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Mobile PaymentsIlluminating the opportunities for NFC and new wave services in the Middle East

Chloe HigmanContent Manager

T +971 4 440 2560E Chloe.Higman@terrapinn.com

Overview What will you learn over the following pages?

Right now, global financial groups are battling for control of the rapidly growing mobile money market which promises to overhaul traditional approaches to payments. The financial services landscape is facing exciting and somewhat daunting times ahead, with a recent study by Euromonitor International predicting m-commerce will grow 386% from 2012-2017 to about US$400 billion worldwide in the next 4 years.

We’ve entered an era where consumers are demanding a quicker, more efficient and interactive payments experience and existing systems are being challenged by emerging payment platforms. Across the globe key disruptors and innovators are reshaping the way we buy, browse and bank as genM becomes a reality.

In the following supplement which has been produced for the Cards and Payments Middle East series, we will focus on mobile payments in the MENA region. The MENA region is no stranger to NFC and non NFC payment trials, many of the key countries have run trials since 2009 however, with the exception of Turkey, they have yet to achieve scale or full commercial roll out in the region.

This digital publication has been compiled to give banks, MNOs, OTTs and technology providers an insight into the mobile money boom and how they can become ‘top of the wallet’ in 2013.

1. An insight into the current status of mobile payments in UAEA unique view into the regional mobile payments market from the bank leading NFC implementation in the region. This interview will cover the market readiness of the UAE, the challenges facing widespread adoption, partnerships and the future of the plastic card.

2. An exclusive interview with one of the payments industries most influential companiesWe asked MasterCard to use their global experience to predict the future of the regional mobile payments industry. From infrastructure to ecosystem and plastic cards to key services, take a deep dive into mobile wallets, next gen POS systems and much more.

3. Creating the NFC ecosystemGemalto is known as the driving force behind a safer, more efficient and more advanced way to pay. As a partner to many of the key NFC launches globally, this interview will showcase some of the most successful mobile payments roll outs to date and how we can replicate them in the Middle East.

4. How secure is NFC?In this interview we will cover everything from security and usability to mobile wallets and key services. UL share the lessons learnt from playing a vital role in some of the most impressive projects across the globe, including the roll out of the RTA’s NFC system in Dubai.

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An interview with:Charles LoboVice President & Head of Card Operations, Projects & Customer ServiceEmirates NBD

1. Could you give a brief description about the mobile payments projects you are currently working on?

Emirates NBD is a leading innovator in this space having successfully pioneered a number of initiatives in contactless and mobile payments. The first co-branded contactless card in the UAE was launched by Emirates NBD in 2007 in partnership with Dubai Internet City. Today we have a large number of contactless cards in circulation that give the customer the option of using ‘Tap and Go’ technology for small ticket purchases at participating merchants in the UAE and around the world. In 2009 Emirates NBD successfully piloted a contactless wrist watch –which is a novel form factor enabling contactless payments by simply tapping the wrist watch on a contactless payment terminal. In 2011, Emirates NBD first successfully launched the NFC mobile payment solution in a pilot with Etisalat and Visa.

2. Do you think mobile contactless payments are ready to take off in the UAE?

We are committed to offering our customers best in class payment solutions and our track record demonstrates that amply. So, we are excited by the prospects of mobile payments in the UAE. We believe that the UAE market has some strong fundamental factors that would favor the growth of mobile payments. These are – firstly a high penetration of mobile phones and smart phones, secondly a demographic defined by a working population who are educated and savvy, thirdly a consumer base that is an early adopter of new technologies.

3. What are the biggest challenges facing widespread adoption of mobile payments in the UAE?

The biggest challenge is the lack of point of sale acceptance of contactless

payments. This issue is not specific to mobile payments, but potentially can inhibit the growth of mobile payments the most. Consumers need to be able to use their contactless payment cards, or mobile phones at retail outlets that are typically small ticket, quick service establishments.

4. Which key NFC services will hit the market in 2013?

Apart from payments, other popular NFC applications are transit and access control. Potentially these could hit the market in 2013.

5. In your opinion what will the mobile payment ecosystem look like in the next 12-18 months and who owns the customer?

The mobile payment ecosystem is all about collaboration. There are many successful models established in other parts of the world, the customer has to be able to smoothly transition to a mobile payment device. Banks, Telecom companies, Transit companies and value added service providers can come together to create value for the customer and in turn for themselves. If all participants engage on these lines a successful model can be created. At Emirates NBD we look forward to

building strong partnerships with like minded businesses in this space.

6. What are the key success factors needed to create a commercially viable mobile wallet for the UAE?

The most important factor is a customer centric approach in which all the stakeholders collaborate to deliver value to the consumer.

7. What role does the plastic card play in the future of payments?

While in the euphoria and anticipation of new technologies like mobile payments it would be easy to predict the demise of the plastic card. We feel strongly that the plastic card will continue to be around for some time and cater to specific needs. For example, a companion card can be issued along with a mobile payment device to cater to a situation when the mobile device has run out of power or the merchant establishment does not accept contactless payments. Also we need prepaid cards for in-bound tourists and mass transit cards for limited use. There are a host of applications that require a plastic card.

“We are excited by the prospects of mobile payments in the UAE”

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An interview with:Julian PhillipsVice President Acceptance & Commercial Development UAEMasterCard

1. Do you think mobile contactless payments are ready to take off in the Middle East?

Yes I do, for a number of reasons. Firstly, the population is young and it is open to new technology adoption. There is growing evidence that the contactless tap and go (like MasterCard’s PayPasstm technology) mentality is rapidly developing in the UAE. A good example is the Metro mass transit system, where passengers are happy to tap their Nol MiFare contactless cards as payment. We are beginning to see wide scale consumer adoption on using contactless to pay for local travel. Passengers simply tap their card at the turnstile rather than swipe their card or use cash. Secondly, nobody likes queuing and again we have hard evidence that contactless PayPasstm & NFC payments are speeding up the payment process. So, on average a PayPasstm transaction takes less than 5 seconds to complete, unlike a swipe card transaction, which could take up to 20 seconds. As a result of this speed we are seeing more contactless acceptance (PayPasstm) of card payments at the fast food outlets, coffee shops & convenience stores where speed is of the essence. Thirdly, it improves the customer experience as they pay the exact amount and removes all the merchants’ logistical problems surrounding giving change and maintaining coinage in the cash registers. Lastly, Dubai is a major tourist hub and visitors will expect to make contactless payments as they would in their own country. So, whether they are getting a taxi, buying a coffee or enjoying a leisurely lunch they would expect to be able to use contactless cards/NFC phones. For these key reasons, I do believe contactless card/NFC mobile payments are beginning to take off in the Middle East.

2. What are the biggest challenges facing widespread adoption of contactless/mobile payments in the Middle East?

We (that is the industry not only MasterCard) have a number of challenges facing us as we convert users to contactless payments. We are at the beginning of the contactless revolution in the region and all parties need to get involved to ensure the consumer readily converts to contactless as quickly as possible So 1) The merchants will need to update their POS terminals to accept contactless /NFC

payments 2) They will also need to train their staff on how to accept a contactless payment as this is a potential issue until Chip and PIN becomes standard & the POS terminal is positioned to face the cardholder and not the cashier as it is today. 3) Issuers need to be satisfied the contactless acceptance network is wide enough to appeal to their cardholders as they don’t want to invest in more expensive contactless cards until it makes commercial sense. But now is the perfect time for them to migrate to contactless debit and credit as part of their EMV migration strategy as they will need to re card their portfolios when moving to EMV cards. Moving to a contactless consumer proposition would drive out cash, increase consumer convenience and potentially increase card usage previously dominated by cash transactions. 4) Acquirers need to understand the commercial benefits of upgrading all their terminals to Pay Pass as they replace existing POS and introduce new acceptance points in the market. 5) Contactless terminal vendors will also need to find ways to provide more cost effective ways to manufacture contactless devices and supply to the market. 6) Customers need to have reasons to switch to contactless payments and in particular using their PayPasstm enabled NFC Smartphone’s instead of a plastic card to pay. Therefore we need to develop ongoing

educational campaigns to explain the benefits of contactless payments & encourage users to tap rather than swipe. I think we have to be realistic and understand there’s no end point to this process and over the next few years considerable time, effort and money will need to be ploughed into the contactless payments ecosystem to raise awareness and usage across all the parties involved.

“We are at the beginning of the contactless revolution in the region and all parties need to get involved”

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“With NFC we need to provide services that encourage the user to switch from plastic to phone”

3. Please share one of MasterCard’s recent successful NFC partnerships and how this could be replicated in the ME

Our main focus is on supporting both the acquirers and the issuers, so one of MasterCard’s recent successes is working with Network International, one of the region’s leading acquirers to upgrade their systems to be the first acquirer in the region to be able to acquire contactless PayPasstm transactions. NI has always been very supportive of new payment technologies and very early on they clearly understood the business justifications of contactless (PayPasstm) and NFC mobile payments. By working together we have begun to develop the payments POS infrastructure from a few 100 terminals to potentially thousands in the next few years, so we are very happy with NI’s commitment to contactless payments in the region. Through Network International we have been able to make contact and work with key merchants, encompassing coffee outlets, fast food restaurants, cinemas and general retailers. Today in the UAE you can use you contactless credit card or NFC phone at Costa coffee, Chillis, Nandos, Fuddruckers and Jalapenos. By the end of Quarter 1 this year we expect to have more than 1,100 terminals fully deployed and accepting contactless cards (PayPasstm) & NFC mobile payments.

4. In your opinion, what are the key NFC services we will see taking off in 2013?

With NFC we need to provide services that encourage the user to switch from plastic to phone and that will not happen purely from payments. There needs to be other services available as well, so one of the key drivers for MasterCard is to identify such services and bring them to market via our various partners. Services such as the ability to carry multiple loyalty cards in the one mobile wallet. So, whether you are shopping at Virgin or Costa, you will be able to store and redeem your loyalty rewards electronically. Consumers will begin to pay with their mobile phones because they want simplicity and convenience surrounding the value adds

such as loyalty- one tap pays the merchant and loads the loyalty onto the consumers phone. Another simply yet very effective service could be to store receipts electronically; today we all get paper receipts and stuff them into our wallets or purses just in case we need them, by storing them electronically on your mobile wallet you never need to carry paper POS receipts again. The big service everyone is looking at will be vouchers/couponing, where customers can “clip” (download) a coupon on their phones to use immediately or at a later time. Consumers simply tap their phone against the merchants’ contactless NFC terminal and the coupon is electronically redeemed and the net amount is authorised from the card account the mobile wallet is connected to. For MasterCard, this is an important service as it can be used as an incentive to drive NFC payments usage. Lastly, we will see more and more unmanned contactless kiosks, for example car parking & vending machines where tapping your card or phone will become the standard way to pay instead of using cash or separate payment machines.

5. Now for the crucial question – Mobile, mobile, mobile, what role does the plastic card play in this futuristic payment arena?

Plastic cards, like cash will be around for a considerable time, people like them and they will appeal to technology laggards who will take their time to embrace contactless/NFC technologies if ever!

We believe cards still have a major role to play in the payment ecosystem and whilst we will experience some people changing to NFC phone payments, we will still see the majority of people paying with plastic. You must remember there are thousands of contact only POS terminals in the market and to convert all of these to contactless will take many years and it’s not going to happen overnight. In summary our concerns are not about whether contactless /NFC phones will replace swipe cards but what impact will the new contactless payment technologies have on cash which is still dominate in our markets.

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An interview with:Christelle ToureilleMarketing Director, Middle East & Africa, Telecommunication DivisionGemalto

1. Do you think mobile contactless payments are ready to take off in the MENA region and what is the current state of the NFC market regionally?

With a young population, a booming bank-card market, high levels of mobile phone usage and a dynamic economy, it’s no wonder Turkey was the first country to launch NFC back in 2010, where mobile phone operator AVEA partnered with Garanti Bank to launch their BonusluAvea NFC service and mobile operator Turkcell launched of its Cep-T Cüzdan platform. NFC services first focused on payments and as the services developed they began to include transport and loyalty. Turkey is well known for being very advanced in the use of mobiles for payments and transport. Gemalto actually carried out a survey last year and the results showed that 13% of Turkish respondents are already using these types of contactless services. This is quite a significant adoption rate, whether it is transport to commute into the city or for payments. Then, the second NFC hot spot in the MENA region is of course Dubai, where RTA announced they will be releasing NFC ticketing services this year, so this is the transport side of it.

2. Turning to the global NFC market, what are some of the most exciting projects we are seeing globally?

While we were only talking pilots a few years ago, last year was the year of major commercial rollout on a global scale. In the USA, ISIS, the joint venture between AT&T, Verizon and T-Mobile, which provides a mobile wallet system to the US citizens is one of the most exciting projects. The wallet has a prepaid application that allows consumers to trial NFC and top-up their wallet directly from their bank account. End users can benefit from the TSM service to securely download banking cards and in just a few steps have all of their cards on their mobile. There is a lot of developments on mobile payments in the USA; ISIS being a strong endorsement coming from the banks and MNOs and can readily address 75% of the US subscriber base. We believe that ISIS has a unique value proposition, as well as bringing the key players onboard to make the service more scalable once you start to have multiple banks and service providers joining the scheme. It also provides the highest level of security on the SIM card and optimum user experience – nothing comes close to

just tapping your phone and it just works. Now back to Europe where a lot has been happening last year. Gemalto was selected to provide the TSM software to the Vodafone Group, which means that potentially 400 million subscribers worldwide could eventually use the service. T-Mobile, Telecom Italia and Orange France have also entrusted us to launch their NFC services. This shows 3 out of 5 of Europe’s top MNOs have decided to roll out mobile payments using NFC. Moving on to Asia, I have 3 examples, one is Japan which is very interesting as they have used non-NFC contactless technologies on mobile phones for a few years now, but now they are moving to NFC. This is a big opportunity as the contactless infrastructure is already in place. The second one is Singapore; it is exciting as it is very similar to Dubai in terms of infrastructure: smaller country, concentrated infrastructure. In Singapore they have chosen to roll out nationwide TSM instead of letting each stakeholder run their own TSM individually. Having a consortium lead by a government body (IDA) really helps to bridge the interests of different players and bring them together to launch a service that can be widely adopted by everyone in the island nation. In China, we are collaborating with UnionPay, China’s leading payment scheme to advise them on building a secure mobile NFC ecosystem in the country. In parallel, China Unicom, the nation’s second-largest wireless operator, with more than 220 million subscribers in which over 60 million are on 3G, recently selected Gemalto for the country’s first NFC payment service, in a joint collaboration with China Merchants Bank (CMB). This launch is only the tip of the iceberg in terms of end-user services that will be developed and the mobile payment sector in China is set for explosive growth in the near term.

3. What are the biggest challenges facing widespread adoption of NFC payments in the Middle East?

NFC standards have been defined and the technology is there, available, meeting all the required security standards and certifications levels. However, like anywhere else in the world, the introduction of new technologies and NFC services to the market takes time as it requires the adoption of local ecosystems and business models involving many players such as banks, transport companies, telecom

“The second NFC hot spot in the MENA region is Dubai”

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operators, retailers, merchants, OEMs etc. The beauty of NFC is that the whole payment technology system is interoperable, everything has been standardised by industry groups such as Global Platform and EMVCo to ensure consumers can enjoy a seamless experience everywhere they go. So, NFC will rely on a very strong interoperable baseline. The main challenge is still the contactless infrastructure at point-of-sale and other readers for the field. Obviously rolling out NFC infrastructure takes time, the migration to NFC-enabled POS infrastructure doesn’t happen overnight. However, the banks are committed to doing it across the globe and if we look at the latest reports from ABI research, 85% of POS terminals will support contactless payments in 2016. This means that in the coming years, the world will be more and more able to enjoy NFC services everywhere and NFC technology will increasingly demonstrate its full potential, addressing the masses and being available anywhere, anytime.

For NFC to become commercial we also need a strong partnership between Banks and MNOs, usually if one party tries to do it alone, it won’t be a success, when they decide to partner, projects can achieve the necessary scale to be attractive for the consumers. Today we can see that the people operating NFC projects are the tier one banks and MNOs, as they have more free reign to try this. Looking at the MNOs, in both Europe and the USA, they are already on board. For the banks, it is a bit slower, which makes sense as they need the MNOs to be ready, however the tier one banks are also investing heavily now.

4. In your opinion, what are the key NFC services we will see taking off in 2013?

The most common use cases which are driving adoption are of course payments along with transport applications. Couponing and loyalty programs have also great potential as promotions, coupons and smart tags take mobile NFC one step further. Peer to peer applications also have a great future and thanks to the NFC technology, we already have applications that enable users to exchange their business cards for example.

Airline companies are seriously looking into NFC technology for flight ticketing as the technology would provide increased speed and convenience to end-users while reducing operational costs. KDDI, one of the leading mobile network operators in Japan, for instance recently selected Gemalto for the first commercial NFC airline boarding service, which will enable quicker and more convenient flight boarding for more than 37 million passengers who fly with Japan Airlines each year. The beauty of NFC is that you can pass the gates using your NFC eTicket without to worry about your phone running out of battery, Near Field Communication will work!

Another service I see potentially taking off will be car sharing systems, NFC will overcome key management issues such as, finding the of the car and opening

it directly. Of course we have to account for the time it takes to introduce new services, but I think we will see a lot of these services very soon.

Innovative NFC applications can also be found in the work place, using the technology for identity and access management (fast entry to buildings, strong authentication on PCs, laptops, IT networks and other company services with nothing more than a tap of the phone).The Password Companion NFC application we presented as a proof of concept at the Mobile World Congress reached great interest amongst visitors. Password Companion is basically a secure password management application securely embedded in the SIM to enhance the convenience in network logins. Using the application, NFC phones can also be used for booking meeting rooms, controlling access to secure office printers, and making payments at vending machines and canteens.

As payment solutions mature and consumers become increasingly comfortable with its use, the development of other solutions based on NFC will gather pace and when it comes to NFC use, creativity will have no limit. 5. Now for the crucial question – How secure is NFC and do you think banks and consumers concerned about safety?

NFC in itself is just a communication channel, and when NFC technology is being used for payment applications, security is of course a central element and as a leader in digital security, we, at Gemalto, do take this aspect very seriously by providing mobile operators with highest level of secure solutions. Our Trusted Services Platform along with our Upteq NFC SIM cards, which store the consumer’s payment credentials and the payment applications, have all reached the highest level of security standards defined by financial authorities and have been certified by MasterCard, Visa and Amex. We can therefore say that NFC payment using a dedicated security device like the SIM card offers the same level of security as contactless banking cards. Security is key if you want people to trust the technology and achieve mass adoption.

“When it comes to NFC use, creativity will have no limit”

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An interview with:Pim BonenkampManaging Director MEAUL Transaction Security

1. Do you think mobile contactless payments are ready to take off in the Middle East?

Yes absolutely, mobile contactless payments are taking off already! If you look at the consumer side we would expect customers to be using mobile payments in one or two years. For us at UL, in all of our customer meetings the topic about mobile payments is discussed, especially how to support our customers in that domain, so it is definitely progressing. You can also see the progress if you look at the acceptance infrastructure that is being installed at the moment. Soon NFC payments will be used by the RTA to allow mobile payments in public transport and that is one of the key achievements in the GCC at the moment. It is not about pilots anymore, it is about real life implementation. The market is definitely moving now, once the first companies become active in mobile payments, others will follow suit because all companies need to position themselves at the front of the market.

2. Is security is the biggest challenge facing widespread adoption of NFC payments in the Middle East? Or are there other challenges that are more prevalent?

NFC payments face a few challenges; acceptance by the consumers, interoperability within the mobile payment ecosystem and security are the main obstacles. If security is not implemented correctly, the overall NFC system will not be accepted by the consumer. So, developing a secure system is crucial, one of the major issues here at the moment is that everyone has a normal wallet with all kinds of cards and personal details in. If we cannot transfer this information securely to the mobile

phone and to the secure element then security is at risk and with this consumer acceptance. So, it is exceptionally important to provision information securely to the mobile phone and implement it correctly. Another important challenge is interoperability, if you look around the shops you will see mobile phones being used everywhere and there are more and more NFC enabled phones hitting the market each year. You will also see lots of updates around operating systems, new applications and new UICC’s (Sims) that are being brought to the market. It is all

those components of NFC systems that need to be interoperable, for example the consumer may want to change phones and transfer their wallet quickly and easily, this would need all the components to have end to end interoperability, this is as important as security. Adoption is another very relevant topic; if you look across the globe you will see it is a significant challenge. All of the major players in the ecosystem are trying to create the relevant applications that will encourage consumers to use the NFC services. This is very important, if you look at the past, we have seen hundreds of pilots worldwide, but now companies are focusing on how they can create the most

relevant services that will propel commercial mobile payments adoption.

3. In your opinion, which services will be the most popular in the NFC system, are there any services you think will encourage the uptake of NFC?

Yes definitely, one of them is of course public transport, especially in Dubai. If you look at the incredible increase in passengers from zero to millions that Dubai metro experienced, we can see that NFC will really take off for public transport here. So, this will be one area of

“It is really important we have a good core ecosystem in place”

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implementation where people get used to paying with their mobile phone. Getting familiar with paying by mobile is really important; but there will also need to be other payment initiatives to allow you to pay in shops. The whole concept of eCommerce needs to make sure consumers can benefit from loyalty and points systems and are encouraged to use these services. If companies implement projects in the right way and offer value to consumers, they will develop a good reputation and a good customer base.

4. Please share one of UL’s recent successful NFC partnerships and how this could be replicated in the ME

UL is involved in the leading NFC mobile payment projects around the globe. One major success of UL at the moment is ISIS in the USA, ISIS is an initiative of three firms; AT&T, T-Mobile and Verizon. These companies took the initiative to launch the ISIS mobile wallet, which has all kinds of services for payments, loyalty and storing promotions in the wallet. It was originally launched in two cities in the USA and is preparing for national launch; but is already considered a great success for NFC payments in the market. If you look at UL’s role in the market, we played an important role in the provisioning of the secure data to the UICC (Sim) in the mobile phone. Our role was to manage the testing of the trusted service manager, this involved testing the components and interoperability, this is crucial as I mentioned earlier if a mobile payment system is not interoperable and not secure then it will fail.

“If a mobile payment system is not interoperable and not secure then it will fail”

5. What does UL’s vision for the NFC ecosystem in the Middle East look like in 2013?

In 2013, a number of projects will be implemented; one of these projects is the RTA’s public transport initiative. The future of NFC will all be about positioning, strategy, development and building a roadmap. All of our meetings with the customers over the past month have revolved around ‘what are our competitors doing, what are the market trends’; everyone is excited about mobile payments. If you look at a typical lead time for implementing mobile payments, this is around 18-24 months, I think in 2015 companies will want to be active in mobile payments. So, if companies want to be active in mobile payments in the next few years, they need to act now, otherwise they will behind the curve.

6. In your opinion, what are the key factors needed to create a commercially viable mobile wallet for the UAE? what I see from a a service provider’s point of view it is really important we have a good core ecosystem in place. To do this, companies must not generate a monopolistic ecosystem where service providers cannot enter because this will not allow flexibility for the consumer in the end. So, we really need to think about how we can accomplish this in the GCC. What we believe is, it is crucial to make sure that the competition will take place on the quality of service, not on technology, that is really important. Consumers do not care about the behind the scenes technology, they want easy to use smart phones with lots of service components. Flexibility is also very important; consumers must be able to switch from one service to another with ease and security.

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