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insight

Promise of Near Field Communication (NFC) Technology

Isn’t it amazing if a mobile phone could make your daily life or your overseas trip so easy in future without the need to bother about your wallet, coins and notes, debit and credit cards, home keys, business cards, boarding pass, hotel keys, theatre tickets, transit tickets, etc.?  Think about what it would be like if you could set connections with a simple touch or transfer and use information from one device to another, just by holding the devices close to one another.  All these ideas can become reality with the help of a NFC-enabled mobile phone. 

Let me use an example to illustrate how the NFC technology can change the experience of your daily life.  Imagine that you want a “hassle-free” business or leisure trip, say to Shanghai and Beijing.  The first thing you need to do prior to departure from home is to check your NFC-enabled mobile phone to make sure that:

  • all e-payment instruments are sufficiently topped up or available, including e-purses (both renminbi and Hong Kong Dollar), e-credit cards and/or e-debit cards
  • all required e-documents and e-tickets have been properly provisioned over-the-air to your mobile phone such as e-boarding pass, e-tickets of high speed train, e-theater tickets and hotel electronic key in order to avoid the check-in process and queue up for tickets
  • e-business cards are stored in your phone
  • all chosen e-coupons are downloaded or provisioned to your mobile phone so that you can have more enjoyable shopping experience.

You basically can leave your wallet, coins and notes home when setting off to the airport.  In case you want to do a last-minute shopping at the airport to ensure that there are sufficient food and groceries at home when you return, you may look for smart posters stuck on the promotion wall by supermarkets and use your NFC-enabled mobile phone to pick and tap the food items on the smart posters and send request for home delivery and make an e-payment using your e-credit card on your mobile phone (see diagram).

NFC devices and Infrastructure

What is NFC?

NFC is a short-range wireless connectivity technology that provides intuitive, simple and safe communication between electronic devices.  Communication occurs when two NFC-compatible devices are brought within a short distance, usually less than four centimeters of one another.  Due to the short transmission range and the application of authentication technology, NFC-enabled transactions are inherently secure.  Since mobile phones have become a pervasive commodity today, consumers clearly benefit from the ease and convenience of paying for goods and services using this innovative payment channel.  The arrival of contactless NFC technology on mobile phones has opened even more possibilities, where consumers can communicate, shop and pay in a way that best fits their needs and lifestyles with a simple tap, click or touch in-store, online or offline.  The possible uses of NFC are numerous, and many exciting ideas are in development now around the globe.

 

Interoperable Infrastructure supporting Multiple Applications

To ensure NFC mobile services will flourish on a truly wide scale, an inter-operable and secure NFC mobile services infrastructure is crucial and consumer-oriented companies need to work together with the infrastructure service providers to provide a cost-effective and stable operating model for extensive application development, seamless interoperable solutions and high standard of security.  In particular, interoperability and openness of the NFC mobile services infrastructure are the key success factors.  For example, consumers should be able to install payment applications from different payment service providers onto a chip stored in their mobile phones, regardless of the mobile network operator engaged by the consumers.  This is to avoid situations of market fragmentation, in which a particular payment solution only works with consumers using a particular mobile network operator, or a consumer is required to carry several mobile phones with different payment applications installed in different phones in order to use all available payment services in the market.

There are in general three approaches being adopted overseas to drive the development of an interoperable NFC mobile services infrastructure, which indicate that each market has its own characteristics and may require a different approach to ensure effective and successful implementation of the infrastructure.  The three approaches are:

  • a government-driven approach, in which the government and stakeholders including both the mobile operators and the banks, jointly invest in the development of the infrastructure (e.g. Singapore)
  • a mobile network operator-driven approach, in which a joint venture is set up by the mobile network operators, with minimal or no involvement of government authorities in the project (e.g. the UK and the US)
  • a cross-industry consortium approach, in which a consortium is formed among mobile network operators, banks and payment service providers, with minimal or no involvement of government authorities in the project (e.g. France and Netherlands).

Developments in other parts of the world have just started, and it is timely for Hong Kong to start deliberating on the best way forward to introduce the NFC technology widely in Hong Kong, riding on the success of some pioneers while avoiding the initial issues faced elsewhere in the world.

Although the availability and choices of NFC enabled mobile phones are still quite limited, there is a consumer anticipation of more such phones to be manufactured and sold in the market in the next 12 to 18 months due to increasingly acceptance of NFC technology.  Against this backdrop, the Hong Kong Monetary Authority (HKMA), the government authority responsible for the maintenance and development of Hong Kong’s financial infrastructure including our payment and settlement systems, has decided to engage a consultancy firm with the relevant expertise and experience to conduct a comprehensive study on the latest developments of NFC mobile payment services and to recommend an appropriate business and operating model that best suits the needs in Hong Kong.  The study also aims to identify an interoperable NFC mobile payment infrastructure that is in the best interest of the community.

The HKMA has selected an experienced consultancy firm in July 2012 through a competitive process.  The consultancy study will soon commence with an aim to completing the review and making a recommendation at the end of 2012 to early 2013.  Based on the recommendation of the final consultancy report, the HKMA will consult the banking industry and relevant stakeholders on the way forward.

Hong Kong has been renowned for our wide penetration of use of electronic payment systems and services in our everyday life including transport and retail payments, and we aim to grasp the next wave of opportunities offered by the NFC technology.  As part of our mission to maintain Hong Kong’s status as an international financial centre as well as an efficient and convenient digital city for residents and visitors, we aim to facilitate development of NFC mobile payment services in Hong Kong, so that the public can enjoy the convenience of NFC in their daily life early.

 

Peter Pang
Deputy Chief Executive
19 July 2012

Last revision date: 19 July 2012
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