O2 finds mobile payments popular

LONDON Tue Sep 2, 2008 7:19pm BST

A worker makes final touches on the logo of mobile phone company O2 in preparation for the CeBIT computer fair in the northern German town of Hanover, March 6, 2006. REUTERS/Christian Charisius

A worker makes final touches on the logo of mobile phone company O2 in preparation for the CeBIT computer fair in the northern German town of Hanover, March 6, 2006.

Credit: Reuters/Christian Charisius

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LONDON (Reuters) - Consumers are happy to pay for goods and services with their mobile phones, operator O2 found after a London trial, but many obstacles stand in the way of such payments becoming commonplace.

O2 reported on Tuesday that nine out 10 participants in its six-month trial said they had enjoyed using so-called near field communications (NFC) technology -- waving or touching a mobile phone against a reader -- to make payments.

"It was hugely popular," said Claire Maslen, head of O2's NFC operations, after the trial in which 500 people used Nokia phones supplied and partly loaded up with cash by O2 to pay for store purchases and journeys on London transport.

But despite the obvious attraction of marrying the ubiquity of the mobile phone with the convenience of electronic card payments, she admitted it was hard to predict when the technology might become mass-market, or what would drive it.

"That's the million-dollar question," she told Reuters television.

The NFC technology behind contactless payments is well proven to work, after several trials in Europe, and mobile commerce has been a reality in Japan for years.

But even in Japan, m-commerce accounted for less than 1 percent of all retail sales in 2006, according to a report published earlier this year by research firm Gartner.

The main hurdle for those seeking to push such payments, such as operators trying to supplement thin margins for voice and SMS messaging with higher-value services, is persuading customers to pay more to use a phone instead of a credit card.

O2's London trial was relatively simple, in that London transport is already equipped with the contactless Oyster card payment infrastructure.

But fitting out retailers with NFC gear on a scale large enough to make it worth consumers' while would be expensive and complicated -- not to mention getting the cooperation of handset makers and all the others in the supply chain.

UNCLEAR OPPORTUNITY

Dion Lisle, a head of growth ventures and innovation at Citibank who has been involved in an NFC trial with the New York subway, says a big part of the problem is the number of players who have to get involved -- and recoup their investment.

"If you imagine that you have to feed a family of five on a budget, and then that expands to 25, you see the problem," he told an NFC industry conference in London.

On top of that, the system has to work as reliably as credit or debit card payments. "Unless consumers have 100 percent confidence it's going to work every time, it's not going to take off," he said.

Nick Jones, an analyst at research firm Forrester, says operators need to demonstrate additional benefits to paying by mobile, for example by sending users warning messages when parking fees paid for by mobile are about to run out.

But such specific applications will not by themselves drive a market, he says. "Where there isn't massive demand, all you're doing is shifting payment behaviour. "I think it's going to roll out really rather slowly over many years."

O2's Maslen called for the setting up of a "taskforce" of operators, retail banks, card issuers and others to create momentum to build an environment in which NFC payments can thrive.

"Enough trials have happened in Europe. Now it's time to move this forward," she said after the O2 trial, which involved Transport for London, Barclaycard, Visa Europe, TranSys, Nokia and AEG.

Stephanie Manning, chief research and development engineer at rival Vodafone, welcomed O2's initiative but cautioned that it was only a first step. "It won't solve all the business case issues," she said.

"The phone solution will always be competing with the card solution," she told the NFC conference. "NFC is an unclear opportunity at this time."

(Editing by Erica Billingham)

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