S. Korea braces for paradigm shift with mobile payment

Consumers no more need to put a leather wallet on their pockets or carry a handbag on their shoulders. A consumer can pay for items on their phones if he or she has a NFC-enabled phone like the Google Nexus S. In December last year, Samsung Electronics and Google unveiled the Nexus S smartphone with NFC or near filed communication technology equipped. NFC refers to a technology which lets devices transmit data such as payment information and coupons by tapping them against cash registers. Consumers with the NFC-installed phone can pay for items and receive coupons with a tap of their phones. In a bid to lead the promising mobile payment market, Google introduced mobile wallet service Google Wallet and electronic coupon service Google Offers in late May. U.S. consumers with the Android-based smartphone Nexus S have come to pay and receive coupons on their phones after downloading the applications from app stores to their smartphones. Google was the most nimble player which materialized the mobile payment system, but other players are competitively rushing to mobile commerce market to brace for paradigm shift in the traditional payment processing industry. In November last year, U.S. mobile carriers AT&T, Verizon Wireless and Deutsche Telekom's unit T-mobile USA established a joint national payments network, or ISIS. They partnered with Discover Financial Services (DFS) and Barclays to make their own network available to all banks and retailers. ISIS plans to launch its mobile wallet in early 2012. Apple hired an NFC expert Benjamin Vigier in August 2010, boosting speculation that the iPhone maker is also preparing to launch its own mobile payment system. It has been rumored that Apple's next iPhone model will include the NFC technology. The potential growth in the mobile commerce industry may pose a threat to the traditional payment-processing companies such as Visa and MasterCard. According to an IT research firm Gartner, global transactions via mobile payments will rise to 245 billion U. S. dollars by 2014 from 32 billion dollars last year. A failure to dominate the business, which could replace many credit and debit cards, means poor performance for credit card issuers. In order not to fall behind in the competition, MasterCard has made a partnership with Google to support the Google Wallet system. Visa reportedly plans to set up its own NFC-based electronic payment system in the U.S. and Canada by this autumn, and has partnered with Bank of America and Wells Fargo for that. In spite of their efforts, operating system (OS) providers such as Google and Apple are forecast to square off against credit card issuers, wireless carriers and handset makers in the United States, according to the local brokerage Donayang Securities. The securities firm said in a report that Google and Apple are expected to lead the NFC-based mobile payments and marketing services as they have capabilities to massively distribute NFC applications through their existing app stores. The currently widespread use of OS systems will help Google and Apple promote their mobile wallets and discount offers effectively. According to Gartner, the Google's Android software is used in 36 percent of smartphones globally, followed by Nokia's Symbian with 27 percent of market share and Apple's iOS with 17 percent. The combined market share of Google and Apple stays above more than half of the total. The OS providers will find new business opportunities based on information about consumers' shopping behavior, which can be captured through the mobile payment processing. Google, which earned around 96 percent of sales from advertising last year, is expected to boost revenue by entering into the mobile payment market. In contrast to the U.S. environment, South Korea is projected to see mobile carriers lead the NFC-based mobile payment market. South Korea's wireless carriers such as SK Telecom and KT Corp have a control of USIM, which refers to universal subscriber identity module, or a software application having smartphone users ' personal information and various data that can be inserted into mobile phones. With the USIM control, domestic mobile carriers can lead the mobile payment market in the country even though they cannot dominate the mobile OS system, Dongyang Securities said, adding that wireless carriers can also control local manufactures of mobile phones, including Samsung and LG, as well as local retailers and merchants. In addition, local wireless carriers have their own credit card companies as affiliates, which can generate great synergy. KT Capital, a financial affiliate of KT Corp, holds a 38.86 percent stake in the country's biggest credit card firm BC Card. Top wireless carrier SK Telecom owns a 49 percent stake in Hana SK Card, a credit card firm set up jointly with Hana Bank. Wireless carriers have another key competitive edge, with which they can lead the mobile payment market. Taking advantage of the NFC-based payment growth requires a series of investments for the physical infrastructure such as point-of-sale (POS) terminals, NFC- equipped handsets, processing platforms, software and security. Dongyang said mobile operators can only afford to establish NFC- related infrastructure as they have much room for capital expenditures. SK Telecom and KT have already acquired credit card firms as affiliates, which can transform their existing payment- processing networks to mobile payment ones. They can also offer new USIM cards for contactless mobile payments amid absence of their own OS software. SK Telecom is looking to a step forward. The operator said on Friday that it submitted preliminary bid for a 15 percent stake in memory chip giant Hynix Semiconductor. The official at the company told Xinhua that its acquisition could generate great synergy by converging IT business with its existing telecommunication business, indicating that the takeover bid was partially aimed at expanding in the mobile payment market. Among local players, SK C&C is the most aggressive in making forays into the mobile payment business. SK C&C is an IT service unit of the family-owned conglomerate SK Group and the largest shareholder in the SK Telecom's parent firm SK Holdings. SK C&C's unit SK C&C USA established a foundation for entering the U.S. prepaid card market by clinching a partnership in mid- June with InComm, the U.S. distributor and processor of prepaid cards, which holds some 60 percent market share in the United States. SK C&C USA agreed to offer a technology called Trusted Service Manager (TSM), which manages financial and payment data shared between users, financial institutions, wireless carriers and POS terminals. The technology let retailers issue mobile wallet apps under their own brands. SK C&C's technology has already been used in Google Wallet. The IT service firm has offered the technology jointly with First Data Corporation (FDC), which dominates around 40 percent market share in North America. SK C&C agreed a partnership with FDC in September 2010, and then signed a TSM solution supply deal for the commercialization of Google Wallet. "SK C&C has established itself in the mobile billing market by offering various types of payment systems. The mobile billing business is expected to fuel the company's top-line growth along with its existing business segments," Choi Kyung-jin, an analyst at Shinhan Investment Corp. in Seoul, said in a report.