Category Archives: NFC

Apple and NFC

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Apple and NFC..

Nothing really new here for the NFC crowd. No new information..  Purpose is to paint a picture by which investors can make a call.

Most of the issues associated with NFC today are NOT technical.. but rather business: What value can it bring? Who controls it? Who makes the money? How is it shared? For payments… NFC has been a complete bust (with the exception of Asia). Retailers just aren’t excited about the prospect of paying credit card interchange (3.5%) for the privilege of accepting a mobile payment which funds a 12 party supply chain  (necessary to make NFC work).

The WSJ (July 6, 2012) and I both have consistent information that Apple will NOT be rolling out NFC in the iPhone 5. If true, I believe Apple’s exec team is taking a brilliant approach to be a late follower here. Let everyone else pay the freight to educate the customer, and establish a high level retailer POS value proposition (with associated retail infrastructure). Apple is much better positioned to extend the App Store experience into mCommerce.. and control the customer end-end experience. Apple will also likely expand “selectively” into physical commerce areas like ticketing.

To be clear, I’m not positioning that Apple has run away from NFC.. but there has been no success to date and there is no reason for Apple to run into this space. In order to monetize and sort of physical POS solution, Apple must have a business structure that can orchestrate a very complex “physical commerce” value proposition. Keep in mind Apple doesn’t have much of a sales force to cover advertisers AND retailers globally. Rather than “focus” on the POS, or implementing standard NFC chipsets, I see Apple doing something “unique”… What is it?

I was meeting with senior NFC execs this week, and the consensus view is that Apple will likely redefine phone hardware architecture.  Most of you have read about Apple’s recent patent application which would allow the SIM to be logically placed within the SE. Also there are rumors about expanding the capabilities of the Radio and Controller to also cover Bluetooth functionality. The “value” that an integrated hardware solution? Not that much different than what NFC alone is capable of.. but it would greatly reduce footprint, power, time, and perhaps even expand “throughput” (example Accelerating/bypassing BT pairing: NFC is  424kb/s while Bluetooth V2.1 is 2.1 Mbit/s).

Although far from being an expert in this area, my summary view is that Apple recognizes the need for a secure radio and data store in the device that it can control.  A metaphore for an ID.  How do they want to control this ID? Well they certainly need to secure the wallet access (AuthenTec $356M last week, plus rumored IRIS scanning).

This approach is opposed to that of the carriers all of which are working very hard to “standardize” on an NFC architecture (Single Wire Protocol – SWP) that they will control. Apple’s plans are firmly in the opposite direction, and a brilliant business move. Giving carriers the control over this utility would be akin to letting them run an app store that they control.

Apple may be running much faster than anyone in the industry knows toward this vision. Perhaps they have already indigenously created this new combined secure element/UICC/BT Radio. Although I see no need for them to run with this early… But if they did create this capability in the iPhone 5 they will certainly have the control to govern how it is used.

What does this means for investors? Perhaps you start by asking Vivotech’s .. as they just folded up shop after 12 years. A fantastic team with a rock solid product line.. their fault? Betting  NFC would take off sooner.  Given Apple’s unique ability to capture mobile ecosystem profits it is always tough to find areas to nibble.  On the software side, how can new companies help Apple orchestrate value propositions in the physical world? Retail? Ticketing? Healthcare?.. The times.. they are a changin…

Apple Passbook: No NFC Here…

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I’ve covered this topic quite a few times

As most of us have known Apple has been out of the NFC game for some time (18mo+). It’s just amazing that the mainstream press can be so caught up in a disinformation hype cycle that seemed to have been started by some kind of patent application. Yesterday’s WSJ had a fantastic article on Apple’s plans.

What makes for a “successful” consumer wallet? From previous post:

Customer Trust, Customer Control, Convenience, Ubiquity (opposite of lock in), Intuitiveness, Experience in Use (buying, redeeming, accessing, ..), Security,

If I have a wallet that only accepts 3 cards that are not accepted at any of the top 20 retailers (ie ISIS), it is of little value. Why not let consumers control what goes in? This is where carriers must get to in order for NFC to survive. Even then, NFC phones are far from my recommendation. After all if your payment information is locked in a mobile phone how do you use it when you are at your computer buying something on Amazon? Locking information in a phone is just plain stupid in the age of the cloud.. most agree that individuals should have a their information in a cloud they control. The NFC zealots reading this blog will respond that it NFC doesn’t require a network and is more reliable… my response, the POS and payment terminals are connected.. NFC doesn’t need to hold the card in the SE.. it just needs some sort of identifier.. or in the Square cardcase example no NFC at all just your voice print. After all if there is no auth from the payment network.. the transaction will not happen.. so something is connected in 99%+ of card transactions.

I’m very impressed that Apple’s exec team has kept the iPhone away from NFC… strategy brilliance is an understatement. By expanding Apple’s ownership of Digital Goods (old blog here with financials) into mCommerce (ie physical goods bought via phone) and narrowly aligned Physical commerce (ex. Ticketing) they can maintain ownership of the entire consumer process.. from marketing, sales, purchase and “delivery”.

Apple’s unique ability to garner 75% of mobile handset profits is shifting from DESIGN to VALUE ORCHECTRATION (see blog). No one can orchestrate value in NFC (see 12 party mess).  What is truly ironic is that as the carriers spend hundreds of millions of dollars on NFC and their walled garden strategy to “force control”, Apple and Google will be further ahead in coordinating value in new networks. This value delivery outside of the mobile network will further cement carriers roles as dumb pipes (related blog).  This seems to support my hypothesis (often stated) that it is nearly impossible for legacy networks to adapt in delivering new value propositions.

NFC and Consumer Choice

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7 May 2012

Thinking about consumer choice today. As the MNOs think about how to lock up the SE and SE Management.. when does a consumer get to choose what is on their phone?

As most of you are aware, ISIS is charging each and every issuer for the “right” to put their cards on the phone. In a tweet 2 weeks ago I mentioned that all of the phones in market have a major problem: they can only support one card emulation application at a time. Although I’m not completely sure if this is a firmware issue or “silicone/memory” issue it relates to the storage on the NXP’s chip. Apparently the latest version’s of NXP’s chips don’t conform to Amendment C of Global Platform’s 2.2 Specification (supporting multiple card emulation apps).

http://www.globalplatform.org/mediapressview.asp?id=777

What this means is that your new NFC phone could have hundreds of Visa cards loaded.. or hundreds of MasterCards.. but the phone can’t support the signed java applets (card emulation apps) from Visa (paywave), Mastercard (paypass), Discover (zip), Amex (expressPay), Transit (…).. you get the picture.

Doesn’t everyone want a wallet where all of your cards can get stored? Visa, MA, Amex, .. plus loyalty, gift, … ?

My hope is that the market (and regulators) will push to keep consumer choice at the center of mobile phone wallets. If the carriers can’t lock down the SE, consumers will be able to choose the most effective option. Retailers know that the only cards willing to “PAY” to get in the ISIS wallet are credit cards.. which obviously impact their interest in accepting a 350bp payment product.

The mobile wallet that “wins” will be the one that offers consumers the most control. Letting consumers load any card they want.. without that card issuer first having to pay some sort of toll to the mobile operator. Also letting the consumer decide who gets access to what data. This last area is something that needs improvement beyond data that is stored in the SE. Right now apps are taking the approach of “take it or leave it” agreeements:.. we get your location, e-mail, contacts, usage, …  This terrible approach is leading to an unbelievable dissemination of data that is completely out of control. This is why HTML 5 will win.. Apps are becoming the paradigm by which companies obtain almost unlimited customer information.. and consumers will wake up soon.

As a side note, isn’t it amazing that this topic hasn’t been covered more broadly? Of course it speaks to the true uptake of mobile payments (at POS) in general..

My funny story: I went to the Duane Reade directly across from Penn Station last month. DR was a Google wallet launch retailer in NYC, with all of the beautiful marketing logos. I waved my phone to check out..  and the store manager was there behind the 8 cashiers.. he said “is that Google Wallet”.. I said no it was a Citi Sticker glued to the back of my iPhone.. I asked him how many purchases he has seen from people using their phones.. Answer “none in the last 2 months”… Across from Penn Station… wow..

Carriers as dumb pipes?

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25 April 2012

I just bought a brand new Galaxy Nexus on Google’s new play store today (https://play.google.com/store), very excited to have an unlocked GSM phone that I can take with me around the world. Better yet, I can now take advantage of Google wallet and many new NFC based applications..  independent of any carrier (… although the Sprint people are A+).
Given Apple’s tremendous earnings yesterday: 80% growth in iPhone shipments (30M), 150% year-over-year growth in iPad shipments with margins improving to 47%…. what does the future hold for carriers? If consumers go to the Apple store to select THE product will The Network be an afterthought? Its not just the MNOs who are on the short end of the stick, Retailers also loose when manufactures like Apple create an effective BRAND, PRODUCT and EXPERIENCE (see related USA Today article and Forbes).
How are the carriers responding? What are they doing to deliver new value or help the industries impacted by this new dynamic? They have gotten together to create an environment where they completely control everything: NFC (in the US it is a consortium called ISIS).  I was one of the first to break news of this consortium back in 2009, with some strong recommendations on their strategy (see Ecosystem or Desert).  If you were a retailer, or small company with limited resources, where would you place your bets? With Apple..? or a consortium of mobile operators that have been working for 3 yrs trying to get a pilot working across 12 different suppliers.

This week, I was struck by how similar the carriers “walled garden” NFC strategy is to previous attempts to create a “Walled Garden” . Why are the MNOs recycling the same control strategy? Remember Einstein said “the definition of insanity is doing the same thing over and over again, but expecting different results”.  As background, VZ (and most MNOs) love the “walled garden” strategy.

Version 1(2004-Present). BREW platform from Qualcomm (dumb phones).

Version 2 Handset capabilities

  1. Verizon invested over $300M in GPS “platform”, an investment they planned to recover by charging for Apps that wanted to use GPS. RIM was the first to realize that it could not deliver consumer features at odds with what VZ would authorize.
  2. Firethorn was the first payment related application that VZ promoted. Objective was to limit all consumers to Firethorn as the only approved “signed application” where consumers could check their bank balance. Banks were each asked for $1M to allow for their customers to check their balances on this MNO controlled application.. yeah.. great idea (2007)
  3. Search. $600M exclusive deal w/ MSFT in 2009. Unfortunately for MSFT, Android was not included agreement and then VZ make “Droid” THE key marketing theme.
  4. I could go on.. but

Version 3 NFC

  1. Control SE (http://tomnoyes.wordpress.com/2011/02/03/isis-platform-ecosystem-or-desert/)
  2. ISIS. Consensus is that the carriers will keep plugging along at this for 10 years..  however without talent, retailers and handsets I don’t see how they can sustain investment.
  3. Create a new BREW.. handset platform that leverages NFC and secure customer data.. payment (ISIS) is just one of the applications. Note that most carriers are in midst of issuing RFPs for SE management (my vote is for Sequent here). The objective of this effort is to create a “secure platform” where applications can leverage customer data (for a fee).

Would you want to “play” in a walled garden? The owner gets to make the rules and take the rug out from under your feet (ie MSFT $600M). Where the star (ie Apple) is able to negotiate special treatment or go over the top without you ever being aware? No way.. you can’t run a business like this. I wouldn’t even want to play..

Carriers must think about value creation before they can think about control. Apple earns its margin from brand and experience… they are not forcing people into their store. For example, the Samsung Galaxy Nexus is an unbelievable phone… easily on par with the iPhone.. But the carriers won’t let it in the market unless Google give them the keys to the SE.  It’s just crazy…My 11 yr old son can guess what happens next.. Google starts selling the phone directly (which I bought today). As most readers know, the US handset market is a very strange place (handset subsidies and post paid plans). The rest of the world buys their handsets and selects the carriers based upon cost/coverage. What if Google and Apple were to subsidize handsets through marketing, as opposed to anticipated spend? If telephone calls and data were routed through wi-fi whenever available? What do carriers have left?

Every point of “friction” which carriers create.. FURTHER ERODES their future profitability as this friction improves the profitability and market opportunities for companies going above, around and under them. Carrier business culture and experience all surrounds the walled garden “control” approach. This control approach works well for Apple as it has developed an integrated value proposition.. It does not work for the carriers that offer connectivity. To expand beyond connectivity carriers must create new services.. the must become orchestrators of value.. not controllers of handsets. In other words they need to shift from a “permission/transaction/payment” paradigm to  one of discovery->need->->fulfillment. (see my previous blog).Attention US Mobile operators… today your trajectory is headed toward dumb pipes.  You cannot deliver value through control.. no one trusts you.. and you can’t sustain investments to compete against Google, Apple, Facebook, …

What should you do? Where is the revenue opportunity? It is in value orchestration. You have direct consumer relationships… leverage them for marketing, authentication, personalization, awareness. The good news is that Hardware will peak and reach a “good enough” stage. If hardware is a commodity, then brands will begin to deteriorate.. and value orchestration will shift further from the handset node into the Cloud. If any operator agrees with this.. then ask why on earth are you locking all of this customer data inside a phone (NFC) where it cannot be used or sync’d with the cloud.

I will get off my soap box now.

BTW.. AT&T I fully appreciate that you can disable my new Nexus.. please dont make me go to an MNVO.. just another point of friction.

Digital Wallet Strategies

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Warning.. I ramble a bit in this one.

23 March 2012

Description: Mobile Market BreakdownDoes anyone remember Microsoft Wallet circa 1997 (See Wikipedia)? Digital wallets are certainly not a new phenomena. Today we are struck with eWallet saturation: Google Wallet, ISIS Wallet, Visa Wallet, iTunes accounts, Amazon Accounts, Square, PayPal, …  How many places must store all of my credentials?

For my own benefit I thought I would take a brief look at the history to determine what the future may look like (As the future holds the key for my investment decisions). With respect to Wallets, what are they? What are successes and why? What is the consumer value proposition? What are the risks? What does the future hold?

My last blogs on this topic were in November 2009, Investors Guide to Mobile Money, and in 2011 – Tough Start for Mobile Payments.

What is a Digital Wallet?

My all time favorite YouTube video definition is below (Courtesy of Google)

http://www.youtube.com/watch?v=gKGptWtzeaU

[youtube=http://www.youtube.com/watch?v=gKGptWtzeaU]

Proposed Definition: A consumer owned and controlled account that can store any electronic form of what is normally held in a physical wallet, including: payment, ID, coupons, loyalty, access cards, business cards, receipts, keys, passwords, shopping lists, …etc.

This definition sounds broad enough..

As a consumer, what would you think of having multiple physical wallets? I personally don’t have that many people I trust. Trust is a very important element to a consumer. Some of the information in my wallet is sensitive, and there is also a financial risk associated with loss of payment information (particularly outside of the US).  What kind of entity would want to assume the risk of holding all of this information?  Which reminds me of a story,

I was in a Board Meeting with a senior partner of a “Top 3” VC discussing consolidated sign on. A start up was proposing to hold all of the login credentials for all of your bank accounts. As the former internet head for both Wachovia and Citi I had some firm views on the topic and asked “who is going to take the risk if credentials are compromised”? I further explained “it is not a technology problem, but a risk problem.. Bank’s will not let someone keep their Customer’s keys if they can’t insure the risk”. As a side note, I also instituted a policy that if a customer discloses their credentials to anyone, they are responsible for any losses that result (sorry Yodlee).

Within a Digital Wallet, securing information AND giving Consumers the exclusive ability to control what is shared with whom is a challenge (beyond technology and trust). We thus have many limited “Wallets” that are constructed around specific purposes, for example Microsoft’s wallet has evolved to LiveID.  From a pure technology perspective, the mobile phone (with NFC) seems to present an opportunity to provide the Consumer with a device that can uniquely handle the security and authorization aspects of a holistic digital wallet. In my view, the challenges faced by the “phone as wallet” are business related. Per my definition above, a wallet should allow consumers to control what goes in and how it is used. Today we see the carriers (ex ISIS) create a platform based upon their control, allowing only cards that have paid a fee to enter into their wallet. I digress…

What makes for a successful wallet?

Customer Trust, Customer Control, Convenience, Ubiquity (opposite of lock in), Intuitiveness, Experience in Use (buying, redeeming, accessing, ..), Security,

If I have a wallet that only accepts 3 cards that are not accepted at any of the top 20 retailers (ie ISIS), it is of little value. Why not let consumers control what goes in? This is where carriers must get to in order for NFC to survive. Even then, NFC phones are far from my recommendation. After all if your payment information is locked in a mobile phone how do you use it when you are at your computer buying something on Amazon? Locking information in a phone is just plain stupid in the age of the cloud.. most agree that individuals should have a their information in a cloud they control. The NFC zealots reading this blog will respond that it NFC doesn’t require a network and is more reliable… my response, the POS and payment terminals are connected.. NFC doesn’t need to hold the card in the SE.. it just needs some sort of identifier.. or in the Square cardcase example no NFC at all just your voice print. After all if there is no auth from the payment network.. the transaction will not happen.. so something is connected in 99%+ of card transactions.

Consumer Value Proposition

Description: C:UserstomDocumentsPersonalblogIPP_3_clusters_labels.jpgMy primary digital wallet is Amazon, with Paypal as a close #2. The buying experiences are just superb, unfortunately neither extend well into the POS. I have a PayPal debit card I use here.. but I have a hard time justifying why I would use a paypal debit card that pulls money from a pre-funded account which is tied to my Bank of America Checking.. why not just use my BAC Debit Card? I don’t think I’m alone here.. The thought that comes to mind: why do I use PayPal at all? Convenience is certainly a key element, but I also really don’t like giving out all of my personal information to every vendor I do business with.  Why does any vendor need to know my name? Is there a business case for anonymity? For Readers in Germany I know your answer… of course there is.

Most Silicon Valley eWallet business cases are being built around data sharing and “closing the loop”. In a network analysis model, every step away from the optimal consumer experience (control, anonymity, ubiquity,..) impacts broad based adoption.  Alternatively, new value propositions (ex incentives, rewards, loyalty, …) can reverse entropy, but only within specific groups/clusters (that realize the value). Thus a highly fragmented world of wallets, each built around specific functions limited to narrow networks, where customers exercise only limited control and hence participate in a limited fashion.

Risks

My last blog on Payment Risk was associated with Square (I still don’t like the swipe, but I have eaten my shoe now that they have surpassed $4B GDV and have developed CardCase… which I love). Microsoft had grand visions for Wallet and Passport, and pulled back for a number of reasons. Globally, most consumers still have problems putting all of their information in one place. The Fed, OCC, FTC, CPFB, Banks have all been circling around the broad proliferation of consumer data.. what are the risks of having your payment instrument stored with 100s of vendors? While at the The Clearing House’s annual event, I was pinged by a JPM Chase exec.. what will be done to secure payment information?  At the policy level, many believe there is a national security risk in the compromise of our payment systems…  It is something all of the Banks are thinking about.

While cloud based storage of information sounds fantastic… there remains a gap in integrated controls, security and authentication. This is where I see both the US and EU taking action on consumer data access and controls much beyond what is now within PCI. Given today’s technology, there is little reason for any merchant to hold your actual credit card number.. yet it is still the case.

What business incentive is there for any entity to hold “unlimited” sensitive consumer information? If the information cannot be accessed without user consent? All of these factors will shape wallet functionality to either something focused within a given domain, or under complete control of the Consumer.

Wallet Strategies

1) Consumer Friendly.. Single store for all consumer information. Payment, loyalty, reciepts, … The players I see here are Google, Square. (note I acknowledge everyone at PayPal just rolled their eyes and point them to my Disclaimer above). Business case is around customer data access.

2) Marketplace focused. Obvious players here: Starbucks, Rakutan, Amazon, Apple, Paypal, Target Red Card. Objective: Deliver a fantastic customer experience in purchasing within a focused marketplace.

3) Form Factor/Device Focused. Mobile Operators, Card Networks, . Deliver technology and incent buyers/retailers to participate. This is not working out so well, exception is Edy.. may work in markets with dominant carrier.

4) Bank Consortium. We see this more in Europe at the moment, but I believe the US regulatory bodies are pushing banks to work together here.  Much more payment focused, and thus minimal consumer value… Banks/Fed must realize mobile is not about a new form factor, but a new value network.

5) Retail/Transit Consortium.  Transit is already clear leader here in Asia…. Transit actually resembles more of #2.  Where there is only one transit company provider I believe it is.. this Category is defined as one wallet working across multiple retailers.. I look at this as incentives tied to something like a decoupled debit.

6) Commercial. Example outbound payments, payroll distribution, global dividend payments – hyperWALLET.

7) Other???

Future of Wallets

“Limited Wallets” can obviously be very successful: Starbucks, PayPal, Amazon, Apple iTunes, Oyster, Edy, Suica, Octopus, hyperWallet…. But all started around an existing marketplace/system. In order for an independent wallet to thrive it must deliver value within a core network. My approach to evaluating retail payments evolves around a central hypothesis: payments support a commercial system, they are only the last phase of a long marketing, incentive, shopping, selection, and buying process.

Networks are resilient to change, this is both an asset and a hindrance. The value that is delivered within an existing payment network is tied to the commercial system in which it operates. This includes both business agreements AND technology, neither of which are easy to change. As the nature of retail changes (example payments, and incentives across virtual and physical channels) new “value exchange” networks will form. Existing payment networks will certainly attempt to change, but given their distributed ownership, nodal control over rules, and legacy infrastructure it will be “a challenge”.

In the US today, this is what is happening with Google Wallet, Bank initiatives to form “the next Visa” and Large US retailer’s plans to form a new payment network that they control. Today’s wallet initiatives are operating in a very dynamic landscape: retail is changing, technology is changing, new value networks are forming, new marketing platforms are emerging.. The margin is always better in orchestrating the interaction, than in coordinating the transaction. Thus I place my “wallet” bets in the short term with groups that can control the commercial marketplace (ie Apple, Amazon, eBay, Retailers, … ), and with groups that can orchestrate new value propositions (ie. Google, Square, hyperWallet, ..etc).

Have a great weekend… My Asia thoughts are next.

Worlds Largest mPayments Partnership?

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http://rfpconnect.com/news/2012/2/27/vodafone-and-visa-announce-world-s-largest-mobile-payments-partnership

This stuff gets harder to interpret every day. My guess is that Vodafone is integrating the “Visa Wallet + Prepaid” products into what Vodafone has built. This enables banks to accelerate adoption, and to “partner” w/ Vodafone for the defacto stored value account within a given market. This obviously simplifies the regulatory issues. Not a bad plan.. but how can you decipher this from the PR? By integrating the Visa Wallet (ex CYBS) they can also extend beyond POS … So key question to ask here.. WHERE is the stored value card held? In the phone alone?

Comments appreciated

Apple and NFC?

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1 Feb 2012

Apple and NFC? I don’t think so.. my bet is 70% against. Great that Apple can keep us all guessing. Why put a 5th radio in the iPhone? AND hand carriers control of SE. There is just no upside for Apple here. NFC would not enhance their wonderful mobile customer experience…  it may even kill their Apple/App Store/Apple ID/Payment Instrument advantage.

It would be smarter if they would buy Square… payments belong in the cloud… not locked in the phone. All you really need at a POS is an Irrefutable ID. In a Square scenario, Apple could leap frog everyone in customer adoption and enable every iPhone owner to pay with their voice and GPS location ( Apple has payment instruments tied to every iTunes account). The gap in this scenario is merchant adoption, existing merchant processor agreements/hardware, and retailer reconciliation (if multiple processors). Apple, if I were you I would sit down w/ Square, FirstData, TSYS, … and see what could be done. NFC requires coordination of too many parties.. a late follower would be a much better place to be. Your top risk is that consumers will buy phones based on mobile wallet. Your short term strategy? I pay with my iPhone today (see pic). 

Don’t get me wrong, NFC can work.. but the carriers have proven inept at managing a platform business which would incent the participation of many businesses, allowing all to make money. Instead they operate as a toll bridge, but expect to take a portion of the goods in transit. If you operate as a toll bridge you are a dumb pipe… period.  It just does not take much intelligence to run a control business, sure it is complex to build the bridge..  But it even more complex to coordinate the logistics of the world’s commerce. The carriers focus on control is killing the prospects for NFC’s success, as they attempt to act like an orchestrator (requesting a % of goods in transit) but have the ability of a toll collector.

Commerce will find another path… one of least resistance. This is what Apple should do as well. NFC is just a radio… one whos standards are largely controlled by banks, mobile operators and card networks. Why would retailers want to participate here at all?  We should not act to enrich the complexity of payment networks, or wireless ones, but rather form new networks that are retailer and consumer friendly.  Bluetooth, wifi, gps, voice, facial recognition, sms, .. all can do the job NFC does.  We will not see harmony here over the next 20 years, particularly as the only payment instrument in a mobile wallet is a 300bps+ credit card.

Why is Japan successful? because they have a dominant carrier that built a business model..  same in Singapore and Korea… in the rest of world.. chaos will reign until someone delivers retailer and consumer value.

http://www.appleinsider.com/articles/12/01/30/mastercard_acknowledges_it_needs_apple_to_bring_nfc_payments_into_the_mainstream_.html

Related Blogs

 

Update 3 April 2013

My bet on next version of iPhone? Broadcom’s BCM43341 chip 

Broadcom has launched the industry’s first quad-combo chip. The BCM43341 combines NFC, Wi-Fi, Bluetooth and FM radio on one chip and, says Broadcom, “offers OEMs unmatched size, power and cost advantages.”

A second new product is a single card solution that pairs a BCM20793 NFC controller as used in the Google Nexus 4 with an 802.11ac (5G) WiFi radio and is aimed at high end mobile phones and devices.

Does that mean the next iPhone will have NFC? yep.. but not in the way we think about it today.

 

http://tomnoyes.wordpress.com/2011/02/03/isis-platform-ecosystem-or-desert/

http://tomnoyes.wordpress.com/2011/12/05/isis-delay/

http://tomnoyes.wordpress.com/2011/10/26/apples-commerce-future-square/

http://tomnoyes.wordpress.com/2011/01/26/apple-and-nfc/

Building Networks and “Openness”

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8 Dec 2011

I’ve been reading some off beat stuff lately. One book “Weak Links: Stabilizers of Complex Systems from Proteins to Social Networks” was very thought provoking. As Mark Stefik (PARC Fellow) said ‘Something magical happens when you bring together a group of people from different disciplines with a common purpose.’ The combination of people, experience and approaches often leads to unexpected consequences.

As an engineer I like to solve problems.. I usually learn more from mistakes than I do from successes… but it is the learning that is fun. As an investor and entrepreneur I don’t like making mistakes… my preference in the start up environment is to have the learning cycle counted in minutes and days (vs customers and capital). I was speaking with a US Central Banker last month and the concept of “openness” was discussed. A hypothesis was laid out by the Fed “Mobile payments are not taking off because of a lack of common standards”.  The Fed team is very good, the best way to encourage a good dialog is to lay out something radical; as for this hypothesis I disagreed completely. As stated in my numerous blogs: history has clearly showed that closed systems must form before open ones.  I also told the Fed that the problem in US mobile payment IS NOT lack of standards but lack of a value proposition to consumers and retailers. In other words existing payment instruments solve all of my problems.. mobile payment simply does not add additional value (in isolation) compared with existing products (See Mobile Advertising Battle). In order to stimulate a change in behavior (merchant and consumer) there must be a strong value proposition. Two years ago I discussed the implications for broad payment standards in SEPA: Chicken or the Egg and in March of this year I outlined how SEPA has depressed payment innovation in the EU.

Given all of the chaos in NFC at the moment, I woke up this morning asking myself what is the “right amount” of openness and standards? How do successful networks form and mature? What are successful “open” networks? What is the first “open” standard you think of ? TCP/IP? Linux? Java? RosettaNet? EDI? Open Network? Internet? GSM? US Interstate system? SEPA? The Weak Links book opened my eyes to many new concepts, one was on how affinity influences network creation, and another on how few open networks exist in Nature. Networks form around a function and open networks are not necessarily the most efficient.

Scale-free distribution (completely open networks) is not always the optimal solution to the requirement of cost efficiency. .. in small world networks, building and maintaining links between network elements requires energy…. [in a world with limited resources] a transition will occur toward a star network [pg 75] where one of a very few mega hubs will dominate the whole system. The star network resembles dictatorships in social networks.

The network forms around a function and other entities are attracted to this network (affinity) because of the function of both the central orchestrator and the other participants. Of course we all know this as the definition of Network Effects. Obviously every network must deliver value to at least 2 participants. Networks resist change because of this value exchange within the current network structure, in proportion to their size and activity. Within the EU, SEPA undertook a rewrite of network rules and hoped that existing networks would go away or that a new (stronger) SEPA network would form around its core focus areas (SCT, SDD, SCF, ..). It was a “hope” because the ECB has no enforcement arm. In other words there was a political challenge associated with ECB’s (and EPC specifically) ability to force an EU level change on domestically regulated banking industry.. given that SEPA rules destroyed much value in existing bank networks, the political task was no small effort. We have seen similar attempts (and results) when governments attempt to institute major change in networks (Internet NetNeutrality v. Priority Routing, US Debit Card Interchange, …)

Mobile Payments Standard?

If we take a look at today’s payment networks what are the biggest problems to be solved? I have a perspective, but its certainly biased. How about payment routing and speed? These seem to be common merchant and consumer concerns. Keeping with an internet analogy, can you imagine if there were no DNS servers to route IP traffic? Every router would have to keep the directory for the entire internet not only of the final destination, but also the most effective route to forward traffic. What if the internet were not indexed? No ability to find information (thanks Google for fixing this).  In the payments environment, the central assets of Visa and MA is 1) A Directory and 2) the rule that EVERY participant must route traffic through them (with a new PIN debit exception in US).

Outside of card transaction’s banks maintain their own directory for routing retail and commercial payments; this is called “least cost routing”.  A key bank service I would propose (note: I’m not the originator of this idea) is a universal directory service mapping e-mail, phone and account numbers.  In Australia, the banks have this today run by my friends at Cardlink and completed under project Mambo. In the US, The Clearing House (TCH) has had the UPick service completed for a number of years.. without much interest.

My thought here, is that rather than facilitate a EU mistake in mandating a change in all rules.. decrease the switching costs between networks so that market forces can take hold. I’m not proposing to take the directory public.. but at least give regulated entities equal access. In Australia the driver was to decrease bank switching costs, also note that Australia has no Signature debit.. just as in Canada.  A common directory could also follow rule that non-regulated institutions could not hold account data (or card number).. Just as I don’t have to know my Bank’s IP address.. I could use another identifier (email, mobile, …) for online transactions. The danger for banks is that this would certainly open up the world of least cost routing to non-banks. Payments would become “dumb pipes”.. which is perhaps what it should be.

Mobile payments is certainly not critical government infrastructure. So what is Government’s proper role? Consumer data protection, transparency, regulatory requirements, equal participation/access..  ? I don’t know the answer. I like the idea of the Government creating a model service for R&D purposes.. perhaps based on Fedwire and letting non-banks have access to it… I also like the idea of a common directory.

ISIS

For 2.5 years I’ve been writing about ISIS.. I’ve always have been a huge advocate.. until lately. What has changed? My position, and that of retailers, is that today’s payment networks are heavily tilted in favor of the banks. The opportunity I originally saw for ISIS was constructing a new merchant friendly network that was an “extension” of the current mobile network which the carriers run (The original business case for ISIS is outlined in ISIS: Moving Payments from Rail to Air).

Keeping with my theme of openness and standards how is ISIS creating a platform for other to invest in? What value is an ISIS mobile payment to a retailer? Yesterday’s blog talked about the complex supply chain necessary to deliver on NFC. Don’t get me wrong, there is nothing wrong about NFC technology.. it is a very well defined specification. But it is complex.. if it was a NEW WAY of doing payments (or better yet commerce) perhaps it should have started a little less ambitiously. The team seems as if it prudently sought to reduce risk, but it also gave up on a central element to its value proposition. My analogy for today is that ISIS project is like Vanderbilt’s skipping steam and going straight for high speed mag lev in 1880…. While the entire country was growing at a 10x pace and he had no right of way..

Big projects are tough in normal times.. but mobile is changing at an unbelievably fast pace. Small focused projects are certainly lower risk when innovating at the cutting edge. Everything is changing.. how could anyone architect an open system in such a fast changing environment? It would seem that technical standards like TCP/IP or GSM were successful because of their ubiquity and distributed control. They could be used by all to create different networks with different value propositions.. which incented millions of companies and consumers to invest.  I just don’t see how MNOs can create a business platform based on NFC. Their best shot may be to work with someone like Sequent Software to create an architecture for 1000s of applications to access secure element data.. instead of the one single CSAM wallet coming out in Pilot Dec 2012.

Your thoughts are appreciated

Previous Blogs (Nokia NFC Ecosystem, ISIS Ecosystem or Desert, Banks will win in Payments.. but WHICH ones?)

Nexus S – Verizon’s Plan B

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6 December 2011

Today’s WSJ article that Verizon plans to block Google’s wallet on its new Samsung Galaxy Nexus .  While the mainstream press sees this as a slam on Google… I see this as Verizon constructing a fallback strategy. Why on Earth would Verizon want to allow the Nexus S on its network at all? It is a 2 year old Google designed phone which embeds a “non-standard” NFC architecture (embedded SE) which is controlled by Google (and cannot be controlled in a UICC based architecture).

As I stated yesterday, the ISIS is experiencing delays in its “go to” architecture. The rumor is that the current ISIS timeline is pilot in December of 2012 and production in mid 2013. I see this move by Verizon as accomplishing 3 things..

1)      The Google Nexus S is the only production NFC phone in the market (actively using NFC.. 50M blackberry’s have it.. but element is cold and lonely). It could allow Verizon and the ISIS team to reconfigure their CSAM wallet platform to this “non standard” architecture to accelerate time to market for a test.  The desired ISIS architecture is SWP/UICC based…  Note that if this is indeed Verizon’s plan, they will need Google participation as Google owns the SE keys in the Nexus S AND they have not published the APIs for the NXP element access

2)      Gives Verizon a phone in the market to pilot with Google. In other words they can play in the Google camp without a formal commitment. Verizon can play ISIS and Google off of one another to see which horse will win. This is very smart.

3) Gives Verizon access to NFC/Android much beyond payment. As Google has clearly articulated in Android Beam, NFC will be the tool for machine-machine communication. How you share pictures, videos, music and apps with another phone. VZ’s current NFC plans revolve all around ISIS and payment (and very closed), Google sees NFC as another radio to do many, many different things. As this week’s Comscore report shows.. Android’s 46%+  market share is a key driver of VZ’s success. VZ needs this handset not just for wallet.. but for access to all the other cool new Google toys that will come out supporting NFC. The question the analysts should be asking VZ is how their SWP/UICC architecture plays in the Google model. How will VZ allow many apps to access the NFC radio AND the secure data? There is only one software company that can help here and that is Sequent.. The other option is a multi SE architecture (see my previous blog, note blog was wrong on Apple), which RIM will likely support. In either of these scenarios, complexity reigns.. the only real option is to let Google drive the definition and the apps. Perhaps this is why VZ has thrown in the towl to Google’s Nexus architecture (hardware).. but not yet on software (wallet)

Don’t believe everything you read.  Verizon’s decision to commit to selling the Galaxy Nexus  is an indication of major strategic planning.

Related article on the ISIS Platform: Ecosystem or Desert?

ISIS Delay..

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ISIS Delay

My last blog on this subject was only 2 months ago.. Headline was “ISIS has 12 months”.  Rumor this week is that ISIS has 12 months to go TO PILOT (Dec 2012). The driver seems to be the UICC chip that supports the SWP SE (Gemalto’s fault??).  Note that my previous nine party chart did not even consider the UICC.. so here is a revision.. (added UICC, MNO, and POS register)…

How would you like to run an industry consortium that had to coordinate a release and a new technology across 12 different companies!?? Oh.. a few other minor considerations as well:  no compelling customer value proposition and against Google? My favorite question to ask anyone from ISIS is what will the application do for me that my Citi sticker won’t do now?

  • Provision over the air? (Who cares)
  • Turn on/off the card/element? (Who cares I don’t pay for fraudulent charges)
  • Offers? (Who cares.. Citi can tie merchant offers directly to card use.. Clovr Media/Linkable)

There are MANY future functions like eReciepts and Item level coupons.. but these are VERY far off because they require retailer participation.

ISIS is proving that the NFC supply chain is not workable… at least not without a very substantial customer value proposition. A December 2012 delay to a PILOT may well be the death knell for ISIS… how can carriers invest $200M in a team that won’t see production until mid-late 2013?   There is no shortage of parties complaining about Google’s approach.. but by taking control of the spec, the architecture, the handset and “TSM” they have eliminated the complexity and have been able to get something to market… and are improving from there based upon REAL customer feedback. So while ISIS will struggle to get a pilot running by late next year, Google is signing up new retailers every week, improving its applications and gaining market experience.

As I outlined previously, carriers started from a basis of control with the NFC Forum’s technical specification. Obviously, the handset has proven to be a platform of digital/physical convergence.   We all see enormous opportunities to re-wire physical commerce with the handset at the core. But today the handset’s “commerce” success is driven by its open nature (apps and connectivity). It is a platform where anyone can build anything within a given set of loose rules (tighter in Apple’s case). In order to attract retailers, advertisers, issuers.. the MNOs had to continue this “open” approach.. but instead have taken one of control. This control approach may have been unintentional as not many organizations have successfully built business platforms (favorite book on topic is Platform Leadership). MNO’s control approach could have also been driven by the desire to securely maintain customer information. Whatever the reason, companies will likely develop approaches (See Square Card Case) that keep information out of the secure element and place it in the cloud. As I related in the Square article.. the success of NFC is far from given.. All that is really needed at the POS is a “key” that key could be a single number/identifier delivered by NFC, your voice or your IRIS.  Keeping all customer information on the phone is rather stupid. One MNO told me this week.. its on the phone in case it doesn’t have connectivity. Well guess what.. stores have the connectivity.. that’s how Visa’s system works.. Stores are not dependent upon the Phone’s connectivity.. but rather their own.

It’s never easy for a Fortune 100 organization to admit that they made the wrong bet.  Globally, there is also a very strong inter-carrier commitment to “carrier controlled NFC” work. All it will take is one major carrier to change course and join Google’s camp to bring down a global house of cards that is NFC.  My guess is that carrier controlled NFC find long term traction in public transit and ticketing perhaps even in government identification. .. but this is 3+ years out before any substantial (>20%) adoption.

Customers.. you want ISIS mobile payments functionality? Go get a sticker.

MNOs.. do you want ANY part of mCommerce? You better move quickly to partner with someone that can get all of this done. Their dance card may fill up quickly. If you don’t move beyond the “control” approach.. you will be relegated to dump pipes.. as thousands of businesses work to get around your controls..   Given the Carrier IQ blow up this week, you have no ground for claiming you would manage privacy better than Facebook or Google.