Indian Sub Continent, Rest of Asia Pacific and Africa & Middle East). Forecasts show NFC phone shipments, subscriber take-up, transaction volumes and values. Key Questions answered by this report:

How many NFC enabled devices will be shipped over the next five years? How many mobile users will pay with their NFC mobiles over the next five years? Which will be the leading regions in the market in 2013? What are the new service possibilities with NFC? What will be the size of overall NFC transaction values? How much will NFC users spend on their NFC phones in future? What are the trends, drivers and constraints affecting the development of the market?
For more details on this report visit the website www.juniperresearch.com or phone +44 (0)1256 830002.

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Juniper Research Limited

Juniper Research specialises in providing high quality analytical research reports and consultancy services to the telecoms industry. We have particular expertise in the mobile, wireless, broadband and IPconvergence sectors. Juniper is independent, unbiased, and able to draw from experienced senior managers with proven track records.

About the Author

Howard Wilcox is a Senior Analyst with Juniper Research, specialising in mobile broadband, WiMAX and mobile payments. He has over twenty five years experience in the Telecommunications sector. Howard has extensive experience of analysing markets, vendors and service providers in the telecoms networks marketplace. He was previously Director of Industry Intelligence at Marconi, where he has spent most of his career in a variety of analytical and management roles. Howard began his career at Ferranti after which he represented UK Telecoms Industry body Intellect as a Member of European IT Observatory (EITO) Task Force. Howard has a BA in Business Administration with French from Loughborough University. Publication Details Publication date: July 2008 For more information, please contact: Michele Ince, General Manager michele.ince@juniperresearch.com Juniper Research Limited, Wakeford Farm Business Park, Pamber End Tadley, Basingstoke, Hampshire RG26 5QN England Tel: +44 (0)1256 830002/889555 Fax: +44 (0) 8707 622426

Further whitepapers can be downloaded at http://www.juniperresearch.com

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