BARCELONA (Reuters) - Paying for your morning coffee and newspaper by swiping your mobile phone instead of fumbling for cash or debit card could be just around the corner.
For telecoms firms like Vodafone and France Telecom, it’s the innovation they hope may finally enable them to steal a march on Apple and Google who dominate the mobile market with devices, applications and software.
The telecom companies have suffered for years from the “dumb-pipe” phenomenon whereby operators spend billions building the networks on which data travels, only to watch Google and Apple pocket the profits as smartphone and tablet computer users download millions of applications and ring up transactions.
Eye-watering amounts of money are at stake in this new market -- it is estimated at $1.13 trillion globally by IE Market Research. One in every six phones will be equipped with the new technology by 2014, according to Jupiter Research.
But to succeed, the telecoms operators will also have to take on credit card giants Visa and MasterCard, who are pushing the technology hard as a way to boost transactions and fees.
“There is a game-changing opportunity here for the operators to effectively displace credit cards and banks,” said Dan Hays, partner at global management consulting firm PRTM.
“Mobile payments are arguably the next major change in the mobile industry.”
At the Mobile World Congress, which opens today in Barcelona, telecom operators will be talking up a technology known as near-field communications (NFC), which allows consumers to buy items by tapping their phone on a specialized reader at the cash register.
Such mobile payments exist already in Japan and Korea but have so far been held back from mass-market adoption by a lack of handsets and confusion around the business model.
This year is set to be a turning point, say analysts and industry executives, as about a dozen NFC-enabled phones hit the market and operators across Europe and the U.S. launch wide-scale mobile payment projects.
Already the competition is cut-throat.
Google and Apple are working on mobile payment systems that would marginalize operators by using software instead of the phone’s SIM card to process secure payments.
Google plans this year to integrate mobile payment in its Android mobile operating system, which is the world’s most popular smartphone software.
Apple is weighing putting a NFC chip in its next iPhone and could tie it to its widely-used iTunes payment system to control the mobile payment value chain like it has with music and magazines on the iPod and iPad.
A slew of start-ups have also created stickers and memory cards that users place on their phones to process payments. Visa’s contactless payment program, dubbed payWave, for example, relies on a memory card with a NFC chip in it.
Even simple technologies can cut telecom operators out. Starbucks has launched mobile payment at 6,800 stores in the U.S. that relies on an application downloaded on an iPhone or Blackberry.
Operators are racing to roll out mobile payment programs which try out different business models.
In the U.S., AT&T, Verizon, and T-Mobile formed a joint venture last year with Barclays Bank and Discover Financial Services which required customers to sign up for the latter’s credit card to launch mobile payments. It left Visa and MasterCard on the sidelines.
In Europe, France Telecom’s Orange teamed up with competing operators SFR and Bouygues, several French banks, and the local government in a year-long project in Nice in which 3000 residents were given a Samsung NFC-enabled phone to use on local trams and at 1,000 local retailers.
“You need a big base of customers to make this work,” said Anne Bouverot, Orange’s executive vice-president of mobile services.
Under this collegiate approach Orange won’t earn much revenue for the mobile payments, but will get fees from banks and credit cards.
“It’s also a way to provide an additional service to customers that we think will increase their loyalty and attention,” Bouverot added.
Orange has pledged to equip 500,000 clients with NFC phones this year, and announced an accord with Samsung today.
In another bid to nab customers first, telecoms firms are investing heavily in mobile payments systems in Africa and India where many people do not have access to banks or credit cards.
One early success was Safaricom’s M-Pesa program in Kenya. Launched in 2007 the system lets customers transfer money via mobile in a network of resellers. South African operator MTN and Orange have similar programs.
Hannes van Rensburg, the CEO of Fundamo, a South African firm that has built 50 mobile payment systems for operators in Uganda, Pakistan and others, said margins on mobile payment projects are much more attractive in emerging markets.
“In the U.S. and Europe, you have to compete with the established credit card system, which is already very efficient,” he said. “There is more money to be made in emerging economies.”
(Editing by Sophie Walker)
Additional reporting by Nicola Leske and Marie Mawad