Against the Odds, the Dutch Find a Reason to Believe

No, this is not a column about some plucky European football squad from a small country making it into the World Cup finals.

I’m talking here about an even more unlikely scenario: Dutch banks and telcos apparently agreeing on a business model for NFC and deciding to work together to commercially launch mobile payment.

The word is that after months of secret discussions, Dutch banks and telcos recently gave the green light to move forward on an eventual launch of NFC-based m-payment nationwide.

But this decision shows more than just a willingness of financial institutions and telcos to put aside their differences and find ways to share revenue.

In a small country with almost no contactless point-of-sale terminals, and virtually no NFC phones now on the market anywhere, the Dutch decision to move forward signals a faith in contactless payment and the expected arrival of compelling NFC handsets by next year. That is when the Dutch project is likely to launch.

Of course, the three major Dutch banks involved in the initiative, Rabobank, ING and ABN Amro; and three telcos, believed to be KPN, Vodafone Netherlands and T-Mobile Netherlands–the so-called “Six Pack”­–have been hashing out the issues for months, maybe longer. They extended the deadline around April to give themselves more time to debate the sticking points. And while the parties still aren’t releasing details about the project, the lack of POS terminals and phones no doubt weighed heavily on the discussions, along with the problem over models eventually divvying up the revenue.

I hear that SIM cards are the preferred secure element for the Visa payWave and MasterCard PayPass applications the banks would issue, most likely debit. That would indicate the parties have adopted some sort of model in which banks would pay a fee to the telcos to rent space on the SIMs. There might be some co-branding involved, as well. And there are plans for a national trusted service manager, which might be jointly owned by the parties.

If the banks and telcos have agreed to put the secure applications on SIM cards, they would need NFC phones that support a standard single-wire protocol connection between the SIM and NFC chips.

Those phones are few and far between at the moment and no doubt the Dutch telcos received reports earlier in the year of problems with the main SWP-enabled model available for trials, the Samsung S5230. The handset, a popular, though not quite 3G touch-screen phone, required several replacements by Samsung to work with contactless POS terminal readers.

Spain’s Telefónica said it took delivery of five such replacements to rework the antenna and make other needed hardware and software adjustments before its trials this spring. In recent comments at a conference, Laurent Jullien, director of contactless and payment services for France’s Bouygues Telecom, said getting the Samsung phone right delayed the much-anticipated NFC precommercial launch in the city of Nice until June.

“The proof was, we were supposed to launch in March, and we didn’t launch in March because Samsung was not ready,” he said in response to a question at the Contactless Cards and Payment conference in London last month. “The difficulties were about NFC itself. It was a long, difficult and sometimes painful process to solve.”

Both telcos agreed Samsung was eager to fix the problems. And more NFC phones are on the way, I’ve been told. That includes smartphones from Samsung and HTC supporting Android, as well as some BlackBerrys from Research in Motion. And Nokia has announced, though in rather vague terms, that its Symbian-based smartphone lineup would support NFC starting sometime in 2011.

Not all of the new phones will support the single-wire protocol, but all will require integration work as handset makers and other vendors smooth out the technical rough edges and ensure their products are interoperable.

The Dutch telcos and banks also face the challenge of a virtually nonexistent contactless infrastructure at the point-of-sale. Unlike the United Kingdom, Turkey and Poland, where banks have been issuing contactless cards and have a small but growing base of merchant terminals in place, the Dutch banks have yet to issue cards or deploy contactless readers. And as we know, even in places where the base of contactless POS terminals runs into the many tens of thousands or more, as in the U.S., Japan and South Korea, it takes a long time to change consumer behavior.

Transport operators in the Netherlands are rolling out a nationwide contactless fare-collection scheme, which is a likely application for NFC phones later. But the Dutch banks and telcos are talking about going only with retail payment as the main application for the launch for now, I’m told.

While the most active Dutch m-payment players, KPN, Rabobank and ING, have been pleased with the results of their NFC trials over the past few years, its goes without saying a green light for an NFC payment rollout requires an act of faith among all the parties. And they know much groundwork remains to be done before any launch.

It's worth noting that top officials of the banks and telcos made their decision to move forward in a meeting June 28, which was scheduled to begin just an hour before the start of the Netherlands’ round of 16 World Cup match against Slovakia. By the start of the meeting, I'm sure their countrymen and women were already making their way to bars or living rooms to watch the match.

But I’m assuming that the Six Pack of banks and telcos didn’t rush their decision on NFC just to make it in front of their TVs in time for the opening kick. Although, with interest in the World Cup having already reached fever pitch in the Netherlands by then, one can’t be so sure.

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