I got it slightly wrong - NFC mobile payments are not a complete dud

I have long been a critic of NFC-based mobile payments from smartphones. It was originally touted as a mobile operator service, debiting value (or adding to your monthly bill) with a tap. I was deeply skeptical.

Almost 10 years ago, I wrote that for it to work, "I ought to be able to check my balance from the phone screen, look at recent transactions and so on. At present, the UI/app side of NFC appears woefully weak to me". (link)

Six years ago, I was more emphastic still: "the tap-to-pay thing is a nonsense, a solution looking for a problem. The involvement of a telco adds zero value and lots of friction". (link)

I have to admit to being partly wrong. Yes, I know, it's rare for me to issue a mea culpa, but here, I have to hold my hands up!

I do actually see (some) people paying for things with their smartphones, as well as using them for stored tickets / travelcards. I also know that in China, South Korea and some other places, QR codes are popular, but that's a different technology. But for the most part, I was right about MNOs being an obstacle rather than a catalyst.

A few things have changed:

• Linking NFC chips to native-OS capabilities like Apple and Android Pay, allowing the creation of good apps & UIs.
• Integration with on-device biometrics, notably fingerprint- and facial-recognition
• People commonly carrying charger cables or USB power banks, so there's less fear that running out of power = running out of money.
• Very wide adoption of contactless plastic-card payments. In many UK and other European countries, a huge bulk of low-value retail and services-sector payments have moved to this model. This has allowed the broader concept of tap-to-pay to be normalised with plastic, and then a (currently small) % switch further to phones. It has also catalysed merchants to move to tap-to-pay terminals.
• Most telcos bowing out of the payments value-chain, replaced by banks (old & new fintech ones), plus Apple, Google & Samsung. This has taken out cost, friction - and put the user back in control with familiar, mostly-trusted payment brands.

But it's still definitely not a "revolution". It's one of those secondary things that some people have adopted, without becoming universal. It's a bit like wearing a FitBit - people don't look at you weirdly any more, but they mostly don't intend getting one themselves. (If you pay with a watch, though, you're definitely still weird). 

NOTE: I realise that "normal" is a very geo-specific culture judgement. Within a country or even city, you may find greater levels of acceptance or scorn depending where you shop or drink coffee / beer. 

NFC phone-payment is now somewhere on the geek spectrum in between using a voice assistant (fairly normal), and wearing an AR/VR headset in public (not). There are some fairly clear demographics about who does/doesn't use NFC, as well.

This morning, for an entirely unscientific experiment, I counted 9 out of 100 people exiting my local tube station in central London using a phone rather than a card. Among card users, I couldn't tell how many used a proprietary TFL Oyster card vs. a normal credit/debit card that is now accepted at Oyster terminals. 

On closer inspection however, some of those people had phone-cases which also held some plastic cards as a physical wallet (like these - link), so given not all had been thumb-ing the screens, the actual number of proper NFC users was probably 5-7%. And that is among commuters who mostly travel every day, at 9am, so we can perhaps expect routines to be optimised. I might try another time to see how daytime "casual" usage differs.

Without having done a similar count at shops and restuarants, but having been generally observant over recent months, I'd guess that about the same percentage applies for retail transactions. Common-ish, but certainly atypical.

(As a sidenote - I'm writing this in a very nice cafe in London, which is having to apologise to customers that its card/NFC reader isn't working at all. Cash is still a critical backup).

Personally, I don't use my phone for retail payments. I use my contactless bank or credit cards, and I have a proper pre-pay Oyster. I prefer to keep my various payment and online relationships completely separate - Apple doesn't even have my credit card details.

I'm curious what the situation is elsewhere, and I'll keep an eye out when I'm travelling. My expectation is that phones will become somewhat more common for payments over time, but there's not going to be a sudden flip, as there was with contactless cards. I think geographic differences will persist too - I'd be surprised if Germany was a fast adopter of phone-based NFC, while China could well move much mor decisively. 

There might even be one or two places with telcos in the NFC-payments loop, as they are in some developing markets for messaging-based payments - but I don't see that in markets with existing high % of banking and card adoption.

Bottom line: I was definitely a bit too negative 10 years ago about the long-term future of NFC. But the transition remains slow, patchy, and dependent on the UX skills of the smartphone manufacturers. Also, few saw the behavioural acceptance of consumers being driven by tap-to-pay plastic cards as a first (and for many, last) step.

An eSIM & IoT thought experiment

Imagine a cellular-connected interactive teddy-bear.

It has a button for a child to speak to their parents, perhaps a video-camera inside an eye, and maybe some basic sensors for movement, temperature or GPS. Conceivably, it could connect via social-networks to other toys. Ideally it needs to be mobile, as it'll be used in the car, or at kindergarten, or on holiday - not just at home.

The cellular radio is embedded deep inside the bear, along with a SIM card. The toy has to be soft - and there can't be any small removable parts like a SIM tray and conventional card, as they could be a choking-hazard.

So it makes sense to use an embedded, soldered in SIM - which also gets around the problems of fluff and fibres blocking a normal SIM-tray. And because the bears are shipped around the world from a single factory, the concept of eSIM and remote-provisioning seems to make a lot of sense as well.

Seems like an ideal eSIM use-case, doesn't it? A classic example of consumer mobile-enabled IoT?

(There are already various smart/connected WiFi or Bluetooth bears - see this link or this link for example. Others are being planned - link EDIT: apparently the day I published this was "National Teddy Bear Day" link . A complete coincidence, but very amusing! )

But now think a little more closely about the user-journey, the design and sale process, the economics, and the new value-chain that needs to support the mBear's creation, distribution and use.

Where does the bear get purchased? Presumably, nobody's going to go to a phone store to buy a soft toy. They'll get it in a toy shop, or perhaps online. As it's a tactile, soft product, a lot of people will want to touch it first, compare it with other unconnected bears, decide if the extra cost of the electronics is worth a perhaps-lower grade of stitching and fur. 

How many toy-shop sales assistants are likely to be able to describe the benefits of a connected bear? How many will be able to advise on how to get it connected, what happens after the initial data-included period ends, or talk knowledgeably about service plans?

The bear, of course, has no display. So any configuration and setup will need to be done from a PC or mobile app, or in-store (good luck with that, at 9am on Xmas morning). Is there some sort of "connectivity app-store", where you can choose which network you want the bear on? Can you add it to a parent's existing multi-device cellular plan, or a family plan? Can you set up an entirely new subscription if your normal operator doesn't support eSIM and remote provisioning? How do you register your ID for countries which require it? Your ID or the child's? Do you need to connect the bear to WiFi first, or use Bluetooth from your phone, in order to boot-strap the mobile provisioning? Can the eyeball-cam scan a QR code from your phone, perhaps? 

How exactly does the provisioning work, and is it the same process used by the mToaster the parents also got given as an Xmas gift? Actually, who's responsible for the bear's connectivity if it was given to the child as a gift by a relative? (Who perhaps bought the bear overseas). What does the "user licence" say and who agrees to it? What security issues might arise? [See this link, for a non-cellular connected bear]

Are there different data/voice-plans for the bear? Does it offer postpay and prepay? Are they available on all carriers or just one? How is this displayed in the store? Does it support roaming, when the family goes on holiday? At what price, and how is this notified? If the "call" button is permanently on because the child is sitting on the toy, what happpens next?

What about returns? If the arm falls off the bear a week after Xmas, and the eSIM has already been activated, what happens when the customer returns it to the store? How is the number/SIM ported to a new bear, perhaps of a different design? What happens if the child's playroom is in the basement and there's no coverage? Can the network be switched? Can the customer get a refund? Who pays and how?

There are also questions about the design and manufacture process. Who decides to make the bear? A normal plush-toy company? A mobile device maker? (iBear?) Someone who sets up a Kickstarter campaign and then contracts a manufacturer? How do they select a module & design the rest of the system (eg battery)? What extra cost does this add? Are there enough operators supporting remote provisioning and eSIM? Is a standard-SIM version needed, or perhaps one that's WiFi-only and tethered to a nearby phone or in-car cellular radio? Does the toy's packaging need to be different as it's now a cellular device? How is it classified by shipping companies - as a toy, or a "phone"? What certifications are needed at what point in the process? What import/export duties apply?

You get the picture. It's all much harder than the initial picture suggests - partly because of the cost of the cellular radio irrespective of SIM type, but also because of real-world user journey and practicalities of eSIM. There are plenty of other issues I haven't mentioned here.

For some eSIM use-cases such as connected cars, and perhaps tablets and mi-fi type products, there's an existing channel and business model. Remote provisioning can simplify this, take costs out, add the ability to switch networks and so on. 

But for many other new categories of IoT, both consumer and B2B, there are huge complexities that will need to be worked through. There will likely be several years of clunkiness, false starts and unanticipated problems. These may not be insuperable - but they may well prove costly to solve. 

The problems will also likely vary by device category and target audience - imagine re-writing this post about a fridge, a VR headset, a bicycle lock, a drone or an industrial oil-pump. eSIM in smartphones is much harder still. Just standardising the remote-provisioning part of eSIM does not solve the myriad of other issues that "connecting" IoT devices with a cellular radio entails. In many cases, it will be simpler just to stick with WiFi or Bluetooth, especially for toys mostly used when parents (and their phones) are around.

Such issues are why I'm forecasting a slow start to eSIM, and patchy adoption in new IoT categories. (And also why lack of eSIM in the iPhone 7 was not a surprise). It will gradually be sorted out - by 2021 there could be 1 billion eSIM-enabled devices - but it certainly won't be a game-changing shift overnight.

These posts highlights some of the issues and concepts that are covered in the new Disruptive Analysis eSIM Market Status & Forecast report (link). Please get in touch at information at disruptive-analysis dot com, if you are interested in the report, strategy workshops, or speaking engagements. I'll also be chairing a conference session on eSIM & eUICC at the Smart Security conference in Marseilles on Sep 28th (link)

Apple Upgrade - will carrier activation be done with an eSIM or Apple SIM?

The iPhone 6s still has an ordinary SIM slot. Next year, I predict that the iPhone 7 will still have an ordinary SIM slot too. 

But Apple's new Upgrade installment plan that allows people to get a fresh new smartphone every year might change the SIM in the longer term. It's US-only to start with.

There is also a possibility of a removable Apple SIM as part of the Upgrade plan - a similar concept as the one in last year's iPad. That's more likely for next year rather than this year.... but at the time of writing this post (11th September 2015) Apple still hadn't put up the full details of how "carrier activation" would work on the web, so it's *possible* that there will be a surprise coming much sooner (maybe even tomorrow, when pre-orders start).

There is also a possibility that the iPhone 7, next year, will have an embedded "eSIM", although it would also need to have a proper SIM slot too, or at least two versions to choose from.

The Upgrade programme makes a lot of sense - most US carriers now have some form of installment plan for smartphones, rather than a bundled-in "subsidy". That's actually been part-driven as an effect of changing accounting rules, which restrict the bundling of products and services in reported revenues. See this article here from last year, and my own 2007 post where I mused about the economics of phone subsidies, here.

The Upgrade plan allows customers to get their iPhone finance plan from Apple, rather than through AT&T, Verizon, T-Mobile or Sprint. (For Apple, it's actually a lease underwritten by Capital One). The one-year cycle allows Apple to potentially increase revenues, while running this through the Apple stores removes the risk of last-minute switching to Android devices, with a nudge from a carrier salesperson who's been incentivised to pitch Samsungs.

But a couple of things are left unsaid at the moment. When Apple talks about setting up and "activating" your phone on the carrier of your choice, what does that actually mean? 

For some users, it will just mean taking the SIM out of your existing 5s or 6, and popping it into a shiny new 6s. But what if you want to switch to a new carrier - or perhaps a new plan? Will the Apple store keep a stock of SIMs from all the carriers and activate them on the spot, like an independent phone shop? Or.... will it perhaps use Apple's own SIM, with a remote-activation setup menu as on last year's iPad? [EDIT: it has been pointed out to me that Apple already stocks some SIM cards in its US stores. Question remains though, which plans? Including prepay or just normal multi-year contracts?]

[My take on the Apple SIM last year was posted here. As I argued at the time, it has not been a big deal. Other carriers have not signed up, beyond a provider called GigSky, which appears to work with major global carriers like Digicel and Vodafone on a roaming basis]

In theory, and with the cooperation of the carriers, the new 6s could work with an Apple SIM card as well. Rather than walking out of the Apple store and then going to a carrier store for a SIM separately, it would be easier to just remotely download and activate a "profile" on either a blank (Apple-branded) SIM, or in future, to an embedded SIM chip inside the body of the phone. Ideally, Apple would love to do away with the design compromises from cutting a slot in the device, reclaiming space and removing a clunky mechanical component.

However, various scenarios here would require some complex behind-the-scenes processing, like porting your existing mobile phone number, and also maybe dealing with contract termination fees. This is why I have my doubts that it will happen this year, and even next year will have some headaches. They're not insurmountable for Apple - but they probably are insurmountable for others, for anything other than IoT-type deals like Samsung's Gear S2 watch with eSIM from last week.

Either way, whether it's this year or next, the Upgrade plan gets customers used to the idea that you "activate a carrier" on an iPhone bought from Apple. And given that there is no subsidy or payment plan from the carrier, there is no justification for 2-year contract plans, either.

If you have an unlocked iPhone, you'll be much more amenable to getting a rolling and cancellable 1-month contract (already popular in the UK and elsewhere, but less-so in the US) or even a full pay-as-you-go prepay account. You might even choose to go for a data-only SIM, and "bring your own voice".

In that scenario, it actually doesn't really matter (for now) which SIM model Apple uses:

• Swap out your existing SIM & put it in the new iPhone, in the Apple store
• Buy a SIM from a carrier store & put it in the iPhone
• Buy a SIM sold in an Apple store & put it in the iPhone
• Get a removable Apple SIM supplied with the iPhone, activate a carrier if it's chosen to be on the menu, or else take it out & buy a separate SIM as per the options above
• Have an eSIM inside the phone and activate a carrier of your choice, if they're on the menu. (If not, then there's probably a version with a proper SIM, as some countries' operators won't all be eSIM-ready anyway).

Long, long term (maybe 2020 to coincide with 5G) we might get to the "promised land" (or dystopia, depending on your viewpoint) of fully virtual SIMs, but don't hold your breath.

The problem with the eSIM / downloadable Apple SIM type model has always been getting carriers to agree to be involved. I've been skeptical that the model had legs, because of this. But the installment / upgrade plan - and Apple's footprint of own-brand stores - seems to be a victory thought up by a clever game-theorist.

One of the carriers will likely agree to in-store activation on Apple SIM / eSIM - or at least, agree to having their SIMs stocked in Apple's retail outlet. It saves customers a second shopping visit. And then the other carriers may be forced to follow suit. Given that at least *some* people will be able to activate their 6s "on the spot" by simply swapping out their existing SIM, there's even greater incentive to use the Apple Store as a point of decision, if you're trying to capture people ready to churn.

Apple has essentially flipped the cellular sales model on its head - rather than a Verizon/AT&T salesperson having the power to convince a user to switch to a Samsung in a carrier store, it's now in a position to convince users to switch to a different carrier, in an Apple store.

The interesting line on Apple.com is this: "Because the iPhone Upgrade Program isn’t tied to a single carrier, you don’t need a multiyear service contract. If you don’t have any carrier commitments, you’re free to select a new carrier or stick with the one you have. A Specialist can answer questions and help you set your iPhone up the way you like." Note the absence of the word SIM, and the phrases "select a new carrier" and "set up your iPhone". That's rather significant - it implies the SIM is available in-store, in some fashion, for the carrier to be "selected".

So in many ways, the actual SIM mechanism is irrelevant here - it's the retail footprint that matters. Lots of carriers are worried about the eSIM / Apple SIM meaning they "lose ownership of the customer", but the truth is more prosaic: it's the physical store that's the point of control / decision, because it plays to the human psychological need for instant gratification. Even online purchases are clunkier - unless you have same-day delivery, there's an in-built lag for activation anyway. Of course, it's also important that other device vendors don't have a similar retail presence.

Now obviously, the Upgrade plan isn't actually needed here. Nothing stops people from walking into an Apple Store and buying an unlocked phone at full retail price & getting a SIM card however they want anyway. But in the US at least, that's still very much a "minority sport", because of the price tag involved. It's just not how people buy phones, when they're accustomed to an apparently "free" or cheap handset. The monthly plan - and upgrade cycle - might change that, as it alters perception. It's also a clever lead in to some form of programmable SIM card, when it's worked out the various kinks and practicalities.

I suspect that Apple isn't 100% sure how customers will take to this. And it's probably ironing out various kinks and complexities with any sort of remote activation. It may want to wait until all the carriers have back-end systems capable of handling it, rather than risking relationships by jumping the gun with just one or two. Again, the game-theorists are probably trying to work out how to avoid one or more carrier stopping selling iPhones entirely in their own stores, which would have definite negative impact, in the short term at least.

My view on programmable SIMs / eSIMs is that business model is pretty much unworkable, except, perhaps, for Apple. Let's see what happens either next week, or next year.



I've been doing a lot of work thinking about SIMs, eSIM, programmable SIMs, multi-IMSI and so forth recently. Over recent months, I've done a variety of private consulting projects and presentations on my thoughts on SIMs. I've been looking at the announcements, and also considering what the commercial, technical and regulatory implications of various evolution paths might be. If you're interested in a workshop on this, please get in touch via information AT disruptive-analysis DOT com