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Mobile Phone Contactless Payments at Retail

Strategy Analytics released a study analyzing payment for goods or services using mobile phones instead of cash or credit/debit cards -- a vision that has been a long time coming. This new report concludes that the conditions are finally right for growth over the next five years, projecting that mobile contactless payment will be used to drive sales of $36 billion by 2011.

At a global level, activity in the mobile phone contactless payment market today is still negligible. For the past two years the only bright point has been the FeliCa service in Japan, which has provided a model for the speed with which services can take off if the right players and the right structure are put in place.

Strategy Analytics estimates that FeliCa will drive $900 million worth of payments in Japan during 2006. Although greater levels of collaboration between banks, operators and payment networks (e.g. American Express, MasterCard and Visa) are required for mobile contactless payments to emerge in the U.S. and across Europe, momentum is gathering, with numerous mobile phone based contactless payment trials planned. These will involve the major stakeholders and should help determine how services will be implemented.

As Senior Analyst, Nitesh Patel, states, "Handset vendors Motorola, Nokia and Samsung are playing a large part in enabling the proximity payments market by pushing Near Field Communications into their handset portfolios aggressively over the next 18 months. On the other hand, AMEX, MasterCard and VISA are driving contactless terminals into merchant outlets." Despite these moves, consumer behavior is likely change slowly, and will require savvy marketing to encourage adoption.

Vice President, David Kerr, adds, "We believe that it will take time to generate traction even once services are commercially deployed. Consumer attachment to existing payment methods, combined with concerns over the security of phone-based systems, as well as competition from alternative contactless devices like plastic cards and key fobs, will slow adoption."

However, I believe that many of the same market dynamics existed in Japan before their mobile service providers launched successful mobile contactless payment offerings. Therefore, we must acknowledge that this issue is very similar to mobile data service market adoption in general -- European and North American mobile service providers need to evolve their fundamental marketing skills in order to reap the rewards from their VAS investments.

Technology clearly isn't the primary adoption inhibitor now, nor has it ever been in the past. These type of excuses merely attempt to mask the real underlying problem.

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