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March 30, 2011

MasterCard's PayPass Division says it has approved Gemalto's new NFC payment software platform to handle transactions on a SIM card.

The new secured system runs on Gemalto SIM chips, allowing a wireless network operator to host a PayPass application on its SIMs.

Once such a SIM is inserted into a NFC-capable mobile handset or smartphone that supports the SWP protocol, the network operator or wireless carrier could offer MasterCard the ability to provision PayPass to that customer.

NFC is the short-range (up to 10 cm or 4 inches), high frequency wireless communication technology that wireless carriers hope to employ in their aspirations for a nationwide mobile banking network. The technology allows devices such as smartphones and MIDs to collect or transmit data to another NFC-enabled device without manual configuration to identify mobile devices.

Wireless carriers hope to see the technology eventually integrated with POS (point-of-sale) systems across the U.S. Gemalto’s new MasterCard PayPass SIM will let you use your smartphone to make NFC payments. Near Field Communications comprises a radio technology operating at 13.56 MHz and capable of being powered by induction from the reader, which is combined with a secure element used to store cryptographic keys and authentication details to manage mobile payments.

Last November, Verizon Wireless, AT&T Mobility and T-Mobile USA created a mobile payment system designed to help wireless users easily pay for certain items at physical stores using their mobile phones and MIDs (mobile Internet devices), the three wireless carriers have said earlier today.

Dubbed 'Isis', the technology is rapidly gaining ground and is getting increased credibility and recognition, and the three companies are building the new payment network with the initial goal of setting up a system in which people can use smartphones to easily pay for products or services directly at a retailer, known as PoS (point-of-sale) purchases. A similar system has already been in place for the past two years in many Asian countries.

The new solution will use a technology called NFC (near-field communication), which provides short-range and encrypted wireless communications between different mobile devices. The three carriers say the system will include strong security and privacy protection.

The radio component is embedded in the mobile handset, squeezed into a Micro-SD card. Mobile handset makers generally want it in the phone, banks like removable memory cards, while wireless operators would prefer it stored in the SIM and communicating over the Single Wire Protocol, SWP.

So as you might expect, the topic of NFC (near-field communication) is still open to some debate among various observers in the wireless industry, but the fact that MasterCard has approved Gemalto's new NFC payment software and that it's embedded on a SIM is great news for the industry and also Samsung, after the company announced in December a new NFC chip with embedded flash memory that wireless handset makers all over the world can now integrate in their smartphones and MIDs (mobile Internet devices).

NFC technology and ISIS is now being seen as a great new method to get wireless operators to buy more expensive SIM chips. However, Gemalto still needs to encourage network operators to pay for the SIMs, and to deploy some NFC/SWP capable mobile handsets to make use of them. The Nexus S and Nokia C-7 both fit that specification, but RIM's new handsets might not, however.

In the past, there's been a few attempts to squeeze a NFC radio into a SIM card, but there were some issues. Device Fidelity, which makes a NFC radio embedded in a Micro-SD card, admits that it's sometimes a rather challenging technology.

There's no doubt today that the future of NFC is smartphones, with radio antennas and induction loops built into the casing as already specified by Google, and about to be specified even by RIM and Microsoft.

More on ISIS

Isis is expected to be available around April or May 2012. In Japan, China and other Asian countries, a similar system has been in place for about two years now. It was only a question of time before a similar payment solution would be implemented in North America, some wireless industry observers have said.

In fact some are asking what's taking carriers so long in implementing a working and secure solution, and why will it take them another 18 months for it to be completed.

On Tuesday, Google CEO Eric Schmidt presented an upcoming Android smartphone with a near-field communication chip. Some say it could be the Nexus S, but it's still too early to tell at this time. More is expected from Google in the next few weeks, however.

Isis has already recruited two major financial players to participate in the new joint project. Discover Financial Services will work with Isis to develop the overall infrastructure for the mobile payment network, while Barclay Card U.S., a Barclays Bank subsidiary, will be the first credit issuer on the network.

Meanwhile, Isis is leaving the door open to other banks, financial institutions and other wireless carriers that want to be part of the new venture, and that wish to commit their own expertise and invest in the project.

Additionally, former GE Capital executive Michael Abbott has been hired as Isis CEO. The decision was well received in the wireless community, since Abbott has a lot of experience in the field of corporate finance and related topics.

And beyond the large amount of work that Isis is initially planning, Abbott has sublime goals for the new payment system.

"Through various relationships with merchants, our new mobile commerce network will provide an enhanced, more convenient, more personalized shopping experience for for wireless users. While mobile payments will be at the core of our offering, it's only the start. We plan to create a 'mobile wallet' that ultimately eliminates the need for consumers to carry cash, credit and debit cards, reward cards, coupons, tickets, transit passes, etc, etc," said Abbott in a prepared statement.

Isis marks the first time AT&T and Verizon have worked on a joint venture since the breakup of the AT&T monopoly in 1984, according to a Verizon spokeswoman.

The initiative will change the way people buy products and services. Consumers will no longer have to carry around multiple credit cards in a bulging wallet if they can use a smartphone instead. And since most people have smartphones today, it won't be a problem for most of them.

"Consumers are looking to do more and more with respect to simplifying their lives," said Ryan Hughes, vice president of new business development for Verizon Wireless and a member of Isis’ steering committee.

"What we’re trying to do is, as we’ve seen in many industries that go from analog to digital, is lead the transition from plastic to mobile and simplify the way you shop and pay for the product."

To make a purchase, all a shopper needs to do is to log in to a secure, password-protected application on an Isis-ready phone and hold the phone near an electronic reader at the checkout counter. The microchip allows the customer to transfer encrypted information to a bank or credit card company. Consumers would sign for the amount and receive a bill much like a traditional credit card each month.

Account holders would sign up for these digital credit, debit or prepaid cards through Barclays. Wireless handset makers will create cell phone microchips that consumers will need for wireless payments, and to build point-of-sale phone readers for stores.

Isis purchases will run through Discover’s payment network. A Verizon Wireless spokeswoman declined to comment on whether Discover would charge merchants less per transaction under the program. But merchants have been complaining for many years about the high fees they have been charged by credit card companies, and they are now hoping that Isis will help them pay lower fees on each sale.

In October, Visa and MasterCard settled a U.S. antitrust suit that alleged the companies’ contracts unfairly prevent retailers from steering customers to other cards.

In may, Visa introduced a product that can transform most smartphones, including Apple’s iPhone, into payment devices that can store multiple card accounts in an "e-wallet."

Chip-activated smartphones already exist in Japan, the U.K. and Turkey, while other U.S. companies are working on similar contactless payment technologies. In December, Google is expected to release its newest version of its Android mobile phone operating system, codenamed GingerBread, which will include special chips and could be used in eCommerce, the company announced yesterday.

Bank of America began testing similar technology more than six weeks ago, while JP Morgan Chase and Wells Fargo are developing their own pilot programs, according to Visa. Additionally, U.S. Bancorp will begin testing the technology in multiple states in the next two weeks and plans to offer it to select customers in January 2011.

Some industry observers are confident Isis will work where other attempts have failed in the past because of the scale of its partnership, amounting to more than 200 million potential customers between the three largest wireless providers in the U.S.

However, Jeff Kagan, a wireless industry analyst based in Atlanta, Georgia, is only cautiously optimistic about the new initiative. "This is the right idea and the right direction to go into, but we’ve already seen other similar announcements in the past that sounded just as good, but they never worked."

"In fact, back in 1997, Microsoft tried to implement its own 'e-wallet' solution but it never took off," added Kagan.

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Source: Gemalto.