Battle Continues for Control of NFC Phones as Samsung Weighs in

At least two-thirds of NFC phones that shipped last year packed embedded secure chips and that share is expected to hold fast this year.

As an executive with one of the major payment networks put it to me last fall, when I asked him how he thought these millions of embedded chips would be used: “There are weapons; they are going to be used.”

That analogy is apt, given that Visa’s announcement last week of its global partnership with Samsung Electronics seems likely to heat up the battle for control of NFC phones.

The deal calls for preloading Visa’s contactless application, payWave, on the embedded chips in Samsung’s new NFC mobile devices, which probably will include the forthcoming Galaxy S4. Banks could then have Visa’s TSM, Oberthur Technologies, provision their customers’ Visa accounts on the chip or use their own TSMs.

And the deal is not exclusive, so Samsung also could work with MasterCard or other application providers, and it would be technically possible to pack a PayPass or other applet on the secure chip alongside payWave. In fact, MasterCard is believed to have discussed preloading PayPass on the Samsung embedded chips, and it might well have been MasterCard announcing the global partnership last week, not Visa.

Whether a preloaded payWave applet gets personalized with an actual Visa payment account—or the embedded chip gets activated to begin with–will depend on the market.

Competition for Telcos
But in certain markets, the Visa deal with Samsung will pose real competition to the SIM-centric approach being taken by mobile operators for their NFC rollouts–more so than Google threatens operators with its struggling Google Wallet, at present.

The deal enables banks that want to introduce NFC mobile payment to avoid the telcos’ SIM cards and instead deal with Visa and Samsung.

Much will depend on the amount of clout Samsung wields in various markets and whether it is willing to challenge operators in those markets where telcos subsidize Samsung’s phones.

It hasn’t done so in the past when it comes to its NFC phones. Samsung has put an embedded chip in pretty much all of its NFC smartphones and smartphone-tablet hybrids since the middle of last year, including the 40 million-plus units of the Galaxy S III it has sold.

But the device maker has dutifully deactivated the chips at the request of operators or allowed telcos to effectively block them in active NFC-SIM markets, such as the U.S. and Western Europe. Outside of supporting the Google Wallet in some of its phones sold by No. 3 U.S. telco Sprint and on the Galaxy S III distributed by a couple of smaller U.S. telcos, nearly all of the Samsung embedded chips have gone unused to date.

That could change with the deal with Visa and others Samsung makes for use of its chip. As NFC Times has reported, the device maker last year formed a mobile-commerce unit at its South Korea headquarters, in part to market the chip.

“I think that the game has not been decided,” Michael Baumann, general manager for payments development at Commonwealth Bank of Australia, told NFC Times, who also said the bank is eager to have fewer parties to deal with to enable its application to run on NFC devices. “Who is more powerful, Samsung or the telcos? If you talk Apple, you don’t have to ask the question.”

Samsung, at least up until recently, has been assuring operators and their big trade group, the GSMA, that it is different from Apple and will continue to support operators.

“Of course, it’s for Samsung to decide what they will do, but Samsung has been doing tremendously well over the past year or two years, partly out of the fact that it’s very flexible and quite operator friendly, GSMA director general Anne Bouverot told NFC Times last September, when asked about Samsung’s embedded chips. “And I meet with (Samsung mobile chief) JK Shin regularly and other Samsung officials, and they’re very clear that this is part of their differentiation from other established, leading handset manufacturers .”

By other established leading handset manufacturers, she meant Apple. But that was last fall, and since then Samsung has continued to be on the ascendency, while Apple’s mystique, despite strong sales of the iPhone 5, has diminished.

Chip Activation is Key
Of course, the irony of Visa, with Samsung, announcing their deal to use embedded chips at the GSMA-organized Mobile World Congress–at which telcos were showcasing SIM-based NFC, was probably not lost on the SIM-centric telcos planning NFC rollouts this year.

The operators continue to argue that they, not Samsung, Google or Visa’s TSM, are the parties best positioned to handle problems that could sour the experience for consumers using NFC services. And telcos contend the removable SIM is the best secure element to use to cancel or transfer applications if the phone is lost or stolen.

Samsung is still not talking about where it will activate the chip, but at a minimum it seems likely it will promote the secure element in markets in Asia and Eastern Europe, where telcos don’t control the phone distribution channels; and perhaps to second-tier operators without their own SIM-based NFC strategies.

“In terms of how and when that’s (embedded chip) going to be turned on, I’m going to be careful not to talk for Samsung,” Bill Gajda, Visa’s head of mobile, said last week. “I think they are looking at markets that may not have heavily subsidized models (by operators) or the market is open to multiple secure elements,” he said.

Samsung is no friend of the SIM, Klaus Vedder of SIM supplier Giesecke & Devrient and long-time chairman of the ETSI SIM standardization body, told NFC Times. He said Samsung has been acting a lot like Nokia did five or six years ago when the latter was top of the heap of handset makers–that is, trying to curb the powers granted to the SIM.

Offering More Services
But rental fees to use the secure chip probably isn’t what’s motivating Samsung to promote the embedded chip. Some mobile operators are already questioning the revenue-producing ability of their SIM-rental models and are focusing on other opportunities, such as building NFC-based mobile commerce platforms and seeking to earn fees for delivering coupons and other promotions.

Samsung probably wants the services on the embedded chips to add to the features its devices offer and keep customers coming back. Its embedded chip strategy is not likely tied to its recently introduced wallet app for the Android platform.

Competing handset makers probably have the same idea, and HTC, LG Electronics and Sony are putting embedded chips in at least some of their Android NFC devices, and BlackBerry included an embedded chip in all of its NFC-enabled phones.

HTC enabled an NFC payment application in China on one of its devices last year.

But these device makers need the good will of operators much more than Samsung does, so they are unlikely to challenge their SIM-based NFC plans.

Google Still Interested in Embedded Chip
Google also is expected to continue to use an embedded chip for its Google Wallet and has asked for support for the GlobalPlatform 2.2 standard for the chips running its Google Wallet and in its Nexus devices, say chip makers. This could indicate Google wants be able to enable more services, which could be managed independently of one another, using the standard.

Meanwhile, telcos might use embedded chips in certain markets themselves–not only Sprint in the U.S., which plans its own wallet and has an embedded chip strategy–but operators that issue SIMs also could gain access to embedded chips by cutting deals with handset makers.

Big telcos, however, will continue to promote their SIMs as the only secure element in the NFC phones they sell in most markets.

If Samsung decides to promote its embedded chips in some of those same markets, the battle for control of NFC phones and the mobile wallets they support would far from over.

 

HEADLINE NEWS

ANZ Launches with Apple Pay, as Apple Picks Off One of Big Four Australian Banks

NFC Times Exclusive Insight – ANZ is the first bank in Australia to launch with Apple Pay, with Apple able to crack into the big four banks, which had been balking at signing up for the payments service mainly because of Apple’s demands for transaction fees.

Xiaomi Announces Plans to Join Crowded ‘Pays’ Club, but Offers Few Details on Launch, Issuers

Apr 27 2016

NFC Times Exclusive Insight – Chinese smartphone maker Xiaomi is the latest OEM to announce plans to join the “Pays” club, working with payments network China UnionPay to launch an NFC-enabled mobile payments service in China, although giving no details on a launch date or participating banks.

SIMalliance Reports NFC SIM Shipments were ‘Static’ in 2015 but Refuses to Release Global Figures

NFC Times Exclusive Insight –  It is perhaps a measure of just how big of a hit SIM suppliers took from the closing of the Softcard wallet in the U.S. early last year that their SIMalliance vendor trade group is refusing to release NFC SIM shipment figures publicly for either the North American market or globally for 2015.

Three Major Singaporean Banks Agree to Support Apple Pay; Samsung Follows

Apr 20 2016

NFC Times Exclusive Insight – Three of Singapore’s largest banks will soon launch mobile payments with Apple Pay, Apple disclosed Tuesday, as it launched Apple Pay in its sixth country.

Many U.S. Merchants Continue to Balk at Accepting NFC Wallets; One Reason: Suspicions that Wallet Providers Could Get Their Data

NFC Times Exclusive – Few industry sources agree on the size of the contactless-acceptance footprint in the U.S. that enables merchants to accept Apple Pay and other NFC-enabled wallets; but one thing most of them do agree on is that contactless acceptance is not sufficient to support any kind of significant adoption of the wallets.

Restructuring Helps G&D Turn Around Financial Results from Gloomy 2014

NFC Times Exclusive Insight – Germany-based Giesecke & Devrient turned around its financial results in 2015, including its money-losing banking and SIM card unit, thanks mainly to restructuring and higher shipments of EMV bank cards to China and the U.S., the privately held company disclosed Tuesday. 

Singaporean Telcos Try NFC Transit Ticketing Following Failed NFC Payments Rollout

NFC Times Exclusive Insight –  Singapore’s three major mobile operators are giving SIM-based NFC services another try, hoping that the offer of mobile transit fare collection will encourage more consumers to use their NFC phones to tap to pay, following the flop of the country’s NFC retail payments rollout that began in 2012.

French Payments Scheme Gears Up to Provide Tokenization for HCE, OEM Pay and Tokens on SIMs

Apr 5 2016

NFC Times Exclusive Insight –  France’s domestic debit scheme Cartes Bancaires has been gearing up for the past year to launch a tokenization service for French issuers, with commercial service expected in coming months, including in support of HCE apps launched by banks and possibly for “OEM Pay” services.

Samsung Launches in China, Trailing Apple and Huawei

NFC Times Exclusive Insight – Samsung’s announcement today of its move into China with Samsung Pay helped the OEM make good on its objective of launching in China by the first quarter, though the launch has happened well after rival device makers Apple and Huawei launched their own mobile payments services in China.

OTI Cuts Costs, Reports New Orders, but Road to Profitability Remains Long

NFC Times Exclusive Insight – Six months after taking the helm of Israel-based On Track Innovations, CEO Shlomi Cohen is seeking to convince investors he can turn around the contactless reader and NFC vendor, which has been struggling despite greater global demand for the company’s main product, contactless readers.

Analysis: Poland's Bank Pekao First to Launch HCE for Windows 10, but Others Slow to Follow

NFC Times Exclusive Insight – While Poland has among the highest concentrations of contactless point-of-sale terminals globally, NFC mobile payments has not yet taken off.

China UnionPay Confirms Support For Huawei Pay

NFC Times Exclusive Insight – Chinese payment network China UnionPay has announced support for Huawei Pay, a deal that could substantially expand the number of banks and payments cards that Huawei could enable for its NFC payments service as it seeks to compete with Apple and Apple Pay.