October 2, 2013
NFC usage in payments continues to get delayed for various reasons (below) and mobile payment pundits and maybe consumers as well are left high and dry. Its even felt that the companies working on making it happen seem to be having a significant doubt for the first time about NFC's future.
1) Large retailers in US are going slow on NFC. They are evaluating options and therefore POS NFC adoption is getting affected. They invested in the POS terminals for plastics and now to replace all of it for a not-so-robust adoption rate of NFC is a non-starter. They are debating Durbin impact and interchange fees.
2) NFC terminals penetration at the POS remains low also because of the high cost of the NFC terminal. It is putting a big question mark for the fast adoption. Starting from $150 multiplied by numbers in each store, multiplied by number of stores, the costs are certainly high.
3) NFC phones are limited - If you keep Apple out of the equation it puts a big question mark on the adoption especially in the US where iOS still dominates in the upper end of the market. Analysts lowered the forecasts for NFC. Btw, thats the customer base that would be great to have on your side. Some companies are working on using NFC tags to make any phone (even iPhone) work with NFC at as low as $2. Are they secure, do they work all the time, what if they get lost are some of the questions being asked.
4) Some of the biggest names are taking multi-tech approach - Paypal is going the mobile wallet, online and app way. Visa and Mastercard are supporting multiple enabling technologies. Even Google wallet recently showed signs of change w.r.t. NFC when it launched the iOS app. Google wallet is becoming a place where you store cards, have location based marketing, take advantage of rewards, offers without having to carry all that plastic and remembering pins.
5) Other options - With the success of Square (plastic reader), LevelUp (QR codes), Clinkle (sound waves), Dwolla and Venmo (email, online, remote payments), there are plenty of other enabling technologies being used. There is enough of the 'non-NFC' innovation to talk about, tons of non-NFC startups and investment happening in those other areas. Somewhere the limelight is shifting.
Now there is also an Apple alternative that works upto 50m range, against NFC's just 20 cm. And is available on all phones - Apple BLE iBeacons
LTP view: The lack of appropriate NFC infrastructure is hampering the growth and attractiveness of NFC payments beyond doubt. Significant investment ($1B+) and efforts put in by players/systems such as ISIS and Google Wallet should definitely reap some benefits. In some countries contactless payments are doing very well - In France, UK, Australia and Poland volumes of contactless transactions are exceeding 20% (by volumes). So all is not bad. NFC still has a lot of promise.
Some of the issues need to be addressed. NFC terminal costs can be brought down significantly. A low cost solution such as iKaaz in India has come up with a $20 NFC terminal (basically converts your mobile into a NFC POS). This is a typical hardware pricing vs volumes vs adoption game that has to be player well.
NFC's non-payment applications are looking great though. Example is that of Tapit. NFC could become a potentially great method for identification such as at airports, police and hospitals etc. Or in areas such as - for controlling environment at homes and in the cars.
Well, the NFC debate will continue for next 12-18 months. We don't have a crystal ball to predict the future yet. Remember the richest man in the world said forecasts are almost always wrong.