Before there were phones built with near-field communication chips for payments, companies designed stickers, sleeves and memory cards to bridge the technology gap. Even as momentum builds for NFC-equipped phones, these companies say there is still an audience for add-on payment tech.
These add-ons, such as Prague–based Logomotion's LGM Card, will have a place in the market in the longer term, but currently consumers can't use NFC payments at many merchant locations, says Rick Oglesby, mobile-pay expert and senior analyst at Aite Group.
Logomotion will most likely pilot the add-on in European countries, but the company has plans to extend the user base throughout the world, including North America, says Dave Riffelmacher, the vendor's CEO.
The LGM Card is a microSD card that fits in a phone's memory card slot, turning the phone into an NFC-capable mobile payment device. Other vendors, such as DeviceFidelity Inc. and Tyfone Inc., take a similar approach to enabling mobile payments.
Logomotion plans to have the patent-pending LGM Card to banks and other financial institutions by the second quarter of next year. It announced the product last week.
"What banks are looking for is a mass market solution, and there are billions of phones in consumers' pockets today," Riffelmacher says.
DeviceFidelity, in addition to offering a payment-capable microSD card, also makes a case for the iPhone, which does not have a memory-card slot. The case includes contactless-payment technology to allow iPhone users to mimic the capabilities of other phones.
“The company is part of several major solutions, including the iPhone solution for the Isis initiative,” says Amit Malhotra, DeviceFidelity’s chief operating officer.
Isis launched its mobile-pay trial this week in Salt Lake City and Austin, Texas. Its system currently works with nine phone models offered by AT&T, Verizon Wireless and T-Mobile, the three carriers behind the Isis venture. Isis says it expects 11 more phone models to support its system by yearend.
Many companies have already tried and failed to get consumers to make contactless payments in the U.S., with or without a phone. Issuers that offered contactless credit and debit cards years ago either stopped offering the products or dialed down the marketing of the cards they still offer.
Other companies offered contactless-pay stickers that are meant to be adhered to phones, but these efforts have also met with mixed results.
Riffelmacher says Logomotion has an advantage because the LGM Card includes a secure element for storage, an embedded NFC antenna and a two-payment-chip architecture, which provides added security and payment options.
Control of the secure element differentiates providers, says Oglesby. These elements have special hardware considerations that deter hacking.
However, some question the value of using a secure element within the phone to protect account data, Oglesby says. "The battle being fought right now is whether secure element is even necessary."
Digital-wallet providers such as PayPal and Square rely on a software-based approach to mobile payments. They store payment data remotely, and use the phone to communicate the minimum information needed to initiate a transaction.
But Siva Narendra, CEO of Tyfone Inc., which makes a wide range of add-on NFC capable products, says hardware-based security is less vulnerable to hacking, since an attacker would have to target each user instead of a remote server.
"By keeping security in the hardware, someone has to actually steal your device … which doesn't happen in bulk," Narendra says.
Oglesby says cloud-based services can be made very secure.
While consumers say in surveys they care about security and more often trust the providers they currently do business with, Oglesby says consumer behavior tells a different story.
"Consumers hand over their cards to everyone that has something to sell," he says.
Add-ons such as Logomotion's microSD card may be cheaper for consumers than buying a new phone, but they are not cheaper for banks, which would have to issue and maintain the additional hardware.
Narendra agrees NFC-capable hardware is a challenge to implement because the whole ecosystem has to change, but says add-ons offer interoperability and in turn have a chance at universal adoption.
Even with the challenge, banks may choose to distribute add-ons if it helps them avoid surrendering their customer relationships to a mobile carrier or handset maker.
"Banks want a complete mobile payment solution where they control their relationships with the customers," Riffelmacher says.
Plus, Narendra says, add-ons, such as cards or sleeves are less expensive than replacing the mobile device itself.
According to Riffelacher, banks during the Mobey Forum Member Meeting in Washington, DC, this month said they prefer the memory card form factor.
But even though the add-on concept has been around for years, it may still be ahead of its time, since many merchants and payments companies won't be equipped to handle NFC payments for another three to four years, Oglesby says.
Whereas Oglesby says this timeframe indicates it's too soon for NFC payments, DeviceFidelity's Malhotra says this means it's right around the corner.
"It’s only a matter of time, just another couple of years, that in most major cities in the U.S. it’ll be hard to find a place that doesn’t accept NFC," Malhotra says.