Contactless payment adoption hindered by security standards

A lack of standardisation is hindering the adoption of near field communication (NFC) chipsets and technology by financial services companies who want to deploy its leading application, contactless payments, according to research.

NFC technology used to facilitate contactless payments with smart chips in credit cards or mobile phones offer financial institutions a way to move consumers away from using cash for small transactions and into more profitable, credit-based systems. For consumers who hate to wait, they offer faster, easier checkout, just by waving a wireless phone near a point-of-sale reader.

But the development of the market for the chipsets that underpin the technology has been slow, according to a new ABI Research study 'Near Field Communication Semiconductors.' The main reason for this, according to ABI senior analyst Douglas McEuen, is security: the financial institutions and industry standards-setting bodies around the world can't yet agree on the appropriate levels and methods of data protection.

"The main NFC IC [integrated circuit] vendors, such as Infineon, NXP Semiconductors and Inside Contactless, are locked in a three-way conversation," he said. "Of course they have to deal in the first instance with the OEMs [original equipment manufacturers] who make the handsets. But they also have to take into account, at an early stage of design, the security concerns of the financial institutions and the revenue concerns of the mobile operators."

He added that operators in the GSM world would like to see the security mechanisms included in the SIM card "to better support their ability to monetise payment application management, while financial institutions have pushed for it to be included in the NFC chipset itself".

McEuen added that price is also a factor. "Currently, NFC chipsets run over $2 (99.8 pence), he said. "If the price continues to decrease towards the $1 range, and, in combination with the already existing NFC market opportunities provided by contactless payment growth, adoption will take off. But ABI Research's forecasts do not suggest that happening before 2012, due in part to lengthy trial periods attributed to differing viewpoints on the placement of the secure element."

Once all these conditions are met, however, the report predicts technical progress is likely to be rapid. McEuen said: "The technologies are well-understood and the product development roadmap is very similar to that of Bluetooth, which will make the leaps to next-generation products faster, cheaper and easier."

Barclaycard recently launched its OnePulse contactless credit card in London, offering combined Transport for London Oyster card functions, with credit and contactless payment facilities.

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