Near Field Communications (NFC) may be closer to significant U.S. penetration, following Google’s announcement of their latest venture, Google Wallet, on March 26. Essentially, users can add all existing credit card accounts to their mobile phone, further simplifying the shopping and buying process. The solution was launched in test in San Francisco and New York, and is expected to expand into other cities following a successful summer test period.
“Google Wallet presents an integrated offer across the market including financial institutions and card issuers, payment processors and retailers,” said Howard Wilcox, Senior Analyst at Juniper Research. “The proposition brings flexibility and convenience for the user. NFC is much more than payments, and the Google Wallet draws this out.”
One potential issue that may stall the implementation of NFC is security. In an attempt to dissuade those concerns, Google’s VP of Commerce, Stephanie Telenius, announced that the Google digital wallet would be equipped with a phone lock, Google pin, and credit card information encryption. Telenius estimated that NFC technology will be built into an estimated 50% of all smartphones by 2014.
Wilcox further elaborated on the security issue, asserting that NFC technology is technically safer than traditional POS processes. “[Safety] is more a perception issue than reality, as the transaction protocols are at least as secure if not more secure than for credit card transactions at point of sale or online over the Internet,” he explained. “Added to this are the extra PINs and passwords that the user can enable on his own mobile device, which would prevent unauthorized access to his ‘wallet,’ even if it were stolen.”
Juniper Predicts Significant NFC Global Penetration
Along with Telenius’ predictions of widespread NFC use, additional research suggests that NFC adoption is growing rapidly on a global basis. The Juniper Research NFC Retail Marketing & Mobile Payments Report predicted that by 2014, the overall NFC market will reach $50 billion in worldwide revenue. Juniper predicts that as many as 20 countries will be utilizing NFC by 2011 and 2012 — a period that the research company reported will be “banner years for NFC service rollouts.”
North America and Western Europe are predicted bigwigs in the NFC realm, with Juniper projecting that 50% of purchases will be made using NFC in these regions by 2014. However, China and the Far East are current leaders in wireless payment with the implementation of FeliCa, a radio frequency identification (RFID) smart cart system from Sony. The system has been widely adopted in the Octopus card system of Hong Kong, as well as several card systems in Singapore and Japan. The contactless card conducts transactions through a mutual authentication method and transmission system, and completes a standard transaction within 0.1 seconds. The payment method is utilized in public transportation and banking systems, and for standard purchases and coupons.
“The Far East and China got off to an early start with FeliCa and represents the largest region at the present time,” added Wilcox. “North America and Europe are starting later — but with the global NFC standard — and are projected to grow more rapidly for a number of reasons, but most importantly the availability of NFC-enabled smartphones.”
Andrew Morris, CEO and Founder of Morris Advisors, Inc., agreed with Juniper’s prediction of NFC’s growth, elaborating that advanced technology is key in the payment system’s adoption. “Given that mobile payment is going to be driven by smartphone devices, and those devices are most prevalent in the developed markets, then it makes sense to me that NFC usage in the U.S. and Europe will take the lead over time,” he said.
Mobile Providers Join The NFC Revolution
NFC technology is being implemented by several mobile providers, starting with Nexus with the introduction of its S phone, which contains an NFC chip. Rumors also have been circulating in publications that the iPhone 5 will have NFC capabilities. Although The Independent claimed the technology powerhouse was holding off on developing the newest addition to the smartphone, a report by Forbes claimed the development was still in the works. Along with Visa’s recent acquisition of mobile financial provider Fundamo, the NFC trend is accelerating, with more retailers looking into the benefits of a wireless pay system including reduced operational costs, improved customer experience and enhanced brand loyalty.
“More forward-thinking retailers see the potential to attract more customers through targeted mobile marketing campaigns, which can bring new customers in store by location-based alerts on their mobiles and mobile coupons redeemable through the same NFC transaction process,” said Wilcox.
Currently, more companies around the globe are starting to utilize wireless payment systems. Starbucks recently teamed with Barclaycard in a partnership with Visa to adopt wireless NFC for its stores in the UK and Ireland. The technology will roll out officially in Spring 2012. The UK also recently adopted Orange Mobile’s QuickTap, a wireless payment service available through Mastercard’s PayPass system. Google Wallet has been developed to mesh with the same PayPass system, which is now accepted at more than 120,000 merchant locations worldwide.
In the next five years, Wilcox and Juniper see the NFC market growing significantly, with an initial push within the transit sector.
“NFC is a key technology for mobile retail marketing and payments,” Wilcox said. “However, it is also equally significant in the enabling of the mobile ticketing market across the transport sector. Over the next five years we [Juniper] see this market growing and added growth ensuing from the flexibility and scope for new NFC applications bringing more opportunity to the user and more revenue to the providers.”
Morris shared a similar sentiment, noting that public transportation will be “…a catalyst for consumer adoption of mobile payments, especially in large metro areas, as transit systems move to open fare payment systems that accept contactless bank cards and NFC phones as fare tokens.”
Expectations For NFC In Retail
Although predictions claim transit will ignite the adoption of NFC, Morris noted that retailers will quickly convert to mobile payment to ensure an efficient buying process online and in-store. Contactless EMV, or Europay, MasterCard, Visa, is another wireless technology trend in development. The chip card is available through POS terminals and ATMs to help prevent fraud and guarantee global interoperability. The adoption of wireless technology also will improve payment security and customer shopping experience, and lower operational costs, Morris said.
“Smart retailers will demand that mobile wallets include store credit and gift cards,” Morris said. “In addition, many retailers will embed payment in their proprietary applications. Contactless EMV will become the standard in the U.S. but NFC will co-exist with other approaches, including bar codes and remote payments. Consumers will use some or all of them depending on their preferences and the specific use case.”