The Cartes Conference just concluded in Paris. While the industry eagerly awaits the commercial roll-out of NFC, traditional card production remains its anchor.
The Cartes trade show closed its doors a few days ago. The 2010 edition boasted strong attendance, visitor engagement and challenging weather conditions — a somewhat fitting metaphor.
With 19,000 visitors this year, Cartes was the conference to attend for everything related to smart cards and transaction security, easily eclipsing similar conference in North America and the Asia. This year’s event was marked by brisk traffic from the opening of the show, unfortunately disrupted by unusual wintery conditions on day two. (Related Article: Musing from “Cartes 2010”: For One Swallow Does Not Make a Spring)
On the opening “Card Summit,” the industry flashed its optimism: Volumes have continued to increase throughout the economic downturn and will exceed 6 billion units in 2011. Key milestones for 2011 are expected to include shipments of over 1 billion financial cards as the EMV migration proceeds everywhere but in the United States; continue penetration of contactless and dual interface devices which will continue to outgrow “traditional” chip cards and will reach 22 percent of the banking segment in 2011; and after close to a decade of pilot doldrums, commercial NFC will emerge with 15 million NFC chips to be delivered. Of course, unit costs continued to decline, prompting comments that revenues were essentially flat during the crisis.
I imagine that executives in many industries would be thrilled to report such strength in the core business and emerging segments. Walking through the aisles, one could certainly witness large crowds at card and POS providers, strong optimism and a slew of demonstrations from access control to loyalty to digital rights management… and payments.
Yet, I experienced a certain sense of unease while listening to exhibitors and presenters: First every conversation was dominated with the importance of mobile yet there was no representation from that industry; second new product offering seemed dominated by traditional providers (as demonstrated by the Sesame Awards). At times, I had the impression that the destiny of the industry was decided elsewhere, where operators and startups could be found.
One has to admit that something is amiss, when the role of explaining the future of mobile commerce rests with legacy payment providers, eager to display handset accessories (SD and sticker-based) that do not require operator participation. If NFC is about a superior user experience that marries the simplicity of touch with the connectivity of mobile, and the richness of cloud data, to deliver new services, one has to discuss the respective roles of all the parties that hold a consumer relationship (see the Drew Anderson’s article in the December issue of the Lydian Journal).
The fact is, the NFC story is mostly predicated on operator ambitions — at present Orange in Europe, ISIS in the United States and DoCoMo in Japan. Since the latter two will really take off in 2012, a smooth forecast of shipments is still hard to believe. In fact, in spite of official optimism, Apple and Google may have more to do with the success of the technology thanks to their armies of developers — a fact not lost of executives somewhat weary of the shift in the control of the value chain.
NFC is inherently disruptive: it is a token of tokens and displaces the card ecosystem. It enables local functionality on a device (the mobile) that with the exception of alarm clocks and music players is overwhelmingly used for online applications. It redefines the security architecture of many transactional services by enabling the conjoint use of identification information from uncorrelated sources (IMEI number, geolocation, and secure element ID for instance). Near Field Communications redefines the purchase cycle in general and the business models of payment delivery in particular, as the contrast with EMV — the quintessential offline solution — demonstrates. There is plenty of evidence, empirical and academic that technology that brings such disruptive changes is rarely rolled out by incumbents who, regardless of their interest in the new platforms, need to protect their existing money making businesses. Thus, NFC solutions provided by the insiders have the hallmarks of a Porsche 941 Turbo running on one cylinder fueled with regular gas.
Look no further than merchant for the proof of changes to come. As always with new payment technologies, they will define the rollout rate. Their interest in contactless interfaces in general and alternatives to current payment solutions are evident: POS vendors report they are now shipping most devices contactless ready; and the blistering growth of the likes of Groupons demonstrates the opportunity of redefining the purchase cycle to improve conversion of shoppers into buyers. Hence as an unrepentant optimist, I believe that indeed the time for NFC is upon us. (Related Article: Nokia, INSIDE Secure and More Discuss U.S. Business Case for NFC)
However, it will not happen in the confines of the present participants. It is my prediction that Cartes will be renamed or falter; that industry heavyweights such as Gemalto or Verifone will borrow a page from Google and Apple and seed startups with resources, knowledge and open platforms; and that operators, lead by DoCoMo, will lower the walls of their garden and reap the benefit of a thriving ecosystem where merchants and developers play critical innovation roles.
I dare anyone to imagine what this conference could truly be in 2015.
Patrick Gauthier, is a payment industry executive with 20 years of experience in developing, selling and deploying around the world, new technologies for payment and commerce. Patrick is currently Head of Market Intelligence at PayPal. The views expressed in this column are that of the author only and do not necessarily reflect that of PayPal or EBay Inc. Patrick can be reached via LinkedIn (http://www.linkedin.com/in/prxgauthier) or Twitter (PRGauthier).
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