By Diarmuid Mallon, Diarmuid.Mallon@sybase.com
If you have been following the mobile payments news recently, you will have seen the flurry of news around NFC, and in particular the rumors regarding Google’s entry into this space. Google isn’t the first company to throw its hat into the ring for NFC services. Perhaps the largest venture has been the joint partnership involving AT&T, T-Mobile and Verizon Wireless.
But what exactly is NFC? NFC or Near Field Communications is a relatively new form of ultra-short range wireless communications between devices. It is much like Bluetooth, but with a much shorter range, with much easier set-up, specifically designed for services such as payment or exchanging small bursts of information.
And what does this mean for the future of retailers?
Since the late 1990s there have been numerous attempts to turn the mobile phone into a universal payment device. Even the original SIM cards were the same size as a credit card, albeit without the magnetic strip.
Initial attempts at enabling purchases via mobile phone focused on sending simple barcodes to your phone -- an approach that is still being used today, more than 15 years later. The challenge, however, remains the same. In developed markets, retailers resist these approaches since they slow down the speed of processing at the checkout. And consumers have been largely resistant in the absence of any clearly compelling benefits over traditional payment methods (cash, cards, checks, etc.).
The recent deployment of Starbucks’s barcode payment scheme has been hugely successful, producing a tremendous appetite for mobile payment services from other merchants and retailers. However, a lack of agreement over key elements of mobile NFC limits current mobile NFC services to interim solutions.
The popular perception is that mobile NFC is either here now, or just waiting for the new iPhone 5. Yet, the reality of the situation is a little more complex than that.
To help retailers better understand the complications of implementing the technology and achieving widespread adoption of mobile commerce solutions by utilizing NFC, they must understand the following:
- Mobile phones will require that NFC capability be added
- To act as payment instrument, a Secure Element is required to verify the mobile’s identity (just as a credit card has either a mag-stripe or chip embedded in it)
- The mobile must be linked to a source of funds/line of credit
- Retailers will have to invest in the NFC readers at the point of sale
- Agreed business rules (Visa payWave has a maximum transaction limit, processes for verifying the customer if the transaction is suspicious, Interchange rates, and so on)
So even if the next iPhones do have an NFC chip, that still doesn’t make it a true NFC payment instrument. The biggest challenge today for NFC is not just the lack of NFC capable handsets, but industry agreement on the Secure Element (SE) and the standards/ business rules that will define the payment schemes.
On the retail side, most large retailers are on a 10-year replacement cycle for their point of sale (POS), so getting them to install new NFC terminals is not a straightforward proposition.
Most industry experts agree that in order for NFC mobile proximity payments to be a success, there will need to be a much greater deal of cooperation and coordination across all stakeholders. Merchants and retailers need to ensure that they also have a mobile strategy in place and start preparing for mobile payments. This can be as simple as preemptively collecting their customers’ cell phone numbers, and to start to use the mobile channel today with the objective of building consumer confidence.
What are the mobile payment alternatives available?
Over the last few years, developed and developing economies have taken markedly different approaches to mobile payments. In developing economies the focus today is very much on remote payments. In these economies there is a large proportion of the so-called “unbanked,” and so transmitting money is a major challenge, so remote payments provide a huge benefit. The fact that existing mobile technologies (SMS, USSD, WAP) can be used is also a benefit.
In developed economies, it is clear that many countries are focusing on proximity payments for their lead mobile payment services. But even here we notice a split, with some markets waiting for NFC, while others are launching interim solutions. The advantage of the latter approach is that they are creating momentum today -- you need an eco-system of merchants and customers.
In the United States, credit and debit terminal infrastructure is already well-established, and many consumers and retailers could find that NFC technology is no easier than swiping their credit card and there is no additional value with the technology. Currently, without a well-developed NFC infrastructure in place, consumers are still making mobile payments using the mobile web, SMS and downloading applications.
Ultimately, the convenience factor of tapping a phone versus swiping a card is not significant to change user behavior so it remains to be seen if NFC is the way forward. In fact, the chief benefit of driving payments from handsets accrues to retailers rather than consumers. The mobile payments industry needs to find ways of improving remote and proximity payments via mobile, which will, in turn, drive consumer adoption. We should see NFC as part of the enabling technology mix and not as the sole solution to push at consumers. But a word of caution to retailers: widespread adoption of NFC won’t come without a few virtual bumps in the road.
Diarmuid Mallon, is senior product marketing manager at Sybase 365. He can be reached at Diarmuid.Mallon@sybase.com.