There is an argument in the mobile payments sector that goes something like this: “Near Field Communication (NFC) will transform retail and benefit shoppers and retailers” – or – “NFC is a technology solution looking for a problem”. NFC is certainly not just about retail transactions, as it does have other uses, but it now looks like retailers are saying enough is enough.
Over the decade that NFC has been developed and promoted, it has promised much but delivered little. Is it any wonder that Apple has failed to include NFC in any of its devices? What do they know that the other mobile companies don’t (or refuse to recognise)?
This week, US retail giants Best Buy and 7-Eleven have announced that they are turning away from NFC, according to a report on Compterworld. It would appear that the reason is based on a number of factors, not least being that a number of major US retailers are developing an alternative mobile solution based on barcode scanning.
First, there’s the poor customer take-up and usage of NFC applications (which require an NFC-equipped phone, although special smart cases are starting to appear). Then there are the higher than average transaction costs being charged by banks – retailers are constantly complaining about merchant fees and will often charge customers a surcharge for using credit cards for small value transactions, so any hike in rates for NFC payments is likely to be met with resistance. Add to this the ongoing tussle in the US market between Google and Isis to create the de facto NFC ecosystem. It’s not a recipe for success.
“NFC was enabled at some 7-Eleven locations several years ago,” said Margaret Chabris, director of corporate communications at 7-Eleven, as reported in Mobile Commerce Daily. “As these older PIN pads have been replaced/upgraded, we have chosen not to invest to enable NFC. This decision was made based on several factors, but it is difficult to build the business case given low customer acceptance, transaction costs and other factors.”
Instead, the Merchant Customer Exchange (MCX) has been created to create a competing mobile payments platform that relies on smartphones scanning barcode readers, and they want to roll it out this year. The MCX currently has around 70 brands with 110,000 retail locations that process more than $1 trillion in payments a year. As well as Best Buy and 7-Eleven, other members include Walmart, Sears, Kohl's, Lowe's, Dunkin' Donuts and ExxonMobil.
The NFC community, not surprisingly, is concerned about this move, and see it as a retrograde step. Isis, which was founded in 2010 by AT&T Mobility, T-Mobile USA and Verizon Wireless, relies upon NFC for its Mobile Wallet app to function as a mobile payment service.
“A handful of retailers are moving counter to the broader industry movement towards more secure payment technologies,” Isis CTO Scott Mulloy told Computerworld, simultaneously belittling the MEX and over-hyping NFC. “This affects millions of contactless [smartcards] already in circulation as well as new mobile wallet innovations. It's a massive step backwards.”
Isis estimates there are about 1 million sales terminals deployed in stores that support both contactless smartcards and NFC smartphone payments, equivalent to 15 per cent of all terminals in use in the US. But if we believe the reports this week, many of these terminals are being shut down and deactivated, either to save costs or because there is just no demand.
“There is not much difference between tapping or swiping a card,” added 7-Eleven’s Chabris. “For various reasons NFC-based mobile payments options have yet to gain traction, and NFC provides no real benefit to the customer over other less costly options. We continue to be a strong supporter of MCX and its approach to mobile payments.”
Starbucks (which, surprisingly, is not a member of MCX) has used barcode scanning with its smartphone-based Starbucks Card for three years, and analysts believe that up to 10 per cent of Starbucks’ revenues in the US are earned through mobile payments.
However, Isis is also coming under attack from Google’s decision to adopt Host Card Emulation (HCE) technology in the latest Android release for its Google Wallet service. Isis and its partners had a spat in 2012 with Google, resulting in it banning the service on its phones, as the operators wanted to retain control of the secure element inherent in NFC. With HCE, the payment security element can reside in the cloud, rather than on the phone’s SIM card or integrated processor. In other words, HCE cuts out the middle man – the mobile operator.
To muddy the waters even further, Google launched a physical smartcard last November, with analysts seeing this as an admission that Google Wallet can’t rely on just NFC.
It’s a tough to predict the future of mobile payments – other than to say that it is sure to happen in one form or another. Will operators play a part? Will NFC empower transactions? Or will retailers have the last laugh?
As for NFC, it may be best suited to other applications like marketing and ticketing. Every analyst firm has its own take on the NFC market, and you can pretty much find research to support whatever stance you wish to take – which is not very helpful.
Incidentally, the NFC Forum was established by Nokia, Phillips and Sony on 18 March 2004 (although Phillips and Sony first announced the technology solution in September 2002 – so a slightly belated happy birthday is in order.