Japan’s DoCoMo is going to work with South Korea’s KT to create a cross-border payment infrastructure, coming in from the cold to embrace and extend the NFC standard.

The service is expected to launch around the end of next year, and support existing payment applications including BitWallet’s Edy in Japan and KT’s ticketing system in South Korea. However, DoCoMo’s aspirations go far beyond the east with plans to get its international payment architecture adopted by the GSM Association for global use.

The announcement follows a similar deal between SK Telecom, KDDI and Softbank Mobile, which was announced in July but has now started trials with a view to deployment this year – as reported by NFC World.

KDDI and Softbank are both keen to switch from the Felica system which is part owned by their domineering competitor DoCoMo, but now it seems that even DoCoMo is embracing the Near Field Communications standard.

Submitting standards to the GSMA won’t be as easy as imposing them on the domestic market, where DoCoMo has been able to dictate numerous technical standards thanks to its control over handset manufacturers and market dominance. The imposition of standards such as Felica and iMode has given the Japanese the world’s most advanced mobile services, but at the cost of incompatibility with the rest of the world.

Samsung will be helping DoCoMo and KT realise an international architecture that will allow travellers between Japan and South Korea to install local payment systems on their roaming handsets, by the end of next year.

Handbag and wallet makers beware: the day when we will finally be able to leave the house with just our mobile phone is approaching. Contactless payments are being integrated into mobile phones so they can be waved past a mobile reader to pay for our shopping.

The technology isn’t new. Consumers can already “wave and pay” at certain shops in countries around the world with contactless payment cards like Mastercard’s PayPass and Visa’s WavePay which contain an embedded near-field communication, or NFC, microchip that communicates with a reader to process payment transactions.

An experiment with mobile wallets in Spain has been successful.
But despite plenty of hype, the rest of the world is years behind Japan, where osaifu-keitai or mobile wallets are used at over 300,000 retail outlets across the country, a network that has taken seven years to build.

Tokyo resident Yuji Endo has been using osaifu-keitai for two years and says speed is the biggest benefit of the system. “It works great at the kiosks at the train station when you want to buy a newspaper and jump on the train,” he says. Although it hasn’t entirely negated the need for a wallet, because not all stores have mobile readers, “there is less change in your pocket and most convenience stores now have the system, so you don’t need to take the wallet from your pocket.” Still, his gripes include annual membership fees and the few minutes it takes to charge the credit on the mobile wallet if your balance is low.

The success of the service in Japan is a product of the unique mobile market there. NTT Docomo is the dominant player, with around a 50% share of total subscribers, and it has worked with handset makers, retailers, ticket outlets and transport organizations to encourage take-up.

Elsewhere network operators, handset makers, retailers, banks and IT specialists are still squabbling over who gets what slice of the mobile wallet pie, hence the lengthy stasis outside of Japan. Sporadic trials have been run in several countries but only now are the fragmented players planning commercial launches.

“It’s a chicken and egg situation,” says Howard Wilcox, analyst at telecoms research firm Juniper Research. “Until handset makers see a demand for NFC-enabled phones, they won’t produce them, and equally retailers won’t install point of sale technology until the handsets are there to drive demand.”

The handsets are, however, beginning to gain traction. Google Inc’s Nexus S phone, available in most European countries, is NFC-enabled, and Nokia’s C7 touch-screen phone includes an NFC chip and will be upgraded with NFC software to allow mobile payments this year. Nokia has also pledged to include NFC chips in all its Symbian-powered smartphone portfolio from this year. Samsung also has a few NFC enabled phones, one of which, the Samsung Star NFC, was used in a large-scale mobile wallet trial in Spain last year.

Laura Montoya lives in the coastal town of Sitges, north of Barcelona in Spain. There Spanish bank la Caixa, network operator Telefonica and payments giant Visa have been running a mobile wallet trial in collaboration with around 500 shops. Ms. Montoya could access her la Caixa bank account through her mobile phone, using a “one-swipe” action to buy goods for under €20. Anything over that amount she would swipe and then enter her pin number. “It was faster most of the time, especially if you paid for goods under €20,” she said, “and mobile payments can be very helpful, especially when paying small amounts of money.”

She didn’t leave her purse at home though, because not all shops were equipped to take mobile payments, “but if they were available everywhere, I would have left my wallet at home several times.”

The question of security came up quickly when Ms. Montoya and the other trial participants were introduced to the service, but she says their concerns were easily allayed. “Mobile payments are as safe as credit cards. You have to enter your pin for payments over €20 and la Caixa guarantees safety through any electronic channel or they will give your money back.”

The critical mass of NFC-equipped phones has made a true European commercial launch much more feasible.

Everything Everywhere, the U.K. joint venture between France Telecom’s Orange and Deutsche Telekom’s T-Mobile, has pledged to launch a commercial mobile wallet service in conjunction with Barclaycard by the second quarter of 2011.

Across Europe, Orange has pledged to roll out NFC services to most of its European operations by the second half of 2011, and the French government is providing funding for nine cities, including Paris, Marseille and Toulouse to join Nice in rolling out NFC services.

There are also a growing number of shops that already accept contactless payments, including Cafe Nero, Pret A Manger, Boots and Ikea in the U.K., all of which will be able to accept mobile swipe-and-pay.

Press reports have speculated that Apple plans to include NFC chips in the next iteration of the iPhone and iPad. The company declined comment. but the company wouldn’t comment on these rumors.

Reports that the next iPhone and iPad could include Near Field Communication (NFC) technology have raised the prospect that many more consumers in the U.S. will soon be able to use their devices to pay for almost anything — a candy bar, a subway ride, a parking space, or a bag of groceries.

But while flashing a phone near a station to make payments sounds easy, it really isn’t.

If NFC mobile payments were simple, the technology would already be inside mobile phones and in wide usage in the U.S., some analysts have argued. The technology became available in 2004 and is used fairly widely in Japan and Korea. And it has been deployed in several European cities, mainly for transit systems.

So why is the U.S. late to the party? Aside from the actual wireless NFC software and hardware inside a phone, NFC-based mobile payments require a collection of systems and technologies, including an electronic transaction system — or a collection of transaction systems — to work.

Such transaction systems would function in a similar way to credit cards that are swiped for the user’s information contained in their magnetic strips.

Before Apple came along, NFC also required banks, merchants, phone makers and wireless carriers to agree on transaction fees and technical specifications that allow interoperability between phones and receivers. In other words, there is a lot of politics involved with NFC.

One of the foremost analysts in electronic payments, Bob Egan of The Sepharim Group, has noted the logjam between the various parties interested in NFC over recent years. Egan said in a Twitter post last summer that he was thrilled to hear Apple had hired NFC expert Benjam Vigier, but has been cautious about NFC growth.

“NFC in handsets is meaningless without the rest of it, including agreements between parties, infrastructure, processing procedures for data, security and reconciliation of accounts,” Egan said more recently.

Those factors are already in place in the credit card world, Egan noted. Even if mobile phones used for mobile payments double in number by 2014, as some analysts forecast, the total value of the transactions they make will only be 1% to 3% of all transactions conducted via credit cards or checks, Egan said.

Egan estimated there are 230,000 contactless credit card readers in the U.S. that can read credit cards with a smart chip installed. They are installed in the U.S. at fast food restaurants and retailers, and could be upgraded fairly simply to read NFC signals from mobile phones. But he said those devices have not yet been widely used.

Jack Gold, an analyst at J. Gold Associates, said NFC won’t do as well in the U.S. as elsewhere, partly because of the reluctance of consumers to have their wireless carriers act as credit card companies.

Even with Apple’s potential interest in NFC, Gold said, “I still believe that NFC will not be a big success short term in the U.S., which is different from other markets,” Gold said. “Mobile payments in the U.S. is going to depend on carriers and how they are perceived by end users as much as the technology on the device.”

Gold predicted a slow adoption rate of the technology, although he said Apple might be able to stimulate demand through special discounts at various venues and stores.

Other analysts are more intrigued with Apple getting involved in mobile payments, noting the enormous 160 million iTunes customer base that would allow Apple to sidestep banks and carriers by connecting directly to those customers through NFC-ready phones.

Still, even without Apple, other countries such as Japan and Korea, especially, have NFC in mobile phones to pay for transit and retail purchases, but notably not for big-ticket items.

The NFC Forum, which has published many specifications for developers to use in building NFC gear, recently published a 29-page white paper (PDF document) that describes numerous uses of NFC in public transit for ticket payments and more.

The paper cites a successful trial of NFC at the BART transit system in San Francisco in 2008, where ViVotech technology enabled hundreds of commuters to ride BART by waving NFC mobile phones at the gate to gain access to the trains. Users could also use the phones to pay for Jack in the Box meals near train stations or download directions to the restaurants by flashing the phone over an NFC smart poster.

Other transit and long-range rails systems using NFC are profiled in the report, including in several cities in Germany and an NFC trial in London.

If you asked most folks what NFC means they’d probably mumble something about the Giants and wave you off. However, Near Field Communication is here to stay and if Google and Apple’s current and potential implementations are any indication, we’ll be using NFC devices in the next two years, at least in some specific environments.

First, though, what is Near Field Communication (NFC)? At its core it’s a low-power radio system that allows short-range data transfer at distances around 3 inches, or 10 centimeters. There are multiple modes, although the most important is passive mode, in which a device acts as a programmable smart card. For example, an NFC transmitter could pose as any number of RFIDs as well as interact, albeit briefly, with security systems and payment kiosks. In short, an NFC transmitter becomes both a wallet and a personal ID.

Why would you want NFC in a phone? Well, NFC is entering the common lexicon through improvements in mass transit payment systems (DC, for example, is looking into it as well as Vancouver). If you’ve ever been to Japan, you’ll remember the ubiquitous Suica penguin cards used to get into the Japanese metro.

However, given the American animus against mass transit — to the extent that in Ohio they gave up Federal cash rather than connect Columbus and Cleveland via rail — I doubt that Apple and Google are consider that a priority. However, the iPhone 5 and other NFC-capable phones will be headed to Asia and Europe and so can be used there. There are, to be sure, commuters who would love NFC in the DC, NYC, and SF metros, and that’s not a small constituency. However, it’s not enough to roll out an entire mobile infrastructure for.

Our own MG believes that NFC will make for an easy way to connect mobile devices with each other. However, NFC isn’t quite the mobile mesh personal area network we’ve been looking for. There are better and easier ways to get data from point A to point B than add an entirely new radio stack.

However, general payments seem to be the real value play here. Read this:

The main goal for Apple would be to get a piece of the $6.2 trillion Americans spend each year on goods and services, Crone said. Today, the company pays credit-card processing fees on every purchase from iTunes. By encouraging consumers to use cheaper methods — such as tapping their bank accounts directly, which is how many purchases are made via PayPal — Apple could cut its own costs and those of retailers selling Apple products.

Qualcomm is already at the forefront of this movement and the eventual move from credit cards to NFC devices with Paypal-like sign-up and cash dispersal is well on its way to launch. Why hasn’t it come yet? Well, the biggest bottleneck is the current install base of credit card machines and the associated costs of upgrading the entire credit card network at once. Presumably card readings currently supporting the Citibank Blink RFID payment system will also support future NFC standards, an important concern.

In the end, you will have to start caring about NFC simply because it is coming sooner than later. I’d estimate we’ll have general awareness of the topic by 2012 and actual adoption in the US by 2015, thereby relegating “dumb” credit cards to the junk heap of history. Apple and Google are simply looking for a way to cash in on the wave of conversions before that time comes — a noble (and shrewd) goal.

BERKELEY, Calif. (MarketWatch) — Just floating under the radar is the next oddball chip initiative that at some point should equal sales of any sort of GPS chip in mobile phones.

It’s the “near-field communications” or NFC chip.

As of this writing, it is just emerging and has generated some interest at the Consumer Electronics Show in Las Vegas, or CES, and the entire idea is under review by all the mobile-phone vendors. Nokia Corp. (NYSE:NOK) already has said it will include NFC in all its 2011 models.

The idea is to turn your cell phone into a credit-card transmitter similar to an RFID card. Many of you have used the RFID card for entry into buildings or special rooms. NFC, in the trades, is considered a competitor with RFID, and the general difference is the fact that NFC chips cannot be accessed at the kinds of distances an RFID chip can be activated (30 feet and beyond). It’s also supposed to be more secure, although I’ve seen demonstrations of people cloning the chip by walking by and bumping into a person with an NFC test unit.

This circuit is also competing with smart-card technology, and could easily be called a contactless smart card or some such thing for marketing purposes.

The advertisements are floating around already for this concept, with Visa Inc. (NYSE:V) and MasterCard Inc. (NYSE:MA) showing a guy air-swiping his card over a scanning device to initiate a credit-card charge. To me, this sort of thing can never be as secure as the magnetic stripe or the standard smart-card connector.

Exactly why the public gets so enamored with this sort of technology simply baffled me. Is everyone 12 years old and fascinated by gizmos and shiny objects?

Apparently this market is expected to blossom, especially on the mobile phone, which is expected by some researchers to someday replace the credit card. More importantly, and little discussed, is the fact that this will automatically lead to the mobile phone eliminating the need for cash too. By this I mean that beyond the credit-card usage, the device should be able to replace small transactions that are impractical in the credit-card infrastructure — things like buying a soda from a machine or adding 15 minutes onto a parking meter.

While I can see the usefulness at the parking meter, especially in cities like San Francisco that gouge its citizenry with meters that require 25 cents for three minutes, I would personally resist this change in day-to-day behavior.

I’ve always had a fear that the banks and credit cards would somehow link up with phone companies in such a way that users risk losing credit and phone service and Internet access all in one fell swoop over a billing dispute, which is bound to happen a lot. This just seems like a bad idea.

That said, it has future success written all over it. The stock play might be Visa and MasterCard, which are deeply embedded in this game. I personally like the primary NFC chip maker for some action, and that would be NXP Semiconductors NV (NASDAQ:NXPI) .

This technology was first in the pipeline in 2003, but is now coming into its own as the NFC Forum grows in power and influence. Its membership is currently more than 150 members. Keep an eye out for growing publicity for the technology.

On a panel of mobile payments providers at GigaOM’s Mobilize 2010, everyone was happy to agree that mobile payments are finally getting their day in the sun due to the growth of smartphones, mobile application platforms, and the sheer market size of 5 billion phones.

What panelists disagreed upon was how to do it, and who would win. One key tension was around near-field communication, or NFC, the use of short-range wireless to exchange data that has never really gained traction. Geoff Iddison, who leads e-commerce and mobile for MasterCard, is a huge NFC proponent — which is kind of counterintuitive, considering NFC would replace physical credit cards. Iddison pointed to Nokia’s inclusion of NFC in all its phones, indications that Apple and Google are getting in on the game, and reports from NFC manufacturers that they have a backlog of orders. MasterCard has been actively working on NFC standards, he said, adding that mainstream use of the technology should happen within six to nine months. The benefit of NFC will be bringing dynamic redemption of coupons and security to the point of sale, things that credit cards can’t do, Iddison said.
But tapping a phone at the point of sale to pay for something is hardly more convenient than swiping a credit card, said Osama Bedier, the VP of platform, mobile and new ventures for PayPal. While NFC might be useful for things like checking into a social service a la Foursquare, one of the big benefits of mobile payments is getting around the physical point-of-sale transaction bottleneck, he said. So PayPal is working on ways to make money digital like allowing customers to deposit a check by taking a picture of it, bypassing banks.

Zong CEO David Marcus is also ambivalent about NFC, saying it’s already a good experience to buy a cup of coffee at Starbucks with a credit card. The opportunity is to innovate around customer relationship management, offers and other functions associated with payments, he said. Zong primarily offers mobile payments for virtual goods, but Marcus sees that as a sort of gateway drug to familiarize users with the mobile payment function online and then move that to the offline world.

Boku co-founder Ron Hirson nailed down a few actual predictions for when this all will happen. Remote mobile payments will grow this year. Next year the competitive landscape will become clear with AT&T, T-Mobile, Discover and others’ “Project Mercury” mobile payments joint venture. And in 2012 the market will consolidate. Borrowing the company names of the panelists on either side of him, Hirson proposed the combined entity might be called “MasterPaloku.”

Near-field communications, and mobile banking in general, get so much support from a wide swatch of players, but is support enough? Not yet. Without NFC-enabled mobile phones, it’s a market that will never see its potential realized. But we are getting closer.

At Mobile World Congress this week the GSM Association launched what they’re billing as the first SIM-based NFC payment trial to drive NFC adoption and promised that phones would soon follow. The GSMA-hosted trial included handset maker Samsung, wireless operator Telefónica and financial companies Visa, G&D, Ingenico, ITN International and La Caixa. The companies loaded 400 Samsung Star NFC mobile phones with Telefónica SIM cards from O2 and Visa’s mobile payment application and gave them to MWC attendees to purchase goods totaling up to €75 from 30 locations within the conference.

The GSMA’s trial complements its Pay-Buy-Mobile initiative, which has the support of more than 50 mobile operators all working to bring NFC to market. Nokia also began utilizing its Obopay acquisition with the first commercial pilot of its Nokia Money Service in India this week. All demonstrations of the power of NFC are positive in that they raise awareness. They might make consumers want to adopt NFC too, but they won’t be able to until more handsets are launched commercially.

It’s not for lack of want that NFC handsets have yet to come to market. Michael O’Hara, the GSMA’s chief marketing officer, admitted that mobile operators have been requesting SIM-based NFC handsets for some time now. In a press release, he said that NFC handsets are coming, along with commercial launches. But, we’ve yet to see these handsets at MWC. In the slew of launched devices, only Samsung and small vendor Sagem’s handset aimed at older users included NFC capabilities.

Concurrent with the show, ABI Research put out two studies showing the power of mobile financial services. The first indicated that in 2015 around 244 million people worldwide, and 66 million in North America, will use their phone for financial transactions with their banks. The second study released this week shows that shoppers around the world will spend about $119 billion on goods and services purchased via mobile phones, representing 8% of the total e-commerce market.

The growth in mobile financial services in general is impressive. But NFC is the end-game of a long evolution of these services. NFC has the power to change how consumer transact with their phones, how they make payments, use tickets and transfer money. It’s great the NFC is attracting so much interest from across various ecosystem, but now it is time to bring on the phones.