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NFC Will Enable Phones to Replace Cards in 2011, Researchers Say

Near-field communication is the technology that will allow phones to be widely used for payments; banks and mobile operators will compete for this new mobile payments business, according to SJB Research.

A new mobile phone technology called near field communication will finally drive the widespread adoption of payments by mobile phones starting in 2011, according to a research report published today. Near field communication is a standard based on RFID (which is a method of identifying unique items using radio waves, akin to scanning bar codes) that can turn a phone into an RFID tag or RFID reader and facilitate peer-to-peer communication between two NFC-enabled phones.

According to SJB Research, issuer of the report, banks and mobile network operators will seek to make money from the introduction of the new mobile payments technology and are set to go head to head in a bid to gain control of the market.

"NFC technology will be used to replace everything from credit cards and loyalty cards to bus and train tickets, library cards, door keys and even cash," says Sarah Clark, author of 'NFC: The Road to Commercial Deployment.' "What hasn't yet been decided, however, is who will win the battle to provide consumers with their new hi-tech mobile wallets."

"Decisions made in 2010 will be critical in determining which mobile network operators, which banks, which industry suppliers and which service providers become the leaders in the field," she adds. "Ultimately, only two or three companies in each country will succeed in building a major new business providing NFC services to businesses and consumers. The winners could be banks or mobile operators, or even a new entrant to the market."

Consumers with NFC-enabled phones will be able to store their travel pass on their phone and mobile versions of airline boarding cards, hotel room keys and even passports. They'll be able to make payments at restaurants and other service providers by touching their phone to a compatible device.

"No more rummaging around for the right change, card, keys or paperwork and no more texting your location to your friends — with NFC everything can be handled by your mobile device," says Clark. "And, of course, NFC is a highly secure technology. Consumers will be able to instantly lock all the mobile wallet services on their phone if it is lost or stolen and then get them automatically transferred onto a new phone as soon as it arrives. They will also be able to use their phone to make payments even when the battery is flat."

Ultimately, Clark says, who ends up as a lead player in each market will depend not on whether they are a bank or an operator but on key factors such as the strength of the company's existing presence in its core market, how loyal its customers are, the level of risk it is willing to take in terms of investing in the deployment of NFC services, how successful it is in developing an attractive business proposition for potential key service providers and how quickly it manages to sign them up.

Although another year of field testing will need to take place before the widespread introduction of commercial NFC services can begin from early 2011, the trials this year will be different from those that have gone before, Clark says. "This year's trials will not be simple technical tests," says Clark. "Instead they will be pre-commercial trials, designed to enable NFC service providers to finalize their business plans."

The U.K., France, United Arab Emirates, Singapore, Taiwan and Korea will be the first countries to introduce NFC commercially, the report predicts, beginning in 2011. The U.S., Canada, Spain, Germany, Italy, Norway, the Czech Republic, Romania and Australia are also expected to be early adopters of NFC.

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