11

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 as
magnetic 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 clocking
in 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 the
NFC 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-enabled
phones and
contactless smart
cards 20082018
NFC-enabled phones have yet to take off, despite phones with the Sony FeliCa
interface, compatible with NFC, being placed in the hands of more than
50 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 into
the 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.
12
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 success
It 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. Carry
one 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 kept
for 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 of
users and
suppliers
With RFID enabled phones beyond Japan, the card and system supplier and
merchant benefits are not clear but the consumers are very eager to adopt the
phones for the convenience.
With financial and ePurse cards, the card and
system 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.
13
July/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 forecasts
IDTechEx 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-industry
haggling 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 kill
cards
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 report
In 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 of
Spartanics, 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 gradual
maturity has affected the development of the
whole market.
More security please
The 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 the
segment. 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 calling
Chinas growing dominance on the global stage is undeniable. The sheer size of
its population and its rapidly improving economic prosperity mean that there
are increasing opportunities to do business with the country. In this, the second
of a two-part feature examining the smart cards industry in China, we take a
look at some of the hottest market sectors and consider what is driving their
growth.
FEATURE/SURVEY