This post is the concluding part to my NFC series (Part 1, Part2). This is rather long post, so bear with me. I am excited about this technology – the conversation about NFC has just begun. So, join in!. Here we go…
Hopefully, it is evident that NFC is nearer than you think it is. IDC in their Top 10 Semiconductor predictions (Feb 2011) mentioned NFC as their #7 pick and defined NFC as a “New Connectivity Technology”. And it is! Paradigms are going to change as the NFC asteroid hits earth.
Here are some facts about NFC.
- US Mobile payments market is projected to reach $56B by 2015. NFC based payments will have a significant stake in this market.
- North America will be the top NFC market by 2016. Total estimated mobile transactions will be around $113 Billion with NA taking in around 42% share. Far East and China will account for around 31% of these transactions while Europe will account for approximately 20% of this business. Source – Juniper Research
- 10% of cell phone users in Japan already use their phones as mobile wallets.
- 1 in 5 smart phones will have NFC by 2014.
- Bank of America is piloting a contactless mobile payment system called Mobile Wallet exclusively for the Blackberry platform.
- Spanish telecom company Telefonica is planning to outfit all of its 12,500 employees in its headquarters in Madrid with NFC enabled phones and is essentially creating a NFC district.
- NFC chipsets have become cheaper and it is estimated that most manufacturers will end up designing in these chipsets into their mobile phones. The NFC chipset market is expected to hit the $500M mark in 2012. There is more growth forecasted.
- AT&T, Verizon and T-Mobile (AT&T) have teamed up to form a m
obile commerce JV called Isis, which is a carrier based platform that allows for contactless mobile commerce (mostly mobile payments at retail stores). They plan to pilot this in Salt Lake City sometime next year. But just recently Isis changed course (05/04) and now the carriers have included Visa, MasterCard and Discover to augment the network. The initial plan was to go at this alone, by creating carrier based mobile-wallets.
The above factoids are just a snippet of what’s happening in this space.
Many phone manufacturers have already committed their next line of smart phones to NFC. Google’s Nexus S, Samsung’s Galaxy II, Nokia’s Astound, recently announced BlackBerry’s Bold 9900/9930 devices are a few examples. More are yet to come. With one notable exception though – Apple! Speculation is rife about the inclusion of NFC in iPhone5. Apple has remained cagey about this. I think that Apple will design in the NFC chipsets into the iPhone5, but may chose not to enable it at launch. Sometime after launch, they may release a patch to enable the NFC feature. The inclusion of NFC in iPhone5 will accelerate the adoption of NFC for sure but the exclusion of the same will not impede the momentum NFC has gained in the last few years.
There could also be another motive – Monetization! Unless cell phone manufacturers strike up a deal with payment processors such as Visa or MasterCard, there is no way the cell phone folks could get a piece of the POS action. After all, an NFC enabled cell phone is technically an extended POS and for the ability to allow for mobile transactions, cell phone manufacturer’s are well within their rights to demand a piece of the POS transaction. That could also be another reason for Apple being cagey on NFC, as perhaps it is working all angles to ensure a share of the POS cash-flow.
Speaking of payment processors, Visa is aggressively pushing the “Digital Wallet” paradigm that stretches from the web to the mobile phone. This is a ‘One Login; One Password” model that will enable end-users to essentially shop online without filling out any forms on merchant websites. And when offline, end-users can use their cell phones to make payments – using NFC technology.
Furthermore, Visa also recently announced a €100 Million annual investment in Europe to enable m-commerce. In emerging markets, this is a huge untapped opportunity where most retail shopping is based on cash-transactions. Converting these transactions to mobile based transactions could prove to be a windfall for payment processers. The other reason why Visa, MasterCard etc are making large investments in this area is to protect their revenue streams. With NFC and mobile-banking, service providers will have access to end-user bank accounts. For example, what if every purchase made in the Apple store is paid straight from end-user bank accounts? That’s a great deal for Apple (less fees), maybe not such a good deal for the end-customer who’s used to paying via credit, and it’s an absolutely crappy deal for payment processors. They will be taken out the equation completely. My take is that for payment processors NFC is a great opportunity as well a huge risk. If these guys don’t manage this risk and opportunity in the right manner, we will see the sinking of a few more ships in the marketplace.
But are there any concerns with NFC? Sure there are. What about security? This issue has gotten a lot of attention. A lot of sensitive information is going to be passed through the reader-tag air gap. Studies have been done showing that it is quite easy to snarf this information by a well placed reader. So what’s the answer? It’s data encryption at both the hardware and software level. With so many big players entering this space, my guess is that security is something is that they are closely looking into. A robust ecosystem and several proof-of-concepts have established this risk to be minimal.
Yet another hurdle for NFC would be the vast ecosystem that needs to be developed to help enable and perpetuate this technology. SMS based payments, mobile internet and mobile apps could very well eclipse NFC. In emerging markets and economies that lack payment/internet infrastructure (like many African countries for example), SMS based payments have a solid presence to the extent that in some countries there is a new form of currency – ‘mobile currency’. Therefore, IMHO NFC will establish itself first in developed economies before migrating to developing economies.
The ramifications of just this technology are astounding – to the end-user, intermediaries, merchants, banking, service providers and the like. There is a lot of wind behind the NFC sails and this boat is sailing fast! Question is – are you on that boat?