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FEATURE

July/August 2008 Card Technology Today

Near Field Communication (NFC), by which

electronic devices communicate if held within

a few centimetres of each other, is underpinned

by global ISO specifications. It has attracted the

attention of the largest telcos, transport com-

panies, banks and others and new trials are fre-

quently announced all over the world. Whether

by phone, card or ticket, contactless electronic

transactions in the general sense of the word

(payment, secure access etc) have the following

advantages over traditional alternatives such asmagnetic stripe and contacted chip cards:

Simple. No need to put in a slot the right

way up and the right way round and, if

necessary, wipe the contacts first. Just hold

near the interrogator. No need to remove

the card, ticket or phone from wallet or case.

Even works when wet;

Faster = happier customers and increased

sales. In subways speed improves safety;

Cardholder retains device (card/ticket/

phone) less risky; Fewer failed reads;

Device has longer life.

Near Field Communication is an interface

of interfaces. It holds the promise of bringing

hassle-free mobile interoperability to con-

sumer electronics in an intuitive way since the

devices can electronically hand-shake only when

brought close together.

However, it has yet to take off, despite

phones with the Sony FeliCa interface, compat-

ible with NFC, being placed in the hands of

40 million Japanese in little more than two

years one of the fastest adoption rates for

electronics ever. The many trials confirm that

we are all like the Japanese in seeking the

convenience that such phones can offer. So why

the delay? Why do more and more trials?

History repeats itself?With NFC phones, the telcos have nearly all

the power and they have often failed to seek a

mutuality of benefit with others in the value

chain. That has meant that very few NFC-ena-

bled phones have been made available, banks

are cautious about letting their cards be mim-icked by the phones and transport operators are

cautious about the ticketing option being load-

ed. As in retail RFID, they can cite technical

problems for delay because telcos prefer NFC

to be loaded on the SIM and that standard is

not quite ready. There are also issues such as the

capacity of the SIM cards.

The disagreement and delay in the West

is partly about the type of security systems

in place and who owns them. However, the

manoeuvring is primarily about who owns the

brand and the primary share of the potentially

huge income from RFID enabled phones, not

least because they can be a portal to many

added value services. These include passing

monetary value phone to phone and buying

by holding a phone near a smart poster. Then

there is using the phones for staff clockingin and route monitoring for those patrolling

buildings. Holding the phone near an ancient

building and getting a voice and video lecture

on the history of that building, or downloading

maps and information from street terminals

are potential added value services the list is

endless.

Although the telcos are winning, the others

can throw spanners into the works. The manu-

facturers of phones can delay launching exciting

new NFC models and the banks can withhold

permission for their cards to be emulated by the

phones. For example, Card Technology reports

Oliver Steeley of MasterCard saying that the

telcos still want too much control and money

for the service: they are not adding enough

value. IDTechEx notes that this is rather like

Wal-Mart, which demands that its suppliers

fit RFID tags on pallets and cases regardless of

cost, and almost entirely for the benefit of the

retailer. Seeing no mutuality of benefit, the con-

sumer goods companies supplying Wal-Mart

have found every excuse to delay. A similar

thing seems to be occurring with NFC phones

in some territories. It is also unhelpful that theNFC Forum has yet to agree full emulation

standards for phones to be used as simulated

bank cards and transport cards.

The early trials were mainly based on

embedded secure chips, not because of a

preference, because that was usually all that

was readily available. The SIM route is now

winning, and with it the telcos, which are

confident enough to offer only a minimal

share of the potential income to others in the

NFC-enabledphones andcontactless smartcards 20082018NFC-enabled phones have yet to take off, despite phones with the Sony FeliCainterface, compatible with NFC, being placed in the hands of more than50 million Japanese in little more than two years one of the fastest adop-tion rates for electronics ever. So why the delay? Raghu Das shares insight intothe topic summarising findings from the new IDTechEx report NFC-enabled

phones and contactless smart cards 20082018.

Source: IDTechEx report NFC Mobile Phones and Contactless Smart Cards 2008-2018 www.IDTechEx.com/nfc.

http://www.idtechex.com/nfchttp://www.idtechex.com/nfchttp://www.idtechex.com/nfchttp://www.idtechex.com/nfchttp://www.idtechex.com/nfc

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FEATURE

Card Technology Today July/August 2008

value chain something of a Pyrrhic victory as

yet because it has resulted in stalemate in many

countries. For example, in late 2007, one telco

increased its fee for putting a transport application

onto the SIM to 1.5 euros per month per user.

Role model of successIt will all be resolved in due course. The wealth

of value added services in prospect for the telcos

will see to that but, as with retail RFID, the

speed of progress will depend on how much

mutuality of benefit is allowed to emerge. At

least there is a role model of success. The telco

NTT DoCoMo is behind the early success of

the Japanese phones now commonly used for

shop purchases and ticketing. It struck realistic

deals, including emulating the Suica stored

value card held by 22 million people.

All was not perfect. The railway function was

difficult to download and the railway company

JREast initially required purchase through its own

card. Japan is now seeing next generation trials

and rollouts such as use of its new Ubiquitous

Product Code on mobile phones for managing

supplies and assets and use of the phones for

secure access to buildings. Some of the foreign

trials explore other innovations such as download-

ing transport applications in Germany simply

by holding the phone near a passive RFID tag,

say on a ticket machine. But many telcos have to

practice mutuality of benefit before real progress is

made. That seems likely soon in China and South

NFC Contactless smart cards and tickets

Physical

description

Addition to the circuits of an electronic device to enable it to communicate

with any other so-enabled device or with RFID tags. Almost always applied

to mobile phones at present, rather than anything else. This is because the

mobile phone is the most popular form of portable electronics and it is on line,

so many more benefits accrue.

Cards and tickets of ISO standard shape, contain-

ing an electronic circuit and antenna, so they

can be interrogated remotely at a distance of

centimeters to one meter.

RFID

description

A way of making electronic devices act as passive RFID tags when off and

either active RFID readers or active RFID tags when on according to need.

Thus, in addition to the original modes of Active (bidirectional) and Passive

(one-way) communications, there is now a third mode of operation called

transponder because users do not want to boot up the phone just as they are

approaching a mass transit access or the front of a queue in a shop. In this

mode, the tag gets its power from the other device, so that phones acting as

passive tags, without access to power, can communicate information when

an NFC device with power such as a reader in a mass transit access barrier is

brought into range.

Passive RFID tags and, rarely, active RFID tags

when a battery is also embedded.

Comparison

for ticketing

Easier to make interoperable ticketing across countries and beyond. Easier to

provide many added value services such as delays, cancellations, maps. Carryone item instead of two or more. Proposed for gateless systems and those

with no card infrastructure. The inspector may check the ticket by holding

his phone near the travellers phone. Phones must be guaranteed to work on

NFC even if the battery dies (not always true today), so traveller will not be

trapped at an underground exit gate, for example.

Smaller, more familiar, easier to use in some

respects, clear brand promotion, typically keptfor at least three years, no hassle of reconfigura-

tion when changed, can be disposable.

Standards

and range

ISO 14443 based. Specified range 020 centimetres but a few centimetres is

typical. NFC technology is standardised in ISO 18092, ISO 21481, ECMA (340,

352 and 356) and ETSI TS 102 190. NFC is also backward compatible with the

broadly-established contactless smart card infrastructure based on ISO 14443

A, which is supported by Philips MIFARE contactless card technology, the

worlds most successful, and with Sony FeliCa contactless card interface, one

of the most popular in East Asia.

ISO 14443 for a few centimetres range or ISO

15693 for up to one meter. Traditionally, secure

access cards have worked at Low Frequency LF

to ISO 11784/5 but these are gradually being

replaced with HF versions to save cost.

Business

case

Telco is usually the main beneficiary and in control.

Payback from value added services that are enabled by the facility.

Telco is never the main beneficiary and in

control.

No payback sought for national ID cards or

secure access usually compulsory. Transport

cards sometimes voluntary option, sometimes

the only option. Operator who seeks payback

from speed, cost etc. Financial and cash replace-

ment cards may have banks in the driving seat.

City cards often controlled by local government,

to promote tourism, manage staff and so on.

Attitude ofusers and

suppliers

With RFID enabled phones beyond Japan, the card and system supplier andmerchant benefits are not clear but the consumers are very eager to adopt the

phones for the convenience.

With financial and ePurse cards, the card andsystem supplier and merchant benefits are clear

but the consumers are often underwhelmed.

Source: IDTechEx report NFC mobile phones and contactless smart cards 20082018 www.IDTechEx.com/nfc.

http://www.idtechex.com/nfchttp://www.idtechex.com/nfchttp://www.idtechex.com/nfc

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13July/August 2008 Card Technology Today

Korea, for example, and rollout there will be aided

by existing huge infrastructure for contactless

cards and tickets. All those barriers and readers

will read the phones.

The (never ending) trials

Many more trials are ongoing or planned.Most of them test the payment function and

find that people outside Japan are the same as

the Japanese in valuing the convenience, such

as carrying one item instead of two or more

(cards, cash etc). Regardless of age, some fear

having too many functions in one item so life

becomes impossible when it fails or is stolen.

However, there is a limit to what trials can

prove, particularly with old equipment and few

users. The trials typically involve only 50 to

300 users. However, there are a few examples of

what are called limited rollouts outside Japan,

an example being the giant telco China Mobile

putting NFC phones on sale in Xiamen,

Guangzhou and Beijing. These are preloaded

with a transit purse and they can also be used

in some stores, there being 100 merchants

accepting them in Xiamen at the end of 2007.

New IDTechEx forecastsIDTechEx forecasts that, while the yearly

number of mobile phones sold rises from

one to two billion in the next few years, the

number of RFID-enabled phones sold will

rise from 134 million in 2008 to 860 million

in 2018, mostly all of this is happening in

East Asia. East Asians will continue to show

the way, not because of differences in con-

sumer wants but because their governments

and industry make sure the inter-industryhaggling stops and projects that benefit the

nation go ahead. For example, IDTechEx

sees the following numbers of RFID enabled

phones sold in 2013.

Phones do not killcards

So, as the NFC proponents get their act

together, will the business in contactless (ie

RFID) smart cards and tickets come to a

halt? The answer is no, mainly because the

cards and tickets serve many purposes that

mobile phones are unlikely to serve and other

people are in the driving seat. For exam-

ple, reloading a national ID card or driving

license card on your new phone every year is

not worth the hassle if you can, as now, keep

the card version for ten years. Indeed, it may

not be permitted by the authorities. A more

detailed comparison below shows how all

these media have their own fast growth path

ahead, with minimal competition, beyond

financial cards possibly being impacted by

preference to load them on phones in later

years. Both cards and phones are now capable

of high speed transactions at up to 424 kb/s

but other functional differences drive the

largely divergent applications.

New reportIn its new report NFC mobile phones and

contactless smart cards 20082018, IDTechEx

explores the many new technologies coming

along such as printed transistor circuits replac-

ing the chip in tickets and later cards, with up

to 90% cost reduction emerging and a huge

increase in sales resulting from that. A large

number of contactless card and ticket schemes

and their suppliers across the world are ana-

lysed and the lessons of success and failure are

revealed. Ten year forecasts are given for all

these devices and systems.

IDTechEx is offering a 20% discount to

readers purchasing this report before

31 August 2008 and 10% discount on any

other IDTechEx reports. Readers should quote

reference CH-CLC to get the discount.

This feature was supplied by Raghu Das, CEO,

IDTechEx, Tel: +1 617 959 9427,

Email: r.das@IDTechEx.com, web: www.idtechex.com.

According to Tom OHara, president ofSpartanics, a supplier of manufacturing equip-

ment to the card industry: The growing SIM

card and credit card industry are mainly what

is driving Chinese demand for card manufac-

turing equipment. It has existed for 15 years

or so in China, but now it has grown to the

point where there is a good deal of local as

well as global competition.

Chinese research and consulting firm CCID

Consulting says in the first quarter of 2008

Chinas smart card market reached a sales volume

of 250 million sets worth 1.32 billion yuan.

These figures are both slightly down on the same

period in 2007. CCID Consulting explains:

Although the shipment of mobile communica-

tion cards has certainly increased since the first

quarter of 2007, the ID card markets gradualmaturity has affected the development of the

whole market.

More security pleaseThe main driver for smart card usage in China

is the growing requirement for security, says

Roland Savoy, G&Ds managing director in

China. Security for Chinas gigantic number of

existing and future users of online and mobile

services, such as mobile payment and mobile

ticketing.

Tan Teck Lee, president of Gemalto Asia,

agrees: It has become very clear to us that

security, convenience and ease of use are the

key drivers in any of our segments.

Telecoms

The telecoms sector in China is flourish-

ing. According to statistics from Wireless

Intelligence for the GSMA, in the final quar-

ter of 2007, China was number two in the

world for total net connections with

23 925 000 beaten only by India and

number one for total connections at

529 620 000. More recent figures that

Wireless Intelligence has supplied CTT

reveal some other interesting trends in thesegment. In the second quarter of 2008, total

connections grew to 584,518,946. China

Mobile took the lions share of these con-

nections with 412 256 782 (70.13%), while

China Unicom had 172 262 164 (29.87%).

Year-on- year growth rate for connections

was 20.52%. However, even now, market

penetration is estimated at only 43.63%, up

from 34.85% in the first quarter of 2007.

The 2008 figures for churn are not yet avail-

able, but throughout 2007 stayed at around

2.6%. ARPU in the first quarter of 2008

was 6.67 euros, down from 7.18 euros in the

final quarter of 2007.

For Gemalto, the telecoms segment is

very well developed and we see our customers

China callingChinas growing dominance on the global stage is undeniable. The sheer size ofits population and its rapidly improving economic prosperity mean that thereare increasing opportunities to do business with the country. In this, the secondof a two-part feature examining the smart cards industry in China, we take alook at some of the hottest market sectors and consider what is driving theirgrowth.

FEATURE/SURVEY

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