One of the major impediments affecting Near Field Communication (NFC)-based payments has been an inability to get all of the major players – telcos, card networks, issuers and handset makers – to agree on a way to split the revenue. So efforts to sidestep the other players have been among the key efforts to try to break the gridlock.
The introduction of Host Card Emulation (HCE), an open architecture that enables payments and other NFC services, for example, removed handset makers from that decision-making process. It did so by alleviating the need for a secure element in the devices, allowing instead for cloud-based access to credentials. HCE is backed by all new Google smartphones using its KitKat operating system, and both Visa and MasterCard now are promoting the use of cloud-based HCE contactless payments to push NFC to the masses.
From a regulatory standpoint, U.S. regulators have kept an arm’s distance in setting rules for mobile payments, at least for now, preferring to let the market work out its differences through innovation and competition.
In other countries, the situation isn’t necessarily that clean.
How China’s dealing with competition
In China, for example, banks and banking regulators are using regulations to impede competition from large Internet companies. China’s central bank on March 24 reportedly said it would set limits, not yet specified, on how much Chinese consumers may spend using smartphone-based payment services. The proposed caps, according to the Wall Street Journal, were designed to limit unidentified business risk.
The proposed rules are subject to input from consumers and online firms, which, according to the Journal, had been trying to push their way into the turf of state-run banks. Particularly affected by the caps would be a multibillion business for companies such as eCommerce heavyweight Alibaba Group Holding and its rival Tencent Holdings Ltd.
China’s state-run banks already have pushed back on the Internet companies’ efforts to offer online banking services, placing caps on how much their customers can transfer into their accounts. The mobile-payment caps would just be another effort by the state-run banks to push back the competition.
New Zealand’s different approach
New Zealand’s situation is much different. There, Payments New Zealand (Payments NZ), which the country’s Reserve Bank formed in 2010 with a mandate to preserve the integrity of the payment system, on March 25 announced the launch of new Mobile Device Rules and Standards that will govern the region’ mobile-payments system. New Zealand’s payment system transacts more than $25 billion per day.
According to the organization, the new standards are designed to ensure the integrity, efficiency and security of mobile payments. “That means when telecommunication companies and banks launch new payment options for their customers, there is already an industry-agreed system in place,” according to an announcement about the new standards.
Market in-fighting appears not to be the same in New Zealand as in China, or in the U.S. and Europe for that matter. Payments NZ’s goal is to ensure that when contactless mobile payment applications are rolled out by banks and telecommunication companies later this year, NFC-capable smartphones and contactless-capable point-of-sale terminals will be compatible, the organization said. No caps adversely affecting one player over another are included in the standards.
“The new rules help protect the credibility and security of domestic payments, which will give customers greater confidence to use the technology,” Payments NZ CEO Steve Wiggins said in the standards announcement.
China’s central bank also indicated security was behind its transfer-cap plan. It’s interesting that New Zealand didn’t see such a threat from Internet companies that required similar attention. Maybe New Zealand’s banks can handle the competition better or, perhaps, the country doesn’t have an equivalent the size of Alibaba or Tencent with which to contend.
In any case, my bets are on New Zealand’s mobile-payment system succeeding, or at least innovating, much faster and with better results than China’s. It appears to have much less friction to hold it back.