The concept of turning our smartphones into our wallets has been around for awhile now. Ever since we discovered the mass amount of potential we hold in our pockets, the NFC wheels have been churning. A recent report from Juniper Research says the global NFC mobile payment transactions will reach approximately $50 billion by 2014, and the next few years are supposed to be major turning points. The technology and consumer interest are there, as are some baby steps in the right direction – but this doesn’t mean it’s going to be easy.
For starters, there are some roadblocks to consider. Researchers Andreas Schaller and Thomas J.P. Wiechert have studied NFC and its place in retail businesses in Europe, and found that while consumer response to the technology has been generally positive there are many different sectors that need to get on board before phones universally have this capability. Manufacturers can continue to produce phones with NFC chips all they want, but there won’t be any mass adoption until retailers have compatible registers and mobile carriers and credit card companies come to agreements regarding transaction payments.
“Cards are going to come first and NFC stuff is going to come second,” Wiechert says. “The cards can be issued now by credit card companies, and people are going to get used to paying that way and that’s going to lead to people enjoying that kind of transaction and seeing the advantages. And then a few companies – BlackBerry for example just announced it was going to put NFC in all its phones – and people see ‘hey the guy next to me can do all that stuff with his phone,’ then consumers will demand stuff like that and then operators will be driven to bring phones like this into the market.” Schaller and Wiechart explain there are so many barriers in the way of bringing the technology to the average consumer, so many details to iron out between the involved industries, that progress may be stalled until people beginning demanding the service. “Currently the whole process isn’t in the mind of the people yet,” Wiechert says. He adds that general consumer feedback has been positive, but retailers from their survey are not entirely on board: “The respondents are not convinced that their customers will be enthusiastic about NFC based services. They only expect a moderate acceptance of NFC on the part of their customers. Retailers are, on average, neither convinced that NFC based services would be greatly appreciated by their customers, nor that they would be rejected. This clearly contradicts the statements made by companies that have conducted NFC trials. Retailers and trial organizers which usually include NFC hardware vendors and service providers clearly have different views on the shoppers’ preferences. If these hardware vendors and service providers wish to make these retailers their customers, they will have to convince them that customers will be fond of NFC.”
So when will we see mobile payments become commonplace? “If you’d asked me two or three years ago I would have been sure that we’d already be there by now,” Wiechert laughs. “It’s all going very slow because it’s the old chicken and the egg problem. You need to have terminals in the stores in order for credit card companies and mobile phone companies to issue the cards in the phones…on the other side you need to have the cards in the phones.” The factors in the mobile payments market are so fragmented that it’s been difficult to concretely pin down what steps need to be taken to find a solution – and more importantly, in what order.
Despite any sluggishness, it seems like interest might be on the up – at least in the UK. Vodafone, O2, Orange, and T-Mobile announced today they would be partnering to bring NFC payments to their customers. According to the Guardian, “Consumers will be able to pay for sandwiches, drinks, and train tickets by placing their phones close to a reader similar to the Oyster card system on the London Underground.” The report also acknowledges that while NFC has been widely adopted in Japan and South Korea, Europe has struggled to seriously implement the system.
South Korea recently created the Grand KFC Korean Alliance, which wants to create thousands of NFC-related jobs and billions of dollars using the technology. The coalition is taking extremely proactive steps to make this a viable and widely adopted payment method in the country and is pulling in all the necessary parties: The government, cellphone firms like LG and Samsung, telecom billing businesses, and credit card companies. Malaysia has made surprisingly large strides in NFC implementation as well, and Wiechert explains that part of this is due to the country’s lack of a firmly established electronic payment system. “In some new markets [like Malaysia], they didn’t have the infrastructure before, so when they started to implement this new system it was easy to use the new options. I live in Switzerland and three or four years ago the entire country changed the terminals and now buying something new [for NFC capabilities] is very improbable. So it’s going to be different from market to market.”
This progress isn’t limited to Europe only. Google Wallet was announced last month, giving us compatible Android phones (currently only the the Nexus S) with the capability. At the moment, MasterCard is the only credit card company working with Google on the service, as are approximately 120,000 merchant locations.
Schaller says this experiment will help various NFC-interested parties determine how they approach the technology. “I think they will try to see how people will use these payment methods…Google itself will understand how people are using the services and retailers can choose how they use this information. [They will choose what payment method] is best for their business. I think this will slowly build up in this market.”
It’s too early to decide how successful Google’s venture will be, but some are ready to call it a flop. Launching with only MasterCard’s partnership is too limiting, security concerns haven’t been properly addressed, all the big name mobile networks aren’t on board. “Google is not currently in the position to bring the technology into the market at this time. They are getting more into the mobile market with the Android OS but to do that stuff you need to have people that have phones with the NFC module in their hands. And the key players to do that are the mobile network operators. They’re the ones basically choosing what phones you buy – you usually buy them from your operator – and for them to do that they need to see that they’re benefitting from it. So what they want is to make money from each payment or from each credit card that is delivered to your phone,” Wiechert admits.
“But Google is a company that has more money than God. When they do stuff it doesn’t have to pay off right away. They have the financial stamina to try stuff that they think is cool that’s going to be big in 10 years and they can just do it,” he adds.