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Contactless payment-enabled devices, which can take the form of mobile phones, smartcards and PDAs, have the ability to facilitate monetary transactions across short distances, usually up to eight inches. The value of the technology is that it allows for quick transactions, typically for small sums of money. A standard known as Near Field Communications (NFC) is at the heart of new research into contactless payments.
However, a new report from Datamonitor, entitled "Proximity Payments, warns that future of such technologies may not lie with mobile phones and telecoms, despite investments by electronic device makers such as Philips and Sony, who earlier this month announced plans to jointly investigate NFC.
"In order to develop the market you need to make the technology interoperable," says James Adams, an analyst at Datamonitor who authored the report. "As things stand, the company that makes the cards for a specific application must also make the terminals."
Adams points out that NFC has many advantages over competing technologies such as Bluetooth and infrared. "Bluetooth isn't directional, so if you're using Bluetooth to pay for goods then you'll have to specify the exact terminal to which it should make the payment," said Adams. "Bluetooth also has a higher power consumption than NFC."
Adams also said that infrared technology depends upon direct line of sight to be effective and often suffers from interference, even from simple substances like dust.
But NFC has its own problems when it comes to developing multiple applications for contactless payment systems. In order for NFC to perform complex tasks such as processing PKI encryption information, it would need more power and more speed.
Although Adams said that integrating mobile phones with NFC smartcards could solve NFC's power problem, he believes that the debt-laden telecoms may not currently be in a position to invest in the infrastructure required for such a project. "Although contactless payment technology has proven itself very useful for public transport payments and access to buildings, the technology is still a gamble," said Adams. "How many more expensive gambles can the telecoms afford to make?"
On a much brighter note for the technology, the Datamonitor report notes a number of places where NFC has been launched with great success. Public transport systems in Seoul, Hong Kong, Singapore and many Chinese cities have payment systems based on contactless cards. Many of these are multi-application smartcards, incorporating either e-purse or credit and debit card payment applications. Both the Paris Metro and London Transport are currently implementing their own contactless card payment systems.
Additionally road toll applications, such as Italy's Telepass and the Malaysian Electronic Toll Collection (ETC) scheme have also been implemented using contactless payment systems.
The Digital Pusan Card, issued by the South Korean Pusan bank, can be used for a range of banking applications including e-purse and credit card payment. It also functions as a transit card for buses, taxis and metro and can be used to pay for goods and services.
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