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Mr. Phan is an independent trader for Equity Guidance LLC. In his previous life, Mr. Phan spent over 15 years consulting for some of the biggest brokerage and financial institutions on Wall Street. He launched EGS to assist individual investors/traders in their research. He uses various... More
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  • Mobile Payment – Near Field Communications (NFC) Analysis 3 comments
    Sep 21, 2011 12:32 PM | about stocks: NXPI, PAY, NFC, AAPL, GOOG, EBAY, V, MA, JPM, C
    The traditional method of payment of cash and checks are moving aside based on a recent major consumer trend -- mobile payments.    As smart-phones have become popular, people have become more comfortable using digital currencies and mobile payment both to shop for goods online and at traditional brick-and-mortar retail stores. Stores as varied as CVS (NYSE:CVS), McDonalds (NYSE:MCD) and New York ‘s taxis are currently accepting mobile payments.

    Smart-phone providers Apple iPhone (NASDAQ:AAPL), Google Android (NASDAQ:GOOG) and others are gearing up to battle for the customer wallet.   Mobile payment could be a simple process of holding a phone near a point-of-sale terminal with payment made electronically. The technology behind this process is called Near Field Communication (NYSEMKT:NFC). NFC is a short-range, wireless technology that allows secure communications between two proximate devices.   
     
    Payment processing companies such as Visa (NYSE:V) and MasterCard (NYSE:MA) collect fees for each transaction and this is a very lucrative revenue source. Competing companies recognize this near monopoly technology and are rushing to cash in on this area. Currently, there are two dominant smart-phone players in this area. Google ‘s Wallet  and Apple iPhone. Google’s Wallet NFC payment program has lined up major players such as Citi Bank (NYSE:C), First Data, MasterCard and Sprint (NYSE:S). Google ‘s wallet is preparing to launch this summer in San Francisco and New York City.  
     
    iPhone captures major market share in smartphones and has successfully dominated high volume businesses such iTunes and Apple TV.  With NFC, a fee is collected for each transaction, it is certain that Apple will want to capture this huge market.
     
    To date, Apple has not announced an NFC capable-phone.   iPhone 3 and iPhone 4 currently do not have NFC-capability.  Experts are certain that the iPhone 5 will be NFC capable.  To enable mobile payment, a chip with NFC capability is included in a smart-phone and at point-of-sale terminal.  As an interim solution, for devices without NFC capability an SD card is an approach that implements all NFC-related functionality. With mobile devices that currently have an SD card slot, users can plug in the card to get immediate NFC capabilities.  
     
    To protect its dominance, Visa and MasterCard are using micro-card type to be NFC-enabled.  Visa is using a payWave technology, NFC-enable like chip (micro-SD card) to insert into a phone.   Users then download an app to make a transaction. To date, there are eleven banks that have signed up including JP Morgan(NYSE:JPM), Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC).
     
    On August 9, 2011, Visa announced plans to accelerate chip migration and adoption of mobile payments.
     
    “Visa will require US acquirer processors and sub-processor service providers to be able to support merchant chip transactions no later than April 1, 2013”.
     
    MasterCard developed a competing technology called PayPass and American Express has created a similar technology called ExpressPay. 
     
    Companies:
    • NXP Semiconductors (NASDAQ:NXPI) – a Dutch company that makes chips that run Google ‘s Wallet.   The market expects 472 million smart-phones to be shipped in 2011.   On Aug 2, 2011, via BusinessWire, NXPI announced a complete fingerprint-enabled payment in the US via a Motorola Android (NYSE:MMI) phone using technology from NXPI, AuthenTec and DeviceFidelity.  NXPI chart via StockCharts.com as of Sept 15, 2011.


    • VeriFone (NYSE:PAY) – makes the terminals that read credit cards; The company announced that it will enable all of its devices with NFC technology by the end of 2012.  PAY chart via StockCharts.com as of Sept 13, 2011.


    Technology Partnerships:
    Joint ventures with credit card companies, cellular providers and internet companies:
    • Isis – joint venture with American Express, Mastercard, Visa and AT&T (NYSE:T), T-Mobile, Verizon (NYSE:VZ) and Discover Card (NYSE:DFS).   Payment is made by waving their phone at the point-of-sale terminals.
    • Google Wallet – partnership with Citigroup, Mastercard, First Data and Samsung. 
     Competing Technologies:
    • Ebay’s paypal (NASDAQ:EBAY) and prepaid credit cards from Netspend (NASDAQ:NTSP) and GreenDot (NYSE:GDOT).
    • Social Networking ‘s Facebook – BitCoin (virtual currency) – digital currency developed by MIT.
     Risks:
    • Federal Regulation – Durbin Amendment stated that the Federal Reserve can have a say on interchange fees proposed by Visa and MasterCard.
    • Security of financial data
     HedgeFunds Holdings:
    • Third Points, LLC – Dan Loeb, a New York based hedge fund managing over $5.5 billion in assets.   As of March 31 2011, the fund holds approximately 4.7 million shares and comprises 1.42% of the companies portfolio as reported in GuruFocus.
     
    2011-03-31
    Add
    History
    1.42%
    $20.93 - $31.95
    ($26.4)
    $ 17.09
    -35%
    Add 50.78%
    4,750,600


     In summary, mobile payment NFC technology’s penetration rate will be enormous over the next several years. The US market is currently in its infancy in adopting this technology. Japan and Korea are currently using NFC-enabled mobile payment technology. Emerging markets such as Brazil, India and China represent a huge un-tapped market. Recent research from Juniper indicates the mobile payments market will triple to $670 billion worldwide by 2015.
     
    In the near term, the major markets are in correction mode. Investors with a short-term outlook would be wise to wait for the market upturn prior to making an investment. Those with a longer term horizon might want to initiate a position in this growing industry as these stocks have corrected anywhere from 20% to 40% from their 52-week highs.



    Disclosure: I am long NXPI.
    Themes: Technology Stocks: NXPI, PAY, NFC, AAPL, GOOG, EBAY, V, MA, JPM, C
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Comments (3)
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  • Laxman.R
    , contributor
    Comments (22) | Send Message
     
    Good post. There's a lot taking place in the NFC space. It is a complex eco-system that's not standardized especially when it come's to using NFC for mobile payments. At the same token, it's quite fascinating to watch how things are playing out. I wrote a bunch of articles about NFC in my blog.. (Pixel Ballads)...http://bit.ly/phgf88.
    29 Sep 2011, 03:03 AM Reply Like
  • Equity Guidance
    , contributor
    Comment (1) | Send Message
     
    Author’s reply » Laxman.R

     

    Agree with your comments "..complex eco-system that's not standardized especially when it come's to using NFC for mobile payments.".

     

    We looked at your site and it contains a lot of information about the mobile payment process.

     

    We think NFC will happen albeit at a slower pace due the current problems (Greece, employments, political, etc...).

     

    JLee
    29 Sep 2011, 01:20 PM Reply Like
  • Laxman.R
    , contributor
    Comments (22) | Send Message
     
    Thanks for taking a peek at Pixel Ballads. It's worth noting that NFC has a lot of powerful backers from MNO's, Banks, Payment Networks, Internet companies (Google) etc. Many startups have also thrown their hat into this ring. And not to forget PayPal - they will be a force to reckon with in this space. That said, all of the investments could be put at risk if customer adoption is lacklustre. Yes, NFC will happen (agree with your statement), but adoption will be slow as there are a lot of issues to be worked out. And the lack of a working standard (like IEEE 802, WiMax etc) will be a hinderance to quicker adoption.
    29 Sep 2011, 03:48 PM Reply Like
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