To me is seems like years ago, when I wrote about NFC and extolled the various virtues of this technology. And then, magically I expected the world to be all things NFC. And then, I began to wonder – where the heck is this NFC?
Well, where is it?
Short answer is that it’s coming and is around the bend. Depending on whom you ask, that bend is at various distances away from them. And for some, there is no bend at all.
I wouldn’t say NFC is in trouble, but it will be a while before NFC becomes mainstream in the US. While I had highlighted many applications for NFC, I was mainly bullish on the use of NFC in the realm of mobile payments. Today, there are many applications that use passive NFC, where the user “taps, pays and goes”. But these applications have thus far been limited to mass transit for the most part.
We are still behind the curve on mobile payments. Google Wallet was the first mobile payments initiative in the US that tried to bring NFC to the fore. To this effect, Google, in partnership with Citi and Sprint, released the Nexus class of phones that had inbuilt NFC features. But its scope has been very limited as it addresses only fraction of the TAM (only Sprint subscribers who have Citi).
Then we have the NFC based, carrier run, ISIS initiative that has gotten really big and is more of a consortium now. The ISIS consortium now includes (in no particular order) – AT&T, Verizon, T-Mobile, American Express, Discover, MasterCard, Visa, Capital One, Barclaycard and Chase. These are brand name companies and surely that means something. But, ISIS is late to market. It was supposed to have launched a pilot last year (July 2011), and now it seems like this pilot will go live in Salt Lake City and Austin in July 2012. There’s a lot at stake and it seems like ISIS is preparing the groundwork for a successful launch. It remains to be seen, how ISIS fares. From a NFC point of view, a lot is riding on ISIS. The success of NFC as a viable form of mobile payment is not necessarily dependent on ISIS, but a good launch will certainly add to the NFC aura.
There are a few things to consider though –
- A large consortium does not guarantee success. It could well bog ISIS down as each player weighs in with their take on the NFC based mobile payments.
- Amex, Visa, MasterCard etc have all launched other forms of mobile payments. So, there is an element of co-opetition here. Although, from a payment networks perspective, I am sure they will gladly take any incremental payments through their networks.
- For the issuers, it is again a win if this takes off. More spending will mean the prospect of more fees and a platform like ISIS may allow them to reach out to expand their reach.
- ISIS will need to sign up more merchants to expand their reach. The will have some willing help from the payment networks, except that there is going to a conflict at the POS. Merchants are already being subjected to many mobile payments plans – PayPal, Google Wallet, V.me, PayWave, PayPass etc and have to decide which schemes to support. Each requires an intervention of sorts – from software development, customizations, new payment terminals, training, additional storage etc., all of which will add costs. With wafer thin margins in the retail space, retailers will weigh the pros/cons of each schema before strategically investing. Google Wallet at last count had signed up 140,000 retailers. ISIS is not even close. Even PayPal, which in not NFC based does not have quite the retail reach as the Google Wallet. It is quite likely that the investment in retail POS enhancement will be borne partly if not in full, by the forces that are pushing the mobile payments.
- Execution is key. And winning the mindshare of the customer is paramount. Vendors, consortiums, alliances etc., will need to work really hard to get customers to use their phone as a wallet. IMHO, this is going to be the most important aspect of the success of mobile payments in any form, let alone NFC.
So, ISIS has their hands full.
For NFC to succeed, I think the roll out should be very strategic. Instead of investing heavily across all channels, it would be more prudent to invest in channels where the propensity for adoption of NFC will be high. One such channel would be mass or rapid transit. In parallel, NFC could be used to verify ID’s and be used for secure access, say for doors or even laptops. The thought here is to slowly and steadily have customers to use their phones to interact with the physical world in the context of access, identification and payments. AR (Augmented Reality), Mobitography (photos, QR codes etc), Haptics, GPS, LBS (Location Based Services) are a few ways customers are using their phones to interact with their surroundings today.
Of all the mobile payments schemas out there, NFC has the best chance of succeeding due to its applicability across various channels. But it could very well fall flat if there is no or very little consumer adoption. The US lags behind in NFC. Countries like Japan and Korea already have a well established NFC ecosystem that should be studied and leveraged.
In some of my next posts, I will try and cover the progress of NFC in other countries. Stay tuned…