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Convergence here and now!

Week 08, 2007

Many users of credit or debit cards have several cards, so the number of cardholders could be significantly less important. On the other hand, the vast majority of cell phones users have only one handset, as penetration rates higher than 100% can only be seen in very few places. In developing countries, there are many places where a single handset is actually used by a community.

The new situation we are experiencing is that after years of polite indifference, the financial institutions and the telecom operators are ready to join forces attracted by the potential of mobile payment.

Now, after years of talking about it, convergence is just around the corner. And the winner is … the handset! A banking card can hardly serve any additional feature whereas a handset can be turned into payment card, thanks to NFC (Near Field Communication). The NFC standard, or should we say set of standards is getting more and more solid every day. The initial standardization work is expected to be completed by 2008. But before everything is decided there are still many pressures to influence the final result. For instance, the Secure Element location is far from making a consensus. In a NFC model, the Secure Element is responsible for the storage of sensitive data and applications, especially relating to payment in a mobile handset. As such, it has to communicate both with the NFC chip (responsible for the contactless protocol) and with the SIM. Three locations can be considered for the Secure Element: in the handset (in the handset microprocessor or directly linked to it), in the SIM, or as a removable item, that stands besides the SIM. Of course, various actors in the industry have taken different positions on the subject. The last position that was announced was the one of the GSM Association, representing the mobile network operators, saying the Secure Element should be part of the SIM. Not everyone agrees with this especially considering the SIM is far from being as secure as a payment card. The mobile communication industry has developed Over The Air infrastructure to allow the update of a SIM card once it is on the field. This may sound as a threat for financial institutions who are used to a very stable, certified, and security evaluated payment card chip. Not everything is frozen yet.

But the banks, the telcos, and the industrialists should reach an agreement quickly, otherwise the multiple loosely-controlled pilots with many specificities, may become a de facto standard. And all players may not be happy with the outcome…

Thierry Spanjaard
Chief Editor
Smart Insights