Deal paves the way for Chinese NFC dominance

By Adam Skuse Source:Global Times Published: 2014-1-12 21:13:01

Illustration: Lu Ting/GT



Telecommunications operator China Mobile and payment service provider UnionPay recently came to an agreement on standards for payment systems based on near-field communication (NFC) technology embedded in mobile phones.

Disagreements between China's largest mobile service provider and the Chinese mainland's only bank card organization have been holding back advances in NFC payment technology, which allows customers to pay for goods and services by holding their phones near payment terminals.

But with a deal now hammered out, China has a good chance of becoming a world leader in NFC payments, especially with major markets such as the US and Europe drowning under an overabundance of competing systems.

NFC technology allows powered devices such as phones and tablets, as well as non-powered devices such as bank cards, to share small amounts of data when they are in close proximity. It has emerged as a leading choice for contactless payments over other technologies such as Bluetooth and QR codes due to its combination of high security and low power usage, which makes it flexible enough for use in objects from mobile phones down to key fobs.

The earlier dispute between China Mobile and UnionPay centered around where NFC chips would be embedded. China Mobile wanted them to be in phone SIM cards - giving the company potentially more control over the system - while UnionPay, not wanting to be cut out of future NFC transactions, wanted the chips installed on separate SD cards within the phones.

The compromise that UnionPay reached with China Mobile (and which the country's other two mobile operators China Telecom and China Unicom have also agreed to) will see SIM cards house the NFC chips. However, they will not have any pre-installed bank apps, limiting the telecom operators' control of the system.

With the agreement sealed, China is now set to see an explosion in NFC payments, which will accompany its already-flourishing mobile payments sector.

Mobile payments include any kind of transaction in which a consumer's mobile device plays a part. A report by the Development Research Center of the State Council estimated total transaction volume of 800 billion yuan ($132.1 billion) in 2013, more than five times the turnover in 2012.

Meanwhile, despite their dispute over the finer points of NFC, UnionPay and China's telecoms operators have been preparing the infrastructure and support for a rapid rollout. Last year, UnionPay pushed ahead with upgrades to its point-of-sale terminals, meaning that now around 1.47 million are NFC-enabled. Operators have teamed up with banks to offer mobile wallets - allowing consumers to use NFC technology to make payments from their bank and credit cards - and are moving to make all handsets that they offer NFC-compatible. China Mobile and UnionPay have also tested NFC payments on Beijing public transport.

At the same time, smartphones running Android operating systems, which account for 79 percent of China's handset market according to figures from Kantar, for the most part already support NFC.

All this means that China could become a leader in terms of NFC payment user numbers, as major Western markets remain mired in a quagmire of competing standards, severely limiting adoption among consumers.

Survey results released late last year by Consult Hyperion and First Data in the US showed 60 percent of respondents were uninterested in mobile wallets. This is largely due to the high number of competing products from banks as well as divergent standards among payment providers and phone makers.

While AT&T, T-Mobile and Verizon formed an NFC alliance called Isis, they excluded Sprint, the US's third-largest operator with some 50 million customers. Online payment giant PayPal seems to have eschewed NFC altogether, opting instead for its own Bluetooth-based payment device. Then there was Apple's decision not to make the latest iPhone NFC-capable, in a market where Apple has a market share of over 40 percent.

Of course, there are still obstacles to overcome in China, not least convincing users and vendors that NFC payments are secure. But for now, it looks like the country could become an early leader in terms of usage by this time next year.

The author is a freelance writer. adam.skuse@yahoo.com bizopinion@globaltimes.com.cn

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