5% of the base of 600-650 million near-field communication (NFC) equipped phones will be used at least once a month to make contactless in-store payments at retail outlets, as per a new forecast by Deloitte as part of its TMT report. This compared with monthly usage by less than 0.5 percent of the 450-500 million NFC-phone owners as of mid-2014 shows a 1000% growth. Deloitte expects that 2015 will be an inflection point for the usage of mobile phones for NFC-enabled in-store payment, as it will be the first year in which the multiple prerequisites for mainstream adoption – satisfying financial institutions, merchants, consumers, technology vendors and carriers – are sufficiently addressed.
For financial institutions (card issuers and banks), NFC in-store phone mobile payment offer continuity and improvement to their business models. They levy a commission on the transaction value, which they may share with a handset vendor or other entity. They underwrite the risk on the payment. Account holders are subject, with one of approaches used, to the same transaction limits as with a physical card and the repayment terms for credit card holders are the same.
The core advantage with any contactless smartphone transactions is the potential for greater security, when payments are made with phones featuring either built-in (via hardware or software) or SIM-based tokenization capability. When someone pays using an NFC-device, the tokenization facility creates a unique code (known as a token) which is sent from the device to the merchant’s NFC-enabled till. The credit card number is not transferred which means in the event of a breach, only card information used in traditional transactions would be exposed.
For merchants, NFC-equipped phones can enable fast and, with some systems, high-value transactions . All forms of payment have friction points: cash requires change and credit cards require PINs or signatures; but contactless payment requires only a card or device to be placed on a compatible reader. A fundamental benefit with some contactless smartphone payment systems is that the spending limit can be the same as the account holder’s credit or debit card limit. By comparison, contactless cards typically have a payment threshold and a transaction limit before additional identification is required, so as to mitigate the impact of a stolen contactless card.
The existence of hundreds of millions of contactless credit and debit cards should not constrain the usage of NFC-enabled smartphones as an additional means of payment. Deloitte expects that when offered a choice, about 30 million individuals may opt to pay using their phone instead of a contactless card.