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Racing To Claim The NFC Mobile Payment Market
November 3, 2011
Near field communication (NFC) mobile payment is quickly being pushed into the mainstream around the world. It offers the convenience of paying using just your mobile phone, and has the potential to completely eliminate the need for wallets. With NFC, people can make instantaneous payments and financial transfers just by tapping two devices together.
With over 5 billion mobile phones in use worldwide, and over 500 million in just North America and Europe, there is undoubtedly huge market potential for NFC payment services.
Over 1.2 billion NFC chips are expected to be shipped by 2015. And, Juniper Research released a report this year, anticipating $50 billion in NFC payment transactions by 2014. The U.S. and Europe are expected to spearhead the mobile payment movement with East Asia following closely behind.
Thus, card services, mobile device manufacturers, and wireless service providers should all consider entering the U.S. and European markets first both to have an edge over competing applications when expanding to other countries. They will gain the experience of working with an NFC mobile payment system, as well as understand how to overcome the market barriers discussed here.
In the US, implementation of the NFC payment method has primarily been driven by Google, MasterCard, and Citibank. Their NFC capable Google Wallet is accepted at over 300,000 merchants. Other providers and card services are fighting to catch up with their pilot programs.
Visa has launched their own digital wallet, which they are piloting with Wells Fargo and a few other banks.
Verizon, AT&T, and T-Mobile have joined to form ISIS, which will directly compete with Google and Visa’s wallets. HTC, LG, Motorola, RIM, Samsung, and Sony Ericsson have all agreed to implement ISIS in their phones, and Visa, MasterCard, Discover, and American Express have all signed on to be “cards in the wallet.”
There are many barriers and question marks preventing widespread entry of NFC into the market immediately.
It is unclear who will get the most revenue and be in control of a NFC payment system, or “wallet.” Will it be the wireless provider, the card service provider, the bank, or another party?
Different “wallets” are competing to be an industry standard. Will there ultimately be one standard or many different standards? Each scenario comes with its own unique challenges.
With one standard, would a company or group of companies hold too much access and control over a person’s funds?
With multiple standards, how will interoperability between different “wallets,” carriers, cards, and phones all be managed? Some wallets are also open, like Google Wallet, whereas others like ISIS are more proprietary.
Finally, security with wireless data is always a concern. Multiple levels of security will be necessary from the phone manufacturers, the application developers, and the customers themselves.
There are other barriers too, which do not pose as much of a problem. They will naturally be overcome as the industry grows, and do not appear to be a major impediment.
Consumer adoption should not be difficult. Most consumers are open and like the idea of using the mobile phone as a form of payment. It’s simpler, and it is one less item to carry normally.
There are mixed responses from merchants, but based on our own experience merchant adoption should not be a problem. NFC is more than a credit card replacement, and it offers merchants the opportunity to foster relationships with their customers. Participating merchants are already offering special deals through Google Wallet and Google Offers.
The technological infrastructure is readily available and only needs to be widely implemented. Many smartphones are already manufactured with NFC capabilities. The only requirement for POS devices is that they also need to be equipped with NFC hardware as well as an app for accepting payments. This could even eliminate many cash register and card swiping systems further into the future.
There is also currently a debate over the best type of bridge device: SIM, embedded, or MicroSD. China Unicom and UnionPay promoted RF-SIM cards in the mainland last year, however, the trend indicates that most devices will be fully capable of NFC in the near future, i.e. have an embedded bridge device.
The ISIS “wallet” also brings up the question of how management of an NFC mobile payment system should be regulated. Most argue that it should be an organization separate from the wireless providers.
If wireless providers also regulate your wallet, it could lead to issues accessing the money. The site “NFC Rumors”, brings up an apt point, “If [the mobile network operator] shut down service to your phone you would not be able to make payments for daily groceries.” If such a dispute went on for an extended period of time, it could mean that you no longer have access to your funds until the situation was resolved. This could be problematic in any number of ways.
By comparison, the Visa Digital Wallet as well as Google Wallet are open forms of software. This means they are ready to be used on any network, with any phone, and any financial institution.
Also worth noting, the world’s largest card service payment provider, China UnionPay, has only focused on the Chinese market so far. They have not made any public announcements concerning their goals for adopting NFC service in the west even though they are currently creating alliances with network providers to accept their debit cards. They also have not joined the NFC Forum, a large collaborative group promoting and standardizing the use of NFC.