Mobile Wallet Moves Closer To Reality With Recent Momentum For NFC

Over the past few weeks, major brands including, Apple, Microsoft, and Google have all either introduced or are rumored to be planning rollouts of software, devices or services equipped for Near Field Communication (NFC). While mobile commerce has had false starts in the past, industry analysts say the increased adoption of NFC could make the mobile wallet a reality.

New market forecasts from Juniper Research show rapid adoption of NFC services over the next three years, with at least 1 in 5 smart phones worldwide having NFC contactless functionality, according to Juniper’s April 2011 NFC Retail Marketing & Mobile Payments Report. Worldwide, Juniper forecasts almost 300 million NFC capable smartphones by 2014.

According to the report, NFC payments and retail marketing capability via coupons and smart posters will become more common among smart phone users in Western Europe, North America and other developed regions.


With rumors of major credit card brands, wireless carriers and even Internet browsers jumping on the NFC bandwagon, it’s clear the industry is preparing for the anticipated growth of mobile payment.

zoompass“One of the main challenges that the banking community has faced is authenticating a payment on the mobile device,” said Gary Schwartz, President of Impact Mobile and Author of the upcoming book Click2K’Ching. “They need to find a simple and secure way to connect this device to a party who can verify and settle this payment or voucher. There are many strategies to bridge this physical gap remotely. Starbucks scans a trackable 2D code on the screen the phone. PayPal’s BUMP uses an accelerometer. shopkick uses special frequency sound waves. Many just send them to a mobile web checkout URL. But over the past few years, NFC is emerging as the solution of choice for connecting phone to a transaction at point of purchase.”

Howard Wilcox, Senior Analyst with Juniper Research and author of the NFC report, said there are a couple of different immediate drivers bringing retailers to the table. “The first one is the ability to enhance line-busting efforts, which translates into avoiding the loss of customers,” he said. “The ability to pay very quickly for something is very important, so it increases revenues and reduces lost customers. The part that we maybe don’t often think about so much is the reduction in cash, because usually these are for small amounts. Typically I think in the U.S. it’s less than $20. From the retailer’s perspective, it saves having to count the money, the risk of errors and loss and the need to take cash to the bank. All the costs of managing cash would be eliminated.”

Security The Key Concern
While NFC technology presents a unique value proposition to mobile shoppers, experts agree that security and customer education are the biggest barriers to widespread adoption.

“From a user’s perspective the other aspect to consider is security,” Wilcox said. “Having your phone as your wallet or purse is something that’s hard for people to grapple with…But equally, if you’ve got a purse or wallet on you, what could be less secure than having one of those? Having said that, there’s probably a perception issue with users where they’ll need to be educated about security, but it’s a new practice so there will be some user issues.”

Wilcox said one of the barriers to widespread adoption is the issue of a business model. “With NFC payments you’ve got the financial services and mobile phone industries coming together,” he said. “In that whole equation there is a business model and obviously the mobile industry needs a slice of the action. From financial services industry perspective, there needs to be some creative thinking for it to roll.”

While one of the adoption barriers is retailers’ ability to accept contactless payment, NFC capability will become more prominent not only in mobile devices, but in point of sale (POS) readers. According to Wilcox, VeriFone plans to install NFC capability onto the main board of POS readers as a default, and retailers can opt to use the capability. ”The issue is that it’s going to take time for retailers to refresh their POS readers,” he noted. “They need to invest to replace them. Leasing or renting could be more cost effective, but that’s up to the retailer. That’s a barrier.”

In the upcoming book Click2K’Ching, Schwartz points to several different NFC business models that retailers should be plugged into:

isis » AT&T (T-Mobile) and Verizon Wireless set up a joint venture called ISIS, to develop a mobile-payment service in partnership with Discover Financial Services’ payment network in-store and use Barclaycard US to provide the banking infrastructure to issue credit, debit and stored value products. Although Discover say that are just the rails, this is not an open business model and will be in direct competition to Visa and MasterCard that currently dominate over 80% of credit transactions.
visa-mastercard-goog » Google, Citi and Mastercard have already discussed a competing payment network on the Android platform.
visa_paywave » In Europe, three banks and three wireless carriers (dubbed the “Six Pack”) engaged in secret talks for months to work on a launch model to payment support Visa payWave and MasterCard PayPass on NFC phones.
rogers-telus_wireless » Carriers in Canada are working on an independent model that will open their subscriber’s phone SIM card to financial partners. They propose to be bank agnostic — financial institutions would be able to activate and secure a customer’s handset over the air via the carrier.

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