It seems like yesterday when the shouts were loud that the Near Field Communication (NFC) train was leaving the station and it was high time for credit unions to jump aboard with tap and go mobile payment strategies.
What a difference a year makes. The message now is plain: NFC can be safely ignored, for the simple reasons that neither consumers nor merchants are in a rush to adopt.
“It’s a classic chicken and egg situation,” said Patrick Sweeney, author of “RFID For Dummies” and an expert on NFC. “Merchants have no incentive to buy an NFC point-of-sale system because customers are not demanding it.”
The promise of NFC of course is that with a properly enhanced moblle phone an on-the-go consumer can pay – for lunch at McDonald’s, groceries at Whole Foods, drugs at Walgreens – with a tap of the phone on a properly set up terminal.
Think about that for a second. Americans have 30+ years of experience with mag stripe credit cards. We are good at using them. And by now just about every merchant has a terminal, or at least a Square-type dongle, so usability is closing in on 100%.
We have pretty much no experience with NFC, NFC capable terminals are few, and the success rate of tap and go attempts – at least in my personal experience – is about 50%, meaning one in two attempts succeed. The success rate with plastic cards is close to 100%.
Then there is the business problem at NFC’s crux. “There are too many mouths to feed. NFC is unworkable,” said Chris Gardner, an executive with mobile wallet company Paydiant.
His point: with NFC the wireless carrier, the phone maker, probably the e-wallet maker, a credit or debit card issuer, and maybe still more want slices of every NFC transaction and that puts too many companies on a collision course as they fight over fees that are not likely to expand to feed so many mouths.
What’s more, said Gardner, “Apple is nowhere near adopting NFC.” When Apple shunned NFC in its latest iPhone – instead touting its own Passbook e-wallet app which lacks standard transaction functionality – many took that as a blow to the head for NFC.
Worse is that still there are no signs of interest in NFC from Cupertino. Granted, Apple is notoriously secretive – Apple experts are almost always wrong in their predictions of major product developments – but there are no rumbles in the NFC universe suggesting that a large order has been placed for NFC chips, and anything Apple planned for the next iPhone would cause seismic shocks due to the scale.
Add this up and is NFC dead? Not exactly, although very probably the shrewdest move for most credit unions is to opt to wait for the dust to settle. There is absolutely no pressure to act.
Like-minded advice comes from Ginger Schmeltzer, senior vice president, Emerging Payments at Fiserv, who wrote in an email: “NFC is an international standard and is supported by many of the major ecosystem participants in the market – organizations such as Google, AT&T, Verizon, Visa, MasterCard, and others.
“However, the key to the success of any mobile payments approach is improving the consumer and merchant experience so much that it justifies making a change in how they pay or get paid today. The key challenge faced by NFC is that it does not in and of itself transform the consumer or merchant experience.
“That combined with the other hurdles facing NFC, including getting the technology into merchants’ terminals and consumers’ mobile devices, indicates that it will still be some time until we see if NFC will emerge a winner in this space. In the meantime, NFC will co-exist alongside other mobile point-of-sale payment technologies like cloud-based wallets, as well as other mobile payment types like person-to-person payments.”
At PayPal – which has at times been withering in its scorn for NFC (“It stands for ‘Not for Consumers,” said senior executive Don Kingsborough at a conference last year) – a spokesperson issued a more temperate but still unenthusiastic opinion about NFC’s future: “NFC is one of the many technologies that we’re watching closely; in fact, we have tested in-store NFC payments in the U.S. and in Sweden.
“However, in today’s retail environment, many sellers don’t have NFC-enabled POS systems and most buyers don’t have NFC-enabled phones. At PayPal, we’re addressing the friction points that exist in commerce today by ensuring PayPal’s digital wallet works with retailers’ existing POS systems and on devices that consumers already own.”
And just when you are about to close the books on NFC, there is this from Jeff Miles, an executive with NXP Semiconductors, the company that invented NFC with Sony: “Just because one use case won’t fly is not the death of a technology.”
He added: “By the end of the year you will see 25 to 50% of smartphones with NFC. We are reaching critical mass on the phone. When that happens you will see more use cases.”
Miles’ bet: using NFC to pair phones, for information and file swapping, will take off. “It’s easier with NFC than with Bluetooth,” he said.
NFC already plays a big role in paying for mass transit in San Francisco, London, Los Angeles and other cities.
Bottom Line: As NFC shows up on more phones, it just may find its way to more uses. Including payments? There is not much optimism about that – the too many mouths problem persists -- but even that cannot be entirely ruled out at this early stage in the development of the technology.
Grab a chair and watch: the e-wallet wars will only get more brutal and, right now, it is way too early to tap winners or even the losers.