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Narian Technologies is a leader in Near Field Communication  technology development and recently released these thoughts and views related to the future of NFC globally.

The Best Initial Market for NFC to Succeed Globally

1. Introduction:
The current market opportunities for NFC (Near Field Communication) are great
as most know, but the majority of the effort, movement, and trials to date have been in
Europe and Asia. Unfortunately, we believe this is the wrong market to encourage rapid
growth and global expansion of NFC. We believe the best market for this purpose would
actually be the U.S. and the purpose of this article is to explain why.

2. History and the Market:
First, don’t let the historical level of activity in Europe and Asia mislead anyone.
Opportunities for mobile phone trials and pilots are easier to arrange and conduct in
Europe because the carriers there are less controlling of the handsets as compared to in
the US. Also, it has been generally understood that Europe and Asia are markets that
have more advanced mobile phone features and services. While generally true, NFC can
not be compared to camera phones, Bluetooth, mobile internet, and the like. Unlike these
consumer-focused mobile technologies, NFC’s focus to date has been on the Retail sector
for purchases done in physical locations. Though not at all limited to this capability, the
overwhelming focus for NFC has been Point of Sale (POS) purchasing applications.
NFC requires Infrastructure and Regulations not seen in other consumer mobile
technologies.
Comparing Europe and the U.S., the U.S. has a population of over 300 million people,
while Europe has a current population of over 700 million. At first glance, the European
market seems larger, but in fact, the U.S. is roughly equal in purchasing power --
American’s like to spend more than any other First World Economy! In Europe, there
are 170 mobile carriers in roughly 50 nations. In the U.S., there are three key mobile
carriers that control the majority of the market. In Europe, there are unique financial and
transactional laws for each and every country, even considering the European Union. In
the U.S., there is one set of laws governing financial and business transactions. The U.S.
is also the most prevalent e-commerce nation in the world, so while consumers may not
adapt to Wireless Internet at the same speed as Europe or Asia, the U.S. population is
very accepting of e-commerce, either on-line or via payment cards at physical locations.
It has a history of leading when it comes to financial/e-commerce technologies. Some
examples include being the first country to implement Credit/Debit cards, Online Stores,
Online Banking, and more.

3. NFC Technical Hurdles in Europe and Asia:
There are a variety of technical hurdles NFC has to overcome in other areas of the world
compared to the US. First, in Europe, EMV (Europay, Mastercard, Visa) for
“contactless” standards would need to be fully implemented in NFC phones, necessitating
adoption of a standard that has not been formally accepted and only recently begun commercial level testing in mobile phones. Second, for nearly the past decade in Europe,
EMV has been rolled out and already the majority of retailers have implemented or plan
to implement Contact Smartcard Readers. The cost and time to implement contactless
readers in those same retail stores will not be an easy sell given what the retailers in
Europe just finished spending on contact readers. Further, the value of contactless
compared to contact smartcards is seen only speed, as such it would seem to present an
opportunity for QSR’s only. In contrast, the U.S. already has begun a national rollout of
contactless readers, has completed pilots and trials, and received the backing of a number
of large Banks.
In Japan, Felica chips are already widely accepted, so much so that the key drivers for
NFC in Japan are focusing their efforts on NFC outside the U.S. For example, JCB
initiated their first NFC trial not in Japan, but in Europe. Also, Sony is putting its NFC
efforts outside of Japan. Further, to implement successful NFC services in Asia-Pacific,
3G data networks would be an essential infrastructure. IDC reported that in Asia-Pacific,
less than 10% of users are utilizing services other than SMS. NFC’s infrastructure
requirements will definitely slow true adoption in this region.
The net effect of these observations is that in every major market for NFC except the
U.S., technical hurdles overwhelmingly restrict the opportunity for national rollouts.

4. Financial Institutions and Regulations as NFC Drivers and Dividers:
Four out of the Five Card Associations in the world that have NFC initiatives or plans,
are U.S. companies: Visa, Mastercard, Amex, and Discover. Only JCB is not.
Key differences between the U.S. and Europe/Asia in this regard begin with the fact that
US consumers’ main focus is credit transactions, which is a more generic payment
system compared to those of other countries. Europe and Asia rely mostly on debit
transactions requiring interaction with each individual financial institution in each
country and respecting the unique financial laws of the respective countries. The French,
for example, are more likely to have an account with Paribas while the Germans are more
likely to have accounts with Deutsche Bank. You’ll be hard pressed to find a German
using Paribas while the same goes true to finding a Frenchmen having an account with
Deutsche Bank. Even with the new EU regulations, however, implementation in Europe
would still face the complexity of negotiating agreements and integrating systems with
Banks and carriers in each country – a major undertaking compared with the U.S. where
they could deal with a handful of Card Associations and three carriers in one nation.
To clarify the real issues of multiple National Banking and Commerce laws, let’s look
more closely at the EU. In the European Union, most countries still don’t use the Euro
(e.g. the UK), and have not accepted all European Financial Laws and Regulations. In
addition, there are only 25 current member countries in the European Union, a little more
than half the number of nations in Europe. Further, the EU laws are based on voluntary
treaties only. Already, the EU has “bent” key economic policies such as the Growth andStability Pact. Also, only 12 EU nations are in the Eurozone and use the Euro as their
main currency. In 2007, 13 of the 27 member states will be using the Euro.
Again, the U.S. may be smaller in population, but is roughly equal in purchasing power
to the EU and has nationwide standards in banking regulations, which greatly simplifies
NFC implementation for either credit or debit purchases compared to Europe.

5. NFC Manufactured Phone:
The fact that European consumer demands have historically driven the phone
manufacturers has been a benefit to Europe and allowed features such as high speed
internet and high resolution cameras to be implemented there first. NFC, however,
depends on infrastructure, financial regulations, and acceptance of retailers as well as
consumers. In this larger, more complex ecosystem, the fact that the three key U.S.
wireless carriers direct/standardize the specifications of the handset is actually a plus for
the U.S. compared to the challenge posed by the same objective for the 170 European
carriers.
In this context, some analysts point to the fact that GSM is the only standard for mobile
phones in Europe as an advantage and a reason to implement NFC there first. Though
NFC’s communication standard may be standardized, standardization of the
specifications for the secure element and how payment data is stored, processed,
accessed, and downloaded can be better driven by a handset market directed by a carrier
than the consumers. Also, the fact that the U.S. employs both GSM and CDMA
networks is a positive for starting in the U.S. CDMA is still a strong player in the
majority of nations that are most likely to implement and create value for NFC. It has no
SIM card, so a secure element must be embedded. The fact that the U.S. supports both
standards provides a great environment to test out a variety of technologies with NFC
before rolling out to the rest of the world.
Lastly, of the three largest handset manufacturers backing NFC, Motorola is a U.S.
company and currently offers the most popular handset in the world. Though it should
be noted that Narian believes an NFC Removable Module to upgrade existing handsets is
the best initial strategy to rapidly grow market acceptance, NFC Removable Modules
should not be compared to those used initially to introduce Bluetooth and Cameras into
Mobile Phones. Technology has advanced since then in miniaturization and design so
that NFC is better suited for such a strategy. NFC enabling modules can be designed
ergonomically and aesthetically to address 86% of the current handsets in the key NFC
markets. This Removable Module strategy is what we currently see from Nokia,
Motorola, and Samsung already and should be considered further.

6. Rate of Handset Replacement – U.S. vs. Pan Europe and Asia-Pacific:
Even if the Removable Module Strategy works, rolling out NFC will eventually mean
getting consumers to upgrade to new NFC embedded phones. Accordingly, the handset
replacement cycle is an important pacing factor for the uptake of NFC. According toTelephia and JD Powers, the average handset replacement cycle for the U.S. is 16.6
months compared to 25.1 months in Pan-Europe. Further, Europe’s geriatric population
is increasing dramatically. This older population in Europe drives the average
replacement rate even higher to 30.8 months for those 55 and older. Though current
handset manufacturers are focusing on upgradeable NFC capabilities (e.g. Nokia’s NFC
shell), the implementation of NFC embedded handsets will be slow and even slower in
Europe compared to the US due to these replacement rates.
In Asia-Pacific, replacement rate is an even greater issue. Yankee group forecasts a
decline in new handset sales in Asia-Pacific and expects sales to peak in 2006. This is
due to average low incomes in the majority of the population in the region, who will not
spend on data services, and whose low incomes affect the need, use, and profitability of
NFC as a payment technology. The Yankee Group also found that the majority of the
countries in this region are focused on prepaid cellular whose main usage is voice and
SMS, with little need for data services.
The only two advanced cellular nations in the region, Japan and South Korea, have their
own issues as to the value of NFC. Japan has currently implemented Felica Phones and
will not be currently changing the technology to NFC domestically, but the Japanese
NFC players will be focusing their NFC efforts outside of Japan. (Simply consider the
fact that JCB’s first true NFC trial was not in Japan, but in Europe. As well, Sony’s NFC
focus is directed outside of Japan and has even initiated the recent joint venture with
NXP to drive NFC. The headquarters for this new joint venture will be in Europe.) Also,
Japan’s mobile phone sales were the only nation in the third quarter of 2006 to fall with a
decline of 4.7% and only 10.7 million units sold according to Gartner. Korea is a
relatively small country whose past efforts in Mobile Commerce have not succeeded and
is a comparatively small market for financial services such as mobile commerce. If NFC
was to be implemented in Korea, any value and success seen there will have little
influence in driving mobile commerce globally compared to the U.S. or Europe.

7. Other NFC Applications and Services are Best Suited for the US:
NFC is in no way limited to payment applications. Our research and development
confirms applicability in a broad range of markets, but for illustrative purposes, we will
focus on NFC for Access Control. The U.S. is the largest single market for Access
control technology and an overwhelming majority of access control systems in the US are
contactless. Two key governmental laws and initiatives are driving further investment in
NFC capable Access Control Systems. HSPD12 and Sarbanes-Oxley both require
“Converged Access Control Systems” for all government agencies, government
contractors, and corporations. NFC is best suited to solve the requirements for converged
access control which represents a single system for both physical and logical secure
access.
A recent study by Forrester stated that the North American market for converged access
control will increase from 691 million dollars in 2005 to 7.039 billion dollars in 2008.
Those values are dramatically higher than Europe for the same period. Additionally,other U.S. legislations provide impetus for entry of NFC applications in other markets
such as Medical, Multimedia, and more.

8. Bluetooth Synchronization is no real value for NFC:
Bluetooth has been thought by some to be of value for NFC. Therefore, the fact that
Europe is the strongest current Bluetooth market would seem to support NFC having the
greatest opportunity in Europe. Even one of the four original Working Groups of the
NFC Forum was focused on Bluetooth and WIFI synchronization.
Regarding WIFI, the U.S. still has the largest number of WIFI hotspots and the highest
number of consumers using them – and paying to use them each time. Even though the
NFC Forum working group includes Bluetooth as well as WIFI, three considerations will
affect the value of NFC for Bluetooth synchronization compared to WIFI. First, the U.S.
is catching up to Europe and Asia when it comes to Bluetooth adoption due to new laws
in the U.S. making it mandatory for hands-free kits to be used while driving in states like
California and New York. As a result, more automobiles on average in the U.S. are
implementing Bluetooth, including mid-tier cars. Second, the overwhelming majority of
Bluetooth chips are implemented in mobile phones and headsets. The average user has
one Bluetooth headset and one Bluetooth phone, so synchronizing the phone to the
headset is a one time event and retained in the phone’s memory as a trusted device – and
paying to use this synchronization capability just once in the lifetime of the device.
Third, the forecast for Bluetooth chip sales has been lowered. Per CEO John Scarisbrick:
Handset manufacturers were changing their product mix in response to a slowdown in
third-generation (3G) phone sales; slower phone upgrade cycles by customers in more
mature markets; and more demand for cheaper phones in developing markets such as
China and India that don't yet include Bluetooth technology. AFX News
The opportunity for NFC to add value in synchronizing Bluetooth devices is low and
offers no ongoing revenue model. On the other hand, the WIFI synchronization market is
growing most rapidly in the U.S. compared to the rest of the world, and produces a
recurring revenue stream (which many US carriers have business interests in).

9. Drivers of Consumers: The Retail Equation (Not the Carriers or Banks)
For NFC to succeed it won’t be the Banks or Carriers that make it happen, it will be the
RETAILERS. Consumers won’t want NFC phones with payment applications if there
are no stores to use them in! … so which comes first – the “chicken” or the “egg”?
Retailers will have to agree to install NFC readers and tags in order to create the
environment for NFC to be used.
There are many retailers in the world. To create the greatest impact for NFC, the key will
be to influence the greatest number of retail outlets/points of sale world-wide. It would
seem logical then to target the largest retailers that have the strongest global presence.
According to a recent study by Deloitte, 41.6% of the top 250 Global Retailers are from
the U.S. These U.S. companies with global presence, ranging from Walmart toMcDonalds, are well suited to implement NFC both in the U.S. and in other nations they
serve. No other country has a comparable scale of influence. By focusing first on the
U.S. retailers, NFC also has the best opportunity to succeed globally.
Further, U.S. retailers have a track record of testing and implementing new technologies.
For example, Walmart was the first major retailer to implement RFID technology and
U.S. Retailers were the first to institute on-line shopping sites to compliment their brick
and mortar stores. An IDtechex report showed that the U.S. leads the world in RFID
adoptions with the largest number of cases in action and over 840 recorded projects, well
above all others globally. Other U.S. brands also have great influence globally.
Consider Coca Cola and Pepsi, who have a strong power base in the vending and
restaurant markets as well as many U.S. candy and comfort food manufacturers.
If NFC is to succeed, it must overcome the “chicken and egg” dilemma. Consumers will
not get NFC phones until they have places to use them, and retailers will not implement
NFC technology until consumers have NFC phones. U.S. retailers are historically more
likely to implement such technologies and are more willing to take such risks compared
to their European or Asia counterparts. The U.S. is also the largest economy in the world
with the highest spending value per customer based on total population. We believe the
dilemma has its best chance for solution globally by starting in the U.S.

10. Conclusion:
While there are a number of other factors, as we look at the points summarized above, we
believe it is clear that the best market in which to introduce NFC, gain acceptance,
achieve high usage, demonstrate success and gain momentum for expansion globally is
the U.S. No other nation has the consumer behavior, technical infrastructure, retail
environment, global influence -- the NFC ecosystem -- that the U.S. has. To make NFC
succeed, we believe efforts to launch should be focused on the U.S. as the first NFC
market. If the members of the NFC ecosystem focus their energies and investments in
the U.S. first, they are most likely to make NFC a global success.

About Narian Technologies 

Narian Technologies was founded nearly 5 years ago to focus on Near Field
Communication (NFC) technology development. Narian has multiple patents and patents
pending for hardware, software and network technologies based on NFC. To date, Narian
has defined over 200 NFC applications in 15 unique markets, ranging from payments to
access control, medical, and more. At Narian, we believe the time for NFC Technology
has arrived. Narian Technologies’ goal is to develop NFC-based applications and
components of larger solutions to help their customers realize the value of this potentially
transformational technology.

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