NFC in China, The Next Big Solution to Mobile Payment

This post is written by our Guest Editor, Vaibhav Puri, CEO & Founder, of Taggito, a NFC-focused mobile start-up. You can reach him on vaibhav@taggito.com

Near Field Communication (or NFC) is a contactless communication technology that operates at 13.56Mhz and allows two NFC enabled devices such as a smartphone, NFC tag or a contactless POS to communicate with each other when touched or brought close enough (at a distance of few centimeters) to one another. Once the two devices instantaneously connect a transaction such as payment or data such as URLs, vCards etc. can be exchanged between the two devices.

In China as in the rest of the world we are seeing mobile payments using NFC gain traction. To begin with let’s have a look at the NFC payment ecosystem in the United States where Google introduced Google Wallet for the Android based Galaxy Nexus phones allowing users to pay at departmental stores such as Macy’s using their Google Wallet application. This soon ran into problems with mobile operators such as Verizon who blocked this application on Nexus phones operating on their network. But why?

Mobile payments are made with the help of a secure element that allows a user’s confidential data to be stored securely within the phone (or on a SIM or a data card) thereby allowing for a safe and secure transaction. On the Galaxy Nexus phones, this secure element is embedded into the phone’s hardware with 3rd parties such as mobile operators having limited access to the secure element thereby preventing the mobile operators to freely implement their own mobile wallets. With mobile payments being a lucrative market for both technology companies and mobile operators this battle for the secure element has been a central issue when it comes to NFC payments.
This has led to players such as Verizon, AT&T and T-Mobile to form a joint venture called ISIS to launch their own mobile wallet. The ISIS venture is gaining traction in the US with top POS markers such as Verifone, Ingenico, Vivotech and Equinox all planning to add support to the ISIS mobile payment service.

Recently, top US retailers such as Walmart and Target announced the introduction of their own mobile wallets. Similar deployment patterns by mobile operators, banks, transaction operators have been seen across the world.

China too has seen it’s fair share of disputes and conflicts related to contactless payments. In 2010, China Mobile had strong plans to develop and commercialize contactless payments through it’s Radio Frequency (RF) SIM cards that operated at a different frequency (2.4 Ghz) than the traditional NFC standard (13.56 Mhz). China Mobile at that point, had signed agreements with stores such as Wumart to commercialize this technology. However, due to technical and cost reasons China Mobile is now focusing on the deployment of NFC technology on SIM cards similar to the plan of China’s second largest mobile operator – China Unicom. Both operators are among the 45 mobile operators worldwide who agreed to work together on the development of a SIM based NFC solution.

China Telecom have officially launched NFC services in China using SIMpass, a device that is a variant of NFC and is a dual interface SIM and antenna solution. Using this SIMpass device consumers are able to use their mobile phones as a virtual version of their Yikatong prepaid transportation card.

As per Watchdata – the company that developed the SIMpass solution, more than 2 million consumers use SIMpass of which 97% users actively use this technology everyday. The successful deployment of SIMpass is a clear example of how the Chinese consumer is more ready of NFC than seen in most parts of the world.

Furthermore, as per a report by ABI Research, mobile transactions in China using NFC phones could reach more than US$8billion by 2014. Given the large user base of mobile phone users in China, the rules being set in China for NFC would have a significant impact how the rest of the world views NFC.