Tapping into Location-Based Payments

Orange and Barclays have just released the UK’s first contactless mobile payment service, called Quick Tap. They hope it’ll revolutionise the way we pay for goods. Customers can hold a Quick Tap-enabled phone over a terminal at the point of sale, and credit will be automatically deducted from the balance on the phone. The service is uses near field communication (NFC) to transmit a short-range signal between two suitable devices.

NFC use in mobile payments is nothing new. Around 7 million Londoners regularly use the technology when topping up and “swiping” their London Transport Oyster Card. Barclays already offers NFC-based payments through its credit and debit cards, as does Orange’s credit card, which is provided by Barclays. However, credit and debit cards have generated little activity, mainly because the supporting infrastructure of NFC terminals in retail stores is so small. NFC transactions remain a small percentage of total transactions in the UK.

But if past research is any guide, payments using NFC-enabled mobile phones could change things. Initial trials of such devices in the UK were conducted back in 2007 and 2008. The Nokia 6131 was used by 500 test users to pay for goods less than £10 at selected retailers in London. The project’s backers included Nokia, O2, Barclaycard, Visa and Transport for London. While the trial didn’t immediately lead to widespread deployment, it did provide encouraging results that suggested users preferred to use a mobile handset rather than a bank card.

Following two years of collaboration between Orange and Barclays, Quick Tap offers an extension to NFC payment services currently provided on the two companies’ credit and debit cards. Quick Tap users must have one of these cards from which to deposit money onto their Quick Tap Wallet on the phone. Payments can be made at about 50,000 outlets, mostly in London and southeast England. Jason Rees, director of mobile payments and ticketing at Orange, is confident that this number will grow rapidly.

tocco_qtThe first Quick Tap phone to be released is a variant of Samsung’s Tocco Lite. It currently sells for £59.99 at Orange retail stores. Orange’s decision to select the Tocco Lite is a sound one. It’s proved to be one of the most successful prepaid devices in recent years, and it’s still among the UK’s top 10 selling prepaid phones. It’s also popular in other countries: for example in Poland, where the device is already part of an NFC payment trial. If Orange wants to target the mass market, the Tocco Lite would appear to be an appropriate route.

But does targeting the mass market with a popular phone necessarily mean customers will be drawn to its NFC-based mobile payment capabilities? With the Samsung Tocco Lite, I’m not so sure. Apart from its imbedded NFC chip, the Tocco Lite Quick Tap is no different from any other feature phone. The Quick Tap version is £10 more than the standard model, although it comes with £10 of Quick Tap Wallet credit, valid for 30 days. This hardly makes it an attractive offer for the casual buyer on the high street. The free credit isn’t clearly displayed on the Orange Web site and I think Orange could do a better job of communicating this benefit. Or even subsidise the handset cost as well.

In my opinion, a smartphone would have been a much more suitable device for Quick Tap, simply because smartphones offer greater potential to exploit the features of NFC payments through third-party applications. And this would be its big selling factor. Take for example, location-based applications.

This month, the new X-Men: First Class movie has been promoted in central London with NFC-enabled “smart” posters. Users can tag their NFC-enabled device on a smart poster to receive an exclusive movie trailer and link to the film’s Facebook page. Why could this not also include an option to purchase tickets for the same film at a local cinema? Users could perhaps download the ticket on their mobile phone and then tag it at a terminal at the cinema.

NFC-based mobile payments still hold a great deal of potential if they offer better alternatives to normal cash payments or credit cards. And combining them with NFC tagging certainly provides an avenue worth exploring.

CCS Insight will assess the Samsung Tocco Lite Quick Tap and take a closer look at Orange’s Quick Tap service in the coming weeks.