Why stick with stickers or wait for built-in, microSD NFC is the way to go.

microSD-card next to 1€ coin.
microSD-card next to 1€ coin. (Photo credit: Wikipedia)

In order to keep the costs of devices low, most mobile phone handset manufacturers include a slot for addition of card-based memory – this is now pretty much standardised on the microSD™ format covering an estimated 70% of deployed mobile handsets  with the notable exception of older SonyEricsson models and Apple’s iPhone. This makes available a simple device interface for a large number of phones that can be influenced by the user rather than the Mobile Network Operator (MNO). A range of secure microSD cards are already available on the market and new cards that can be used to introduce additional technologies to handsets are also available. MicroSD can therefore be roughly equated to a USB device for a PCs, both for ubiquity and ability to deliver applications or hardware, or can even be equated to the chip on an EMV card. It can also be used as a secure element, as an easy way to add a proximity element to a handset and also as a distribution method for banking applications (which can be personalised over-the-air). This makes them a viable alternative to stickers and integrated NFC in mobile promiximity payment projects.

“The new microSD pilots are considered a prelude to mobile handsets containing native apps, an evolution that may take several years as older mobile phones give way to newer models. Forrester Research says NFC handset rollouts will only begin in late 2010, with 2 million units from Malaysian handset maker Fonelabs and multiple devices from Nokia.”  On Your Chip, Get Set, Pay!!
John Adams, Bank Technology News May 2010

So are these a bridging technology until the handset manufacturers finally deliver the promised integrated NFC device? The answer is possibly yes, but there are a number of reasons why banks are better off with microSD cards than integrated technology. Unlike when using home computers with internet, where usually the consumer owns the device and the Network Operator supplies only a ‘pipe’ for data communications,  the model in the mobile world is somewhat different and varied. Every handset uses a UICC (often called a SIM) provided by the MNO and this secure element acts as the gateway for communications with the device. The UICC contains account details and unique identifiers that allow the MNO to precisely measure connections, location and even data types that reach or leave the handset. This control element means that if data, such as a payment application, needs to be sent to the phone by a bank, it has to pass through the MNO’s UICC. This can be further complicated in markets where UICC and handset are sold as a ‘bundle’ meaning that handsets can be locked down so as not to accept any applications other than those from the MNO – even through direct cable connections.

European handset turnover (the rate at which handsets are replaced) and consequently the time taken for a newly-launched technology to become pervasive is believed to be approximately 4 years – although there is no impirical evidence to confirm this, and it varies considerably dependening on the balance between contract and non-contract consumers and whether handsets are sold exclusive of the network provider (SIM lock free) or as part of a network provider-subsidised bundle. This means that it could be 4 years or more before NFC handsets become commonplace – by which time your more tech-hungry customers could have been through a number of handsets.

But with NFC microSD cards currently costing around 10-15 USD, many banks will consider the cheaper alternative of NFC stickers.The rationale for not doing this is perhaps best illustrated with a real-life example.

Since their near-silent and successful rollout of EMV completed in July 2007, banks in the Turkish card payments market has been focussed on innovation as a means to differentiate their product offer. This market dynamic created the perfect test bed for EMV contactless payments, and Turkey was the first European market with a full-scale commercial rollout of the technology. With contactless terminals in place across the country at many different retail locations, the chicken and egg cycle for proximity payments was broken and banks began to look at how they could step beyond contactless cards. Contactless products in Turkey have proven successful in standard retail payments and also in unattended low value payments such as for public transport and bridge tolls. Also, with mobile phone penetration in Turkey at over 92% and phones sold exclusive of the MNO, the basics of the business case for launching mobile proximity payments were in place – although it would be difficult to make agreements over integrated solutions as all MNOs would need to be involved. So the banks began exploring alternate routes. While Garanti and MasterCard opted for contactless stickers that could be attached to the mobile (fulfilling the ‘essential tool’ idea), Akbank and Visa looked for a solution that would allow the handset/payment combination to become more valuable – and so opted for an NFC-enabled microSD-based solution – which allowed user interaction with the ‘card’ and so sought to add value by overcoming the passive device issue.

During the pilot, the incremental cost for providing the NFC microSD is borne by the bank and scheme, however with the Turkish market already used to paying for new services, this will likely be passed on to the consumer in the full rollout. NFC helps with customer retention in this case as the bank is first-to-market with this leading edge product and gives a more valuable customer offer than the passive NFC products of rivals. By using a standard card scheme product, KYC remains at the same level, and there is no customer relationship dilution as the microSD card is distributed by the bank. There is little to no involvement of the MNO or handset manufacturer and so margins are protected. The cardholders are also free to change handset or MNO without involvement of the bank and can simply reinsert their microSD card and download the application.

So the benefit of microSD over stickers is that they allow interactivity, thereby offering more than a traditional card product. And the benefit of microSD over integrated NFC is that they allow the cardholder full portability from handset to handset and MNO to MNO. Finally, the security and issuance cycle remains completely in the hands of the bank, ensuring that while expanding payment channels they are not expanding the exposure of their customers to risk.


2 Comments Add yours

  1. Mike Wilkinson says:

    Ainsley, thanks for the covering your thoughts on this. I’m not familiar enough with the technology side of payments so it’s good for me to hear where things are at.

    I am, however, more familiar with the economics of payment systems and stickers appear to me to offer one benefit that microSD cards don’t, payment networks face much much less of a coordination problem when providing users with a simple sticker. For example, there’s no need for payment networks to worry about whether phones have card slots. There’s also less need for them to worry about installing microSD cards in to consumers’ phones. A sticker’s much easier for all consumers to put on their phone – I fear it’s too easy for payments geeks like I am (and perhaps you are too) to underestimate how difficult it is for Joe and Jane Bloggs to do things like put new cards into certain slots on their phones. Perhaps you can get salespeople to do that when they sell phones, but stickers would represent an obvious interim step.

    In summary, I think technology can do amazing things, but what it hasn’t (yet) been able to do is figure out a simple method to get enough consumers to try new payment instruments.


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