Doubt has been swirling around the potential widespread use of near field communication, or NFC, a technology that links consumers’ mobile phones to merchants’ point-of-sale terminals, enabling instant mobile payments. Apple released the iPhone 5 without an NFC chip, leaving millions of consumers out of the NFC equation. Google locked itself into NFC with the launch of the Google Wallet app, but other possible major players in the NFC arena, including PayPal, Bank of America and Walmart, sidestepped the technology during their recent mobile payment initiatives.
Isis, a mobile commerce venture spearheaded by AT&T, T-Mobile and Verizon, allows consumers to pay participating merchants using NFC-enabled mobile devices and eligible payment cards, and launched a trial of their service in Austin, Texas, and Salt Lake City last October. No official results have been released. Some reports indicate Isis transaction activity has been limited so far, while a spokesperson for Isis said it is pleased with the results of the launch and will continue to incorporate market learning as it grows. Currently, only 3% to 4% of all smartphones have NFC chips, and just 140,000 out of 7 million merchants have NFC readers, according to a CO-OP Financial Services white paper.
NFC is clearly in its early stages, but several experts say that if and when the pieces of the puzzle are put together–by financial institutions, merchants, payment card providers and smartphone manufacturers–it could become real. In the meantime, they say, credit unions should keep a close eye on it and consider the potential roles they could play in NFC.
Brian Day, Dwolla product leader for The Members Group in Des Moines, Iowa, said he believes that once the required infrastructure is in place, use of NFC will eventually become the norm. With Mastercard and Visa pushing an initiative that requires merchants to upgrade their point-of-sale terminals to accept EMV cards by 2015, the shift could take place within the next couple of years.
This year “will be more of an infrastructure building year for NFC,” Day said. “I think that as long as the infrastructure exists and merchants have the ability to accept NFC payments, it will start to grow naturally.”
A big unanswered question around NFC is how all the participating parties will be expected to interact with one another from business relationship and proceeds distribution standpoints, he said. That aside, Day emphasizes that many smartphones, including the newest Android models, have been built with the NFC chip, and he thinks Apple will put a chip in the iPhone at some point. The cool factor could also be a selling point for everyone involved. Day described a potential scenario in which a consumer could walk by a movie poster in a mall and tap his NFC-enabled device to purchase early-bird tickets.
“Credit unions should be keeping tabs on NFC. and the way consumers are interacting with it,” Day said. “From what we’ve seen, NFC offers the most seamless way to interact.”
As of now, credit unions have barely dipped their toes in the NFC pool. In 2011, Pentagon Federal Credit Union made plans to roll out an NFC service for their members, at least in pilots. But this year, a PenFed spokesperson said the pilots didn’t last long enough to result in any meaningful data, considering how much the market had changed from the time the credit union ran the early testing.
CO-OP Financial Services is actively helping credit unions bring mobile payments to their members. It just released Sprig, an account aggregation tool that allows P2P payments between accounts within the CO-OP network and is in the process of enabling out-of-network P2P payments, said Kathy Herziger-Snider, vice president of product development for CO-OP.
But when it comes to NFC, it’s too soon to make concrete plans, as the market remains too fragmented and the technology lacks support from too many big players, she said.
“There are some niche products in the market, but nothing is globally applicable yet,” Herziger-Snider said. “Everything is moving, but nothing has jelled yet. For credit unions, the digital wallet would initially include P2P payments, and within time, NFC. But right now, there’s inconsistency in the infrastructure.”
If the NFC stars align, CO-OP said it would certainly support use of the technology among credit union members.
“We’ve in favor of anything that supports fast, secure transactions,” she said. “It will be interesting to see how it all comes together. It just needs more time.”
As the NFC waiting game continues, experts say there are other ways credit unions can participate in the growing world of mobile payments. P2P payments, mobile payments that occur between two consumers or a consumer and a merchant, are becoming more common. For example, the ClearXchange program links customers of Bank of America, Chase and Wells Fargo. TMG currently has around 20 credit unions live with a mobile P2P payments app from TMG partner Dwolla, Day said.
“We’re now seeing the early adopters of P2P technology, and credit unions will soon follow as their members begin understanding the convenience it offers and start requesting it,” Day said.
Another term that’s dominating the mobile payments space is digital wallet, which refers to a mobile app that aggregates financial institution accounts plus merchant receipts, coupons, rewards and loyalty cards. Aside from Google, big current players in the digital wallet space are PayPal and Walmart, which partnered with American Express to launch the Bluebird card.
In its white paper on mobile payments, CO-OP says the fact there is no mature, dominate wallet product is a good thing for credit unions because they can participate in a variety of wallet programs, even without specific promotion on their part. Until credit union member-exclusive wallets become common, credit unions need to find ways to compete within existing digital wallets for top of wallet status, CO-OP said.
“I think a credit union-branded digital wallet is probably really good for credit unions,” Herziger-Snider said. “Consumers are still going to put their money in different wallets and on different cards, but our goal is to convince them to turn to their credit union for their preferred method of payment.”