opinion

NFC contactless payments going mainstream

The potential of near-field communications (NFC) to play a central role in mobile’s integration into the retail shopping journey has long been recognised – indeed, some have postulated a “Holy Grail” of mobile retail and payments centred around NFC.

Under this scenario, the consumer first discovers a product and a retailer by interacting with an NFC smart poster, as pictured below. Secondly, he or she “checks in” by tapping his or her mobile phone on an NFC tag at the entrance to the store and, as a result, receives relevant coupons specific to his or her interest. 

Next, the consumer shops in store, taking particular interest in products for which coupons have been issued. Finally, at the checkout, he or she taps to pay via NFC, simultaneously paying for goods, applying all relevant coupons to the transaction, and updating loyalty information.

Historically, this was the point at which those doing the postulating woke up, or were advised by their analyst to keep taking the tablets. Historically – but no longer. For while NFC is now some 10 years old, it has finally reached a position whereby the standards are in place to create a solution that can accommodate the requirements of all the participants in the NFC payments ecosystem.  

The industry comes together

Just as the NFC payments technical solution is now judged to be in place, based on agreed cross-sector standards, some of the earlier payment security concerns have also been substantially alleviated, at least from the point of view of the ecosystem players.  

Visa and Mastercard have been very active in this process, and trusted service managers (TSM) are now supplying service solutions fully certified by the credit card industry. Banks, however, have been less confident in the technical security of NFC payments, particularly in the mobile device area, but these issues are being resolved.  

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The NFC retail opportunity

At the same time, the famous “chicken-and-egg” paradigm between NFC handset issuance and NFC payments acceptance is now being resolved from both sides, and paradoxically they are being resolved independently, rather than cooperatively.

The NFC handsets bottleneck is being cleared despite very few commercial NFC wallet launches – the NFC acceptance bottleneck is being cleared due to multiple factors and not just within the payments sector.

Educating consumers and merchants critical to mass adoption

There remain two formidable hurdles: one takes the form of persuading merchants to install NFC-enabled terminals to facilitate transactions; the other, of persuading users to adopt the payment mechanism.

The technology and service providers need to persuade the transacting parties of the efficacy, security and ease of the transacting process under this shiny new contactless system, and that requires a concerted marketing and educative effort.

Part of the problem is that the merchants have already invested in existing payment-enabling technology (from good old cash registers to the various wireless card-reading terminals) and naturally need to be convinced of the need to splash out on an additional or in some cases replacement mechanism. To put it bluntly, will it pay its way? 

Raising the spending limit of NFC payments from the current £15 is critical to mass adoption

From the consumer perspective, while there have been a number of encouraging trials (and indeed commercial deployments), it is clear that adoption has been constrained by the upper spending limits imposed by service providers. 

If the limit on my potential purchases via NFC is £15, and if on my way around Happy Mart I have accumulated two bottles of Merlot and a bag of Maltesers (that’s my evening sorted), then I may feel that I am close to or in excess of that upper limit, and rather than reaching for my smartphone, I will instead proffer some of the folding matter.

Consumers don’t need the distraction of having to do these calculations, particularly not when – as is often the case – they find themselves surrounded by a raucous hubbub of bickering children, some of whom they may well be responsible for. Hence, raising the spending limit is critical to mass adoption.

Fortunately, service providers and enablers are beginning to recognise the inhibitions that such caps impose on market growth.

 As these are removed, and as more of the major players from across the mobile ecosystem recognise the scale of the opportunity (Apple’s forthcoming iPhone 5 is expected to feature an NFC “iWallet”), then the momentum increases. 

At present, NFC retail payment activity is overwhelmingly concentrated in Japan, where it is a multi-billion dollar industry, but by 2017, that industry will be very much a global behemoth. Our latest report envisages such sales reaching $180bn annually by that time.

And even Happy Mart should have a piece of the action by then.


Dr Windsor Holden is research director at analyst Juniper Research, and co-author of the study, NFC Retail Marketing & Mobile Payments: Business Models & Forecasts 2012-2017


Photo courtesy of English Wikipedia user Timoarnall

 


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