Revenues from TSM for the NFC services will reach $468 million by 2015

Frost & Sullivan reports projected revenues from TSM for the NFC services will reach $468 million by 2015

Frost & Sullivan has released a new report that outlines the role of trusted service managers within the NFC ecosystem, and has projected the net worth of the industry by 2015, which will likely hover around $468 million or €330 million. Those figures represent a CAGR (compound annual growth rate) of 75% for the period 2010 – 2015. To say that being a TSM is a lucrative business is an understatement. Frost & Sullivan expects that life cycle management of applications and management of the secure element are anticipated to remain the main sources of revenue during this period. However, the headlining figures for trusted service management for the NFC services, are not the important part of this report and we’ll show you why Frost & Sullivan has hit the nail on the head with its very acute article.

If you are a part of the NFC industry or a regular here at NFC Rumors, you will be aware how tempestuous and new the NFC industry really is. You may also be aware that there are very few companies that actually have experience in NFC payments outside of Visa and MasterCard, who have been testing the technology for a few years. But even Visa and MasterCard have not had mass market experience with the NFC super complex ecosystem. Aside from experience, there are larger problems with NFC adoption that need to be sorted out in short order for the technology to be able to bloom. At the moment, those problems are deepening further and are preventing NFC from adoption.

We all know that the lack of NFC phones is a factor, but it is a temporary one. We know that NXP alone is working with OEMs on over 60 new handsets and other NFC chip makers will also have NFC capable phones in the works. We view this as a short term supply issue that will become negated within the next few months. Although MNOs are pointing fingers and blaming constricted supplies of NFC phones for slow adoption, there are deeper problems within the melting pot NFC industry that we’ll get to soon.

“NFC handset availability will stop being a restraint and will, instead, become a driver for the NFC services market, and thereby, for the trusted services market with 2011 and 2012 expected to be key years in NFC-handset-deployment,” notes Frost & Sullivan Research Analyst, Mario Fernandez. “Moreover, the increasing number of collaborations between mobile network operators and service providers will constitute one of the major catalysts for trusted services market in NFC.”

We maintain our stance on mixing TSM and MNO. We feel it is giving an MNO too much power over a consumer’s purchasing power and that there are privacy issues. In the past, we have likened it to a lack of separation between church and state and we believe it puts consumers at risk in terms of privacy and potentially financially. We also believe that MNOs are abusing their positions to close off markets from competitors which will hit innovation hard and reduce choice. Until MNO TSMs are regulated and consumers have legislation to protect them in the event of a billing dispute or protect their privacy, having one company or its subsidiaries controlling phone access, financial access and data access seems a very risky proposition to us. The UK and USA joint ventures between major MNOs require urgent attention from regulatory offices. However, that said, we have seen very positive joint ventures in other places in the world where the point of the collaboration is to define standards and best practices. In other JVs, major industry stake holders are coming together to make near field communications and NFC payments a reality, and they do not appear to be about locking competitors out as is with Isis and the UK version of Isis. One such model is in Hungary, where ironically two of the forces ( T-Mobile and Vodafone, which owns a massive share in Verizon) behind the US and UK joint ventures are participants. You can see our article on this here.

Why TSMs play a major and important role in NFC payments and NFC technology in general

“Regardless of the technology that supports NFC or the business model chosen by market participants, the need of having a trusted service manager in the middle to moderate the technical aspects of their relationship will persist. Eventually, TSMs may evolve and become responsible for the management of commercial relationships between participants of the NFC market,” stated in the Frost & Sullivan report.

This makes so much sense. The model of the TSM is largely undefined at this point, but the importance of them sitting in between financial and MNOs is a division that is required. The TSM’s position within the industry is to act as the gate keeper and security provider. Consumers have never before been expected to hand over control of certain elements of their phones where they do not have access to. MNOs are interested in using SIMs because then they would technically own the secure element portion of the phone but the security of SIMs are far from being hailed as secure and the current rush to use SIM technology in NFC phones is one of control. A truly independent TSM will need to use and support various forms of secure elements, for different markets, different products and different MNOs. They will be responsible for pushing and pulling information from consumers’ NFC phones and potentially offering a wide array of services that include DRM rights management and helping innovators build models that they can support.

“Payment and transportation applications will push the market during the next five years,” says Fernandez. “Provisioning of platforms for Digital Right Management and mobile marketing are markets that have not been explored by TSMs, but they could become, if well addressed, a source of tremendous growth.”

Absolute power corrupts absolutely for NFC and TSMs role in that

Frost and Sullivan perceptively hit a hole in one when it said, “NFC is a nascent industry in which all participants want to set up the conditions and obtain the greatest market share during the early stages. However, NFC commercialisation will not take place if such approaches are taken,” and, “Multiplicity of secure element form factors, interoperability among consortia and low end-user awareness are still issues that are affecting the uptake of NFC and, thereby, the trusted services market.”

At the GSM Mobile Money Live webinar just the other day, panelists spoke about their fears of fragmentation and even spoke about the blame game that s currently taking place between MNOs and NFC handset makers. The UK joint venture appears to be trying to shut Google and other competitors out of the UK market, and it is yet to be seen how Isis will act towards the exact same issue on Verizon, AT&T and T-Mobile’s airwaves. Every industry stakeholder is attempting to control every other stakeholder and claim their way as the only way to achieve NFC payments and TSM functionality. The irony to these power plays is that the lack of true collaboration in setting up a strong infrastructure is what is delaying NFC and it isn’t necessarily the NFC phone makers. The NFC control issues are also preventing innovation from taking place and causing uncertainty with consumers about adopting the technology. We think the lesson here is that greed gets you nowhere, play nice and everybody can win. We do have to add that the major card issuers are open to all possibilities and are working with all on comers to build specifications and system to bring NFC to reality, but there again, they have nothing to lose in doing so.

“It is important that none of the NFC participants pushes for a single type solution, but rather that all participants firstly focus on standardising the market,” advises Fernandez. “TSMs are key stakeholders of the NFC ecosystem, and their collaboration is needed for the successful deployment of NFC services. The MIFARE4Mobile industry group is a great example of cooperation among competitors. Seven major companies from the telecom, smart card, semiconductor and payment industries have joined forces to create a space where they can collaborate. The group’s purpose is to bring forth relevant specifications and standards for the management of MIFARE™ applications on NFC secure elements.”

Whichever way the industry finally agrees on as the best way forward TSMs will be at the heart of the industry and will eventually become the glue that holds, development companies, telco’s banks and card issuers together. They have the potential to become the deal makers of the industry and expand into marketing, offers and loyalty markets and with the possibility of DRM rights management, music purchases and games are just another possibility for TSMs to service. But in the fervor to get to market and control the space, TSMs would do well to remember that the consumer ultimately pays the bills and provides the profits. Consumers’ rights and the service provided to consumers should be the cornerstone of the TSM model and those who don’t follow that philosophy will likely fall away as the market matures.