Telefónica to Launch NFC-Based P2P Payments in Europe

Pablo Valerio, International Business & IT Consultant | 2/13/2013 | 8 comments

Pablo Valerio
There's another challenge in the effort to get rid of the friction in mobile payments.

Telefónica Germany is scheduled to start offering a new NFC payment service next month. The P2P service, initially available only in Germany, will allow users of NFC-enabled smartphones to transfer funds between them, with the use of a PIN. There will be no need to exchange bank information or credit card details. The system authorizes the transaction against the preferred method of payment associated with the user's telephone number.

This isn't the first attempt at this. American banks have similar offerings in the works or under testing. And, of course, there was the original PayPal. I still remember their early commercials with James Doohan (Star Trek's "Scotty") showing how people could "beam" money between Palm OS's PDAs. At that time, beaming was restricted to infrared communications between compatible devices. Later, the service was abandoned due to security concerns, and PayPal moved to other systems, mostly as the eBay preferred payment method.

With near field communications (NFC), money "beaming" can become the new way to share a tab, pay the cab driver, settle your bill at small stores, etc. The main advantage, if the system is implemented properly, is that there is no need to have a permanent data connection. NFC has integrated security and encryption, and adding the pin and chip of the smartphone ensures a safe transaction.

Current handheld POS systems work well over cellular networks if the signal is strong and the data network available. But many users, and merchants, are beginning to see problems when cellular networks are overloaded because of congestion with transactions taking longer waiting for authorization. NFC can solve some of these issues preauthorizing small transactions and processing them in batches later.

Telefónica is also launching a mobile wallet service for users of their NFC-enabled handsets. This service will allow users, both in Germany and abroad, to use their smartphones to pay at locations where MasterCard PayPass technology is used.

To install the mobile wallet, the users need to load their phones with a new NFC-enabled SIM card. Then, using a mobile wallet app, the user registers using Telefónica's mpass service. Telefónica issues a new payment card, which is automatically added to the digital wallet, then the user can start shopping.

It is interesting to note that Telefónica has chosen the German market for this trial. Germans have not been fond of credit cards and electronic payments for many years, and people still use Eurocheques -- checks guaranteed by the bank -- to pay at most merchants, especially at grocery stores and gas stations. If successful, the new payment system could change the way people pay for most small purchases, getting closer to a cashless society.

I believe CIOs need to pay close attention to these developments. The new payment system is just another example of the war for wireless payments in Europe. The previously discussed ING-MasterCard deal in Holland for mobile shopping is another example.

To make it work, CIOs need to concentrate on the often conflicting ideas of reducing friction while keeping the transaction secure. But if you make it happen, there is a growing and lucrative market to tap.

View Comments: Newest First | Oldest First | Threaded View
waveeq   Telefónica to Launch NFC-Based P2P Payments in Europe   2/14/2013 6:27:49 PM
Re: New Ways to Pay
Always better to be on leading edge and not the bleeding edge
Sara Peters   Telefónica to Launch NFC-Based P2P Payments in Europe   2/14/2013 5:44:53 PM
Re: New Ways to Pay
@Dave  Hm... Maybe if I was a brand new business I'd go for it, to pump up the initial Wow factor a new business needs to draw in customerrs. But if I were an established business, I might wait.
David Wagner   Telefónica to Launch NFC-Based P2P Payments in Europe   2/14/2013 5:39:19 PM
Re: New Ways to Pay
@Sara- I see the wisdom of that. Sometimes second movers and fast followers get the real advantage of waiting until the bugs are worked out. I'd be afraid in retail though of waiting since new customers are so hard to acquire and losing repeat customers is so expensive.

It is a tough, tough call.
Sara Peters   Telefónica to Launch NFC-Based P2P Payments in Europe   2/14/2013 5:36:54 PM
Re: New Ways to Pay
@Dave  Agreed on all points. I think it is -- as with everything -- a matter of risk assessment. But if I were really worried about security of NFC-based payments, I'd hold off on rolling out that tech myself, and wait until customers started wanting/expecting it. Let somebody else's business take the risk first.
Cyrus   Telefónica to Launch NFC-Based P2P Payments in Europe   2/14/2013 5:33:25 PM
Re: New Ways to Pay
@David To your point about security, it seems to me that your existing credit card holders could essentially make "Starbucks Card-like" apps that would convert your credit card number into a scannable bar code that could be read by a reader just as is the case with some specialized apps now. If the app required you to in some way verify yourself before use, it could go a long way toward addressing the security issue.
David Wagner   Telefónica to Launch NFC-Based P2P Payments in Europe   2/13/2013 4:51:00 PM
Re: New Ways to Pay
@CMTucker- It is, indeed, an arms race. one has to wonder however, if we need the race in some cases.

I've certainly defended the concept of shaving tenths of seconds off of transaction times as great for the bottom line, but if the security required to shave the time eats into the margins, it stops becoming valuable. If i were a bank trying this out, I'd be wary of unintended consequences.

Of course, i'd still be experimenting because you have to to keep up.
CMTucker   Telefónica to Launch NFC-Based P2P Payments in Europe   2/13/2013 4:01:11 PM
Re: New Ways to Pay
@David Good point about security. A radio signal is easy to pick up...and if the hacker is talented then the encryption would be worthless.

That being said, the risk of packet sniffers at malls and Home Depots hasn't stopped the use of WiFi, nor has it stopped those who would try to steal with tech.
David Wagner   Telefónica to Launch NFC-Based P2P Payments in Europe   2/13/2013 2:28:35 PM
New Ways to Pay
I'm all for quick and easy ways to pay for stuff. It makes it much easier for me to end up buing something I don't really need and filling my house with clutter.

No seriously, I think this is great, but I have to say, I'm still basically afraid of NFC for paying for stuff. It seems lke a relatively easy thing to create a device to grab the signal and do bad stuff with it. We've seen plenty of skimming and other scams over credit card POS as it is. Is this going to simply make it easier to do it undetected?

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