A trial is underway in Taiwan to showcase mobile phones as payment devices. It is hoped the program will help boost the credit card industry in Taiwan, which is recovering from a recent crisis.
On February 9, 2007, MasterCard, Taipei Fubon Bank and Taiwan Mobile announced the launch of a new system.that will allow customers involved in the trial to pay for goods and services by waving their mobile phones in front of card readers. The cost will then be automatically deducted from their credit card accounts.
The concept builds on existing Near Field Communication (NFC) technologies currently used by some credit card companies. MasterCard already has a NFC system called PayPass that allows users to make purchases by holding their credit cards up to a NFC reader without the need of any contact. Visa has deployed a similar system called Visa Wave.
NFC uses Radio Frequency Identification (RFID) technology, a technology in which the Taiwanese government has been investing in hopes of encouraging Taiwanese companies to take a leading role in the development of this technology. In fact, it is one of the main areas of interest of the government-sponsored Industrial Technology Research Institute (ITRI) as it has applications other than for credit cards. It is already used in some countries for passports, for tracking goods and for making payment in public transport.
Upgrading Taiwanese industry is a priority for the government as it wants firms to have the advantage of owning the intellectual property of new and developing technologies rather than manufacturing them for others. The ITRI is driving this development and sees RFID as a key growth area.
According to the government, the RFID industry could be worth $3bn by 2008. Taiwanese firms made $814m worth of RFID products in 2006, up 13.5% on 2005.
Initially, 100 consumers will be involved in the trial and have been issued a compatible Nokia 3220 mobile phone embedded with NFC technology that allows the use of PayPass. During the trial, each user will be limited to spending $90 on each purchase and there will be a monthly limit of $450.
Taiwan Mobile announced that after the trial, they would allow users to download merchants’ coupons via their NFC-enabled credit card phones by simply tapping their phone on smart posters advertising the promotion. Later, at the point of purchase they will be able to use the virtual coupon to activate the discount.
The economy is emerging from a credit crisis and many financial institutions have suffered from bad debt in recent years. With this technology, the use of mobile phones to pay for goods is intended for low value items. Therefore it is not expected to be a major concern for credit card issuers worried about indebtedness. On the contrary, it could encourage revenues as the concept might attract new customers who would not normally use credit.
According to statistics released by the Financial Supervisory Commission (FSC) Taiwan’s 45 credit card issuers lost $1.19bn in 2006. Based on the figure of 38.32 million active cards, the average loss for each card was $3.10 per card. In 2006 the issuers made combined revenues of $2.34bn which was 26% less than 2005. The major financial institutions all lost money on their credit card businesses as they wrote off substantial bad debts.
