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NFC Market in Russia and the World

July 2012

Analytical Report (full version)

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Analytical Report (full version)

NFC Market in Russia and the World
NFC Market in Russia and the World
July 2012

NFC Market in Russia and the World

July 2012

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In 2011-2012 in Russia first projects using wireless NFC (Near Field Communication) technologies have started. This technology provides a possibility of data exchange between devices at the distance of 10 cm. Main advantages of NFC technology are the speed of products and services payment, security and convenience. The technology sufficiently reduces the time of client service in shops, cafes, fueling stations, public transport, etc., and implements such innovative services like, for example, electronic key for home, admissions to enterprises, work time control, etc.


The research “NFC market in Russia and the world” conducted by J’son & Partners Consulting together with the company SMARTEST in June-July, 2012 shows that service development in this segment is on the earliest stage while industrialized countries have a profound experience of practical use of this technology, business models elaboration and consumer motivation management. For example, in Japan a contactless payment system similar to NFC has been used since 2004, in Europe large-scale NFC testing took place in 2006-2008.


NFC market in Russia, following world trends has a huge potential because both service providers (banks, mobile operators, vendors, retail shops, etc.) and users are interested in its development. In particular, due to NFC services mobile operators could enhance loyalty of subscribers and compensate ARPU fall, banks could reduce cash payments and cut the costs, and retail sector can enlarge trade turnover because of speeding-up the service and loyalty enhancing.

 

The portrait of consumer

 

The survey of mobile phones owners in cities with the population of millions people conducted by J’son & Partners Consulting together with the company SMARTEST in July, 2011 showed that 8,6% of respondents already use contactless payment technology while almost the half of them (48,8%) haven’t heard anything about this technology, 42,6% are informed but due to some reasons don’t use it (Picture 1). 13,4% of users said that their bank cards support contactless payments; more than the half of the respondents (53%) don’t know it. 6% of users said that using their smart phone they can pay for goods and services contactless; 48% aren’t informed of it.

 

More than 90% of users would like to use their mobile phone as a universal device (“mobile wallet”, travel document, admission to the enterprise, etc.) expressed their interest for this service.

 

Most of all users are informed about such NFC services like goods payment in shops, parking and filling, and also payments for public transport and tickets for different events. Main constraints obstructing more intensive NFC development in Russia are users’ suspicion about transactions and personal data safely and the lack of service infrastructure and information.

 

 

In the world

 

The services of contactless payment for tickets for public transport and different events and contactless payment for goods and services are most widely spread in the world.

 

Japan is between countries where contactless payment system is most widely spread. In Japan system FeliCa (similar to NFC) elaborated by the company Sony is used. Services Osaifu-Keitai include electronic money, identification and loyalty cards, public transport payment, credit cards, etc. At the end of 2011 Japanese mobile operators announced plans of staged transition from Felica technology to NFC.


In the middle of 2011 г. Cellular operators in South Korea, plastic cards emitters, electronic manufacturers and governmental organizations founded Grand NFC Korea Alliance the main goal of which is to create a new market with the size of $1 mlrd and more than 5 000 work places.


In the United Kingdom post service plans to install 30 000 NFC terminals in 11 500 post offices all over the country. User could make payments for the services through contactless cards Mastercard PayPass or Visa PayWay and with the help of smart phones with NFC technology support.

 

In the summer 2011 г. the government of France announced its readiness to invest €20 mln for the promotion of NFC-based services. Four mobile operators and four banks announced their plans for the launch of NFC-services across the nation in 2012.


At the beginning of 2011 transport companies German national railway operator Deutsche Bahn (DB) and RMV company started cooperation to create a national NFC system of ticket payment in Germany.


Major NFC projects of international payment systems are Visa PayWave and MasterCard PayPass. Alternative solutions of Google Wallet, Isis, etc. are developing simultaneously. Banks promote interesting initiatives. For example, clients of Royal Bank of Scotland (RBS) can take money in cash (up to 100 pound sterling) in automated tellers without a bank card, they could use a smart phone. Qatar National Bank (QNB) together with the mobile operator Qtel offer their client bonus money up to 100 Qatar reals (about $27,5) after activating the account for NFC payments and making at least one transaction.


According to the prognoses of the Western analytics, contactless mobile payment share will stay relatively low till 2016. In their opinion, “contactless NFC payment usage results in changes of the consumer behavior and requires cooperation of all the interested sides: banks, mobile operators, card network and sellers”. All that takes time, thus, analytics expect NFC payments will not enter the mass market at least till 2015.

 

Nevertheless factual data and prognoses about the global NFC market indicate huge potential of the segment. For example, according to Berg Insight prognoses, sales of NFC smart phones will increase in 5 years at compound annual growth rate (CAGR) of 87,8%, due to this. there will be 700 mln NFC smart phones in 2016. For 2011 there were sold 30 mln. of mobile phones supporting NFC and released no less than 40 NFC models in the world. According to IMS Research prognoses, in 2012 there will be sold 80 mln. of mobile phones supporting NFC and about 300 mln. of NFC chipsets and by 2015 these indicators will reach 400 mln and 1200 mln. correspondingly (Picture 2).


In 2011 NFC-ready POS terminals supplies doubled and reached 2,5 mln. in the world. According to the prognoses in 5 years POS terminals sales will increase at CAGR of 49,4%, due to this in 2017 there will be supplied 43,4 mln. of POS terminals. These indicators correspond with the implementation of these devices from 8% in 2011 to 53% in 2017. The highest implementation indicators are expected in North America (86%) and Europe (78%), in other regions – about 38%.


According to Juniper Research prognoses, in 2017 every forth mobile phone user in the USA and Western Europe will pay for goods and services with the help of NFC supporting devices. For 2012 a little more than 2% of mobile phones users of these regions will pay for their purchases this way. In 2017 the amount of mobile payment transactions made with the help of NFC supporting devices will exceed $180 mlrd.

 

 

In Russia

 

One of the main factors influencing NFC market development in Russia is availability of corresponding infrastructure and subscribers’ devices. According to the data for the middle of June, 2012, 28 models of NFC supporting mobile phones and communicators from 8 manufacturers – Nokia (7 models), RIM and Samsung (6 models each), Sony (3 models), HTC, LG (2 models each), Fly and Panasonic (1 model each) were available in Russia (Picture 3). NFC supporting phones price varies from 6,400 rubles (Samsung Wave 578 S5780) to 70 000 rubles (BlackBerry Porsche Design P’9981).

 

According to J’son & Partners Consulting data, there has been a significant increase of sales share of NFC supporting mobile phones in Russia - from 0.7% in the 4th quarter of 2011 to 1.2% in the 1st quarter of 2012.

 

However, for a NFC user in Russia this is an insignificant option which almost doesn’t influence the consumer demand and smart phones sales. At this stage of market development as a rule NFC supporting phones cannot be used in Russian projects, NFC module is necessary for this purpose which can be installed on the phone or NFC supporting bank card. Nevertheless, in perspective, the survey conducted by J’son & Partners Consulting and Smartest, the strengthen of this factor can be expected.

 

 

At the time in Russia according to J’son & Partners Consulting, pilot projects for NFC opportunities demonstration, tariff elaboration and technological aspects, business models, etc. are realized. Main constraining factors of NFC development in Russia are low awareness of potential users about the technology opportunities, lack of infrastructure development and immaturity of Russian sectoral legislation. From the other side key advantages of contactless payments – quickness and convenience of making payments eventually will outbalance gradually solved problems and the market will start to grow rapidly.


According to the survey of IT1 experts conducted by J’son & Partners Consulting together with the company SMARTEST in July, 2011, main sectors where NFC technology will be most perspective in 1-3 years are public transport, retail trade and service and marketing sector (Picture 4).


Contactless payments will be popular in the filling stations and parking places, on culture and sport events, in cafes and fast food restaurants, i.e. in the places where quick payment authorization is required, and the price of the purchase is relatively low. Besides, NFC can be used in systems of work time control of Time&Attendance (T&A) enterprises employees, in advertisement (“smart posters”) and other sectors.

 

 

In particular, the “smart posters”, based on NFC technology provide advertisers with new opportunities for interactive marketing with reference to the location of the user. Using them, potential customers can quickly and easily get more information about a product, advertising proposal, get a coupon for a discount, sign up for the service, to take part in the voting, etc.


Key members of the emerging NFC market are “big three” of mobile operators, major banks and payment systems. Thus, MTS is implementing NFC-projects such as "Quick charging" at gas stations "LUKOIL", payments for goods in vending machines of UVENCO company (both projects were implemented in Perm), a joint venture of MasterCard and "MTS-Bank" payment solution based on NFC tecjnology for contactless payments for goods and service from the phone using MasterCardPayPass technology, etc. "MegaFon" and "VimpelCom" offer their contactless payments services at St. Petersburg metro. 8 Russian banks are the issuers of contactless PayPass cards which considerably reduces the time of service provision in retail trade and other services.

 

According to J'son & Partners Consulting forecasts, the volume of mobile payments market of "big three" mobile operators in 2012 will reach about 15-18 billion rubles. An optimistic forecast, by 2017 the volume of mobile payment transactions in Russia made with devices that support NFC will exceed 50 billion rubles or about 1% of the global market. Most of experts estimated this figure at less then 30 million rubles up to 2011; for 2012 is 30-150 million rubles.

 

Information about the companies

 

J'son & Partners Consulting (www.json.ru) is a leading international consulting company, specializing in telecommunication, media, IT and innovative technology markets in Russia, CIS and Central Asia since 1996.


SMARTEST (www.smrtest.ru) is a leading mobile survey and research company in Russia and CIS countries providing services of survey conducting in 22 countries of the world. The company uses modern OnDevice (UK) platform of mobile survey that allows to provide relevant data in short terms.

 

«NFC market in Russia and world» Contents

 

Table of contents
Summary
1. NFC definition and basic specifications
  1.1. NFC technology and its main advantage
  1.2. NFC and other wireless technologies
  1.3. Main NFC modes and applications
  1.4. NFC Ecosystem and market participants
  1.5. NFC business model
  1.6. Standardization, industrial projects and associations
      1.6.1. Standards
      1.6.2. NFC Forum
      1.6.3. GSMA
      1.6.4. StoLPaN
      1.6.5. Other standards
2. Safety aspects
  2.1. Eavesdropping
  2.2. Modifying data
  2.3. Relay attack
  2.4. Other vulnerabilities (GOOGLE WALLET service as an example)
3. Major projects, trends and forecasts for NFC in the world
  3.1.Major Projects
      3.1.1.Osaifu-Keitai and the NFC migration (Japan)
      3.1.2. South Korea
      3.1.3. O2 Wallet (UK)
      3.1.4.SmartTouch (EU countries)
            3.1.4.1. Payment for tickets, RMV-Handy Ticket and Touch & Travel (Germany)
            3.1.4.2. Contactless payments, Payez Mobile (France)
      3.1.5. Payment systems, banking and NFC
            3.1.5.1. VISA payWave
            3.1.5.2. MasterCard PayPass
            3.1.5.3. Google Wallet
            3.1.5.4. Isis Wallet
            3.1.5.5. Barclaycard PayTag (UK)
            3.1.5.6. Royal Bank of Scotland
            3.1.5.7. Qatar National Bank
      3.1.6. Payment for goods and services, loyalty programs
      3.1.7. NFC in transport
            3.1.7.1. Public transport fair
            3.1.7.2. Advertising on transport
            3.1.7.3. Civil aviation
      3.1.8. Retailers
      3.1.9. Advertising
      3.1.10. Other projects
            3.1.10.1. Digital content payments
            3.1.10.2. Managing home electronics, games
            3.1.10.3. Identification and entry to the enterprise (T&A)
            3.1.10.4. NFC-stickers
            3.1.10.5. Consumer Electronics
            3.1.10.6. Museums
  3.2. Trends and Forecasts
      3.2.1. Expanding range of terminals and sales growth with NFC support
      3.2.2. NFC integration with other technologies
      3.2.3. NFC as mobile commerce and ARPU driver
      3.2.4. NFC Advertising posters segment development
4. Consumer portrait
  4.1.Developed countries
  4.2.Russia
      4.2.1. Have you made a purchase or cash withdrawal by credit card (salary, credit or debit)?
      4.2.2. What were the operations?
      4.2.3. Have you heard about the technology of "contactless payment" when you can pay simply attaching a bank card or mobile phone to a special sensor at the checkout?
      4.2.4. What services "contactless payment" have you heard about?
     4.2.5. Does your bank card allow purchases or travel just raising it to a special sensor at the checkout? Card in this case does not need to be brought to the cashier.
       4.2.6. Does your mobile phone allow paying for your purchases or travellling by simply lifting it to a special sensor at the checkout?
       4.2.7. Would you use you phone as a payment instrument, a universal travel card and an office pass, if it supported such functions?

      4.2.8. What are your concerns?
      4.2.9. What part of your everyday payments you are willing to pay via bank transfer, without using cash?
      4.2.10. Your gender?
      4.2.11. Your age?
      4.2.12. Your education?
5. Key participants, projects and market potential of NFC in Russia and CIS
  5.1. Key participants and projects of NFC market in Russia
      5.1.1. MTS
            5.1.1.1. Payment for fuel at "LUKOIL" filling stations
            5.1.1.2. Payment for goods in vending machines of UVENCO company
            5.1.1.3. MasterCardPayPass
            5.1.1.4. Other projects
      5.1.2. "Megachip" (MegaFon)
      5.1.3. "Mobile travel" (VimpelCom)
      5.1.4. Commercial banks projects - MasterCard PayPass
      5.1.5. Yandex.Metro
      5.1.6. i-Free
  5.2. NFC-devices basic models and sales statistics in Russia
  5.3. Drivers and constraints
      5.3.1. Market drivers
      5.3.2. Constraints
  5.3.Trends and Forecasts
  5.4.NFC market in CIS: status and prospects
      5.5.1. Kazakhstan
      5.5.2. Ukraine
      5.5.3. Uzbekistan
Conclusions and recommendations
APPENDIX 1. Major NFC projects in Russia and in the world
APPENDIX 2. Survey Findings
1. Does the company where of your current occupation use NFC technology in its business and internal processes?
2. Which NFC technologies are used in your company?
3. How do you assess the prospects for NFC market development in Russia over the next 3-5 years?
4. What factors have the greatest impact on the development of NFC services market in Russia now?
5. Are there still barriers for development? Please specify and estimate the degree of influence.
6. In your opinion, how does the market of NFC services develop in Russia now?
7. In your opinion, what services based on NFC will be prevailing in Russia in next 1-3 years?
8. In your opinion, in which industries will NFC technologies become prevailing in Russia in next 1-3 years?
9. In your opinion, how much are the questions of security and preservation of confidential information of NFC technology elaborated by now?
10. Please rate the NFC-transactions market in Russia in 2011.
11. What will be the volume of such NFC transactions in 2012?
12. Please estimate the proportion of mobile phones with integrated NFC-chip from the total number of mobile phones sold in Russia in 2012


List of Figures
Figure 1. Contactless payment card reader "PaSoRi" RC-S320 from Sony
Figure 2. Comparison of NFC with other wireless technologies
Figure 3. NFC scope of implementation
Figure 4. NFC Ecosystem
Figure 5. TSM role in NFC ecosystem
Figure 6. The basic scheme of NFC market participants' interaction
Figure 7. The scheme of interaction between operators in South Korea and Japan in the field of NFC
Figure 8. O2 Wallet NFC services for cell phone
Figure 9. NFC-tags at public transport stops in Frankfurt (Germany)
Figure 10. NFC in Tokyo underground
Figure 11. The use of contactless technology in retail trade in South Korea
Figure 12. NFC devices, mln pieces
Figure 13. The main information sources on NFC for consumers
Figure 14. Awareness of smartphone users about contactless payment technology in Russia
Figure 15. Support of contactless payment technology on smartphones and bank cards in Russia and awareness of users about such services
Figure 16. Willingness of subscribers to use mobile phone as universal mean of payment, travel card and other services
Figure 17. The main constraints of NFC in Russia
Figure 18. Use of bank cards in Russia
Figure 19. Potential users’ non-cash expenses
Figure 20. NFC-solution from MTS
Figure 21. NFC Implementation on "Beeline" subscriber’s phone in St. Petersburg
Figure 22. Manufacturers of mobile phones equipped with NFC: number of models in Russia


List of Tables
Table 1. The speed and variety of encoding data in NFC
Table 2. The main categories of services for NFC
Table 3. The main types of business models for NFC
Table 4. Osaifu-Keitai Services
Table 5. Advantages and disadvantages of Osaifu-Keitai service
Table 6. The main parameters of O2 Wallet project (UK)
Table 7. The main advantages of «Payez Mobile» for project participants
Table 8. Actual data and forecasts for global NFC market
Table 9. Reasons of customers’ willingnes to use their mobile phones for making purchases
Table 10. Basic models of smartphones with NFC support on Russian market
Table 11. Sales of mobile phones equipped with NFC in Russia

 

Copyright © 2012, J'son & Partners Consulting. Copying or distributing in print or electronic forms without written permission of the company J'son & Partners is prohibited. Press may use any graphics, data and forecasts, contained in this market review, only with reference to a source of information - J'son & Partners Consulting.

In 2011-2012 in Russia first projects using wireless NFC (Near Field Communication) technologies have started. This technology provides a possibility of data exchange between devices at the distance of 10 cm.