Thales Blog

Card Or Mobile – Which Will Win?

July 29, 2009

It’s clear that the roll-out of contactless is acting as a driver for payments made via mobile phone handsets. Although the majority of contactless roll-outs to date have been card-based, the mobile is becoming a strong contender as the future de-facto device for contactless payments. Initially held back by a lack of consensus between the mobile and banking worlds, there have been some recent developments which are taking us a step closer to enabling widespread mobile payments, particularly in Europe.

Last year, GSMA, the association grouping the main mobile phone companies in the world, struck a deal with the European Payment Council, representing the EU banking sector, to deploy the new technology in the EU.

Despite the progress made, there do remain certain issues to iron out. Namely, issuers are concerned about the fact that if the contactless application resides on the mobile (rather than a card), they will need to create a different model for the provision of the payment functionality. Currently, when a bank issues a physical card, it creates the encrypted data and posts the card to the customer. However, the creation and delivery model for contactless mobile payments is clearly different. When banks are issuing a contactless payment application for a mobile, they will not have the actual device, so they will need to rely on over-the-air provisioning by making use of the services of a Trusted Service Manager (TSM). While these technical challenges between the issuers and the MNOs (Mobile Network Operators) have been largely resolved, a question mark still hangs over the issue of who ‘owns’ the customer and the relationship.

A business model that works for both MNO and issuer is needed, since the MNO will not gain additional air-time revenue once the application is deployed. The mobile phone acts only as a carrier, with the payment application residing on the SIM, and interacting with the payment system via the NFC service, rather than the mobile network.

It is likely that the bank card and mobile phone will co-exist for some time in the contactless payments space. In fact there is probably room for other form factors of contactless payment including key fob cards and contactless wristbands which have been used successfully by MasterCard for festival goers for on-site payments. Ultimately, the consumer, or a particular demographic, will dictate the success of individual contactless devices through their popularity and up-take.