Don’t get me wrong, I really like mobile NFC. Or at least, I like the idea of it. NFC can act as a fast, simple mobile wallet. It also has plenty of potential as a brand interaction channel. Touch in for ticketing, touch in to receive further brand information, touch in to join the in-store WiFi, touch in to leave your contact details. The possibilities are almost endless (there’s a good paper from the GSMA on the opportunities here). However, there’s a big problem with mobile NFC. Consumers, (and for that matter some retailers) just aren’t that bothered about it.
What Do We Know About the Success of NFC So Far?
- There are 200 million NFC enabled handsets*
- 300 million NFC enabled mobile and tablet devices predicted to be sold in 2013*
- 4 million NFC enabled retailers (100,000 in the UK) in 2013*
- The global value of mobile NFC predicted to be $50bn by 2016* (or $74bn by 2015**)
200 million handsets sounds good. But to put that in perspective, it’s less than 4% of all handsets (and the audio tagging app, Shazam has 300 million regular users). NFC has a long way to go before it is as ubiquitous as Bluetooth, which is in 80% of all handsets. And the stats don’t tell us how many people actually use NFC. Unfortunately there is no published information that states the number of people regularly using mobile NFC (I would guess at about 10% of those who have it on their phone, but if anyone has got better data, then please tell me). If the uptake of NFC was high, I would expect that the providers would be shouting about it. Square, another mobile payment system did $4bn in 2012. How does that compare to NFC? My estimate is that mobile NFC payments are much less than that (feel free to correct me if you have accurate figures).
Will NFC Ever Happen?
Whilst there are plenty of predictions of exponential growth in NFC, there’s little evidence that it is actually happening. At best, we will see an incremental growth in users, rather than the exponential growth that some have predicted.
So why is NFC failing to take off? For starters there’s the retailers. Only a minority of them take contactless, and when they do, it’s not made obvious to the customer. The other day I was in a certain sandwich shop, and wanted to pay by contactless. First, I had to find the machine. It was buried under some packets of crisps. Then I had to ask the till assistant to turn it on. Except that they’d already got the chip and pin machine ready to hand to me. It is exactly this kind of experience that make’s consumer wonder, ‘what’s the point’? NFC ought to be a highly usable and frictionless experience, yet in practice, it rarely is. It now seems that some retail giants are far from convinced of the benefits of NFC (see below).
The other issue for consumers is one of trust. Banks will go to great lengths to tell you how secure contactless payments are. However, the problem is one of perception. Consumers feel it is not secure and they don’t trust the banks when they tell them otherwise. So it would seem that the payment providers are much keener on NFC than consumers. Or as someone once said: ‘NFC is a solution looking for a problem.’
Some people blame the lack of NFC in the iPhone as the reason it has yet to go anywhere in mobile. It’s certainly true that Apple users have driven a lot of mobile usage in the past. However, not only are there now considerably more Android phones than Apple’s offering, but usage of apps and web is similar to those of the iPhone. Arguably, Android is just as likely to drive usage as iOS. It now seems unlikely that Apple will ever implement NFC, with their focus on developing their own wallet rather than a retail payment mechanism.
What about mobile NFC outside of payments? In the UK a number of the outdoor ad companies are sticking NFC points all over the place, especially at bus stops. That’s quite a strange thing to do. Ask any OOH warrior and they’ll tell you that most bus stop advertising is aimed at the people going past in their cars, not the people waiting at the stop. The point is that brands are failing to show examples of useful, engaging NFC experiences that will demonstrate the benefits to consumers.
Failing to Solve Problems
NFC doesn’t really solve any pain for consumers. Arguably if it was going to be adopted widely, then it would have happened by now. A representative from the supermarket, Tescos recently stated that NFC is too complex and offers too few benefits for it to go anywhere. A key point was that consumers are now looking for a payment experience entirely within their mobile device. Think of the Starbucks loyalty app or Pizza Express’ mobile payment system. And from a brand perspective that also makes a lot of sense. Building payment into an app is a good bit of behavioural economics, which takes away the ‘pain of payment’. Think how Amazon One Click or iTunes do it. Some supermarkets, such as Sainsbury’s are already experimenting with apps which allow consumers to scan and purchase in-store all through their mobile.
My view is a UK/Euro-centric one. NFC has the opportunity to bring simple payment systems in emerging countries. A number of commentators have pointed to the success of contactless systems in Asia (still no data to demonstrate it, though). However, it’s dangerous to assume that what happens in some Asian countries can be applied elsewhere. In Europe, at least, there doesn’t seem to be much good news for mobile contactless. Much as I like NFC, it seems as if consumers really don’t care about it, and the opportunity for the channel may now have passed.
The UK credit card company, Barclaycard are rolling out their PayTag NFC stickers to millions of customers in the hope they will attach them to their phones. The company has already been sending them to a selected few, but the recent announcement will see that scaled up to significantly more customers.
But is this a good thing for mobile NFC? This could certainly be a good way to introduce users to tapping their phone in to an NFC terminal to make a payment. However, unlike mobile embedded NFC the PayTags are essentially dumb chips that do not link to the the phone and have limited capabilities. Currently that capability is a £15 payment (rising to £20 in June). Native NFC is capable of doing so much more. It can link to a website, launch a video, add loyalty points, be used for event or transport ticketing.
In the UK the major supermarkets are rolling out NFC terminals as well as commitments from Transport for London to include mobile ticketing in their contactless system. The danger with PayTags is that it does not benefit the user significantly enough to encourage mass adoption of NFC.
Always ones to be pushing the tech boundaries, the US version of Wired Magazine has included an ad from Lexus with NFC embedded in it. With around 3 million NFC handsets in the US, they are hoping that some of their 500k readership will be willing to ‘touch in’ to the advert. The activation takes users to a link with videos which introduce the Lexus app suite which includes Bing, OpenTable, iHeartRadio, Pandora, MovieTickets.com and Yelp. For Wired, it’s as much about being experimental as it is about gaining a response. But who knows, maybe all magazine ads will be like this one day.
Unsurprisingly, one of the big themes at WMC last week was NFC or contactless. Sure, there were payment devices, but there were lots of other whizzy applications showing how NFC in phones is much more than a mobile wallet. Here are just a few:
NFC Vending Machine – touch in to buy your drink
NFC flowers – touch in to find out what the flower is and how best to look after it
NFC Car – OK, this was a car mock-up, but showed how contactless could be used to unlock a car and as an ignition key. This is very useful for car hire or car sharing where the NFC could be restricted to a set time period.
Of course, there’s so much more that could be done with the technology. To try to find out, Isobar London Create are running a hack day on 24/25th March, in London and partnership with O2. Any would-be developer can turn up, demonstrate their skills in an NFC environment and be in with a chance to win a number of mobile devices and other goodies. And anyone who comes up with a great application could be eligable for Kickstart funding from Bluevia. There’ll be lots of NFC tech and expert support to help developers through the Hackathon. There’s more information at http://www.isobar.com/createlondon
Last week, Google launched their contactless payment system, Google Wallet. They are initially trialling it in two US cities, New York and San Francisco. Besides a simple touch to pay wallet, it will also include the facility to hold and redeem vouchers on the phone. There has been a mixed reaction to Google’s Wallet though. Here is a run-down of the good and bad points about their NFC offering:
What’s right with it
- Google has the traction to make NFC payments happen. Whilst there are many companies in the mCommerce space, it takes a Google (well, Google) to get it into the mainstream. Given the number of providers getting into the sector, Google will help consolidate the market.
- Low cost of transaction. From a merchant perspective this could be the killer app. Google are not interested in making money from this but rather, using it to develop their search marketing base. They are therefore only charging the standard card-holder present fee. Compare that to the transaction costs of Premium SMS (35% or more), and Google Wallet become a bit of a no brainer. What’s more, for launch they are giving away the terminals and $100 worth of free transactions.
- Vouchering and discounts. Wallet ties in very neatly to Google Offers. In fact there are some that believe that Offers isn’t about beating Groupon, but rather connecting it to NFC. The idea is that Google Wallet users will receive offers that can be redeemed by touching in to a contactless terminal. As one commentator put it, it will ‘close the loop’ in the offers/payment system for merchants, and reduces the effort of having to print out or show vouchers for customers (http://searchenginewatch.com/article/2075862/Google-Offers-and-Payments-Its-all-about-Search).
- It goes well beyond payments and vouchers. Google wallet isn’t just a payment card, or an offers network. It will also be a ticketing mechanism, travel card and could even replace your house keys and let you into your home. Worried about losing your phone (and ergo your wallet and your house keys)? Google point out that people take more care of their phone than their keys or wallet. We know where our phone is most of the time, but do we know where the other items are? And the advantage of it being held electronically is that you can both quicky ‘cancel’ your keys and get a replacement. Much cheaper than a locksmith.
What’s wrong with it
- Getting sued by PayPal. OK, tech companies are always getting litigious with each other (just look at Apple and Samsung), but the legal threat from such a major payment competitor will make roll-out more complicated (http://www.webpronews.com/paypal-sues-google-2011-05).
- Lack of terminals. Obviously for NFC to work, there needs to be enough terminals in retail outlets. Google are intending to use Mastercard’s PayPass as the reader. There are already 120,000 of the devices in the US – that sounds good, but in terms of retail coverage that’s a pretty tiny percentage of outlets. Some commentators believe that terminals will need to become ubiquitous to achieve mass adoption.
- Fragmentation. The market is already becoming divided. First off there is the operating vs operating system wars. RIM have already launched an NFC handset in the states, Orange and Barclaycard in the UK. And everyone knows that Apple is developing their offering in that space. Outside NFC, Square is making great gains and recently launched their CardCase which allows users to easily make payments through their phones. It is far from a given that Google will own the contactless space .
- Issues with Privacy. As one commentator said, it will be the end of anonymous shopping. That isn’t simply about being able to hide embarrassing purchases. It will be about freedom from being followed round by advertising. Google’s revenue model is all about advertising, so the primary reason for getting into NFC is to use the data to further ad revenue, particularly behavioural targeting. Google will know everything about your purchasing habits both on and off line.
- Concerns over security. It’s the question almost everyone asks when first told about NFC. What about security? Google have certainly addressed the issue by keeping the credentials separate to the OS along with a robust encryption.
That’s still doesn’t detract from user concerns. Most people wonder if it’s possible to snatch a payment just by walking past someone. The answer is of course ‘no’. Both the proximity (4cm) and the encryption makes that hard (Google would say impossible). However there are some industry experts who also think that many hackers will try to compromise the system (http://www.eweek.com/c/a/Security/Google-Wallet-Security-Solid-Until-its-Hacked-566798/). After all, Android was hacked just a few months ago.
- Developer unfriendly. Fair enough, it’s a mobile wallet so you can’t exactly open up the data to everyone and their dog. However, that also means that Google is looking to succeed without the support of a developer community (http://www.i-programmer.info/news/81-web-general/2519-google-wallet-developer-unfriendly.html). That will make the whole thing much harder to realise. Surely there must be some kind of API that allows developers to interact with the wallet but raise security problems?
Linking the Wallet to their search and offers is a shrewd move by Google. Search is what they know. In the end, the success of Google Wallet comes down to one thing – consumer adoption. If the public believe that it makes life easier, is genuinely secure and that they won’t get endless offers they don’t want, then it may well be a success.
Orange and Barclaycard have been promising contactless payments in phones for over a year. They finally launched the UK’s first NFC phone last week. It will first be available on a Samsung Tocco Lite on both pay as you go and monthly and the payment facility (called Quick Tap) can be set up by Barclaycard or Barclays Debit Card customers. NFC works much like an Oyster Card (for those of you who’ve travelled in London), whereby you top-up your account with up to £100, and can make single transactions up to £15. In essence it’s like cash, but without the pocket full of coins. The contactless payments can be used at 50,000 stores, including Pret a Manger, EAT, Little Chef, Wembley Arena, Subway, Wilkinson and McDonalds.
Consumers often raise the issue of security with NFC. Could someone just brush past and deduct a payment? No, because the data is encrypted and can only be read at terminals. In fact, the NFC chips have been available on Barclaycards for some time, and there are no examples of that security being compromised. What if someone looses their phone, could someone just spend the money? Not really. If you lost it will all £100, once you tell Barclays the payment facility is cancelled and the money refunded. If you went out with £100 cash and lost it, you’ve lost £100. That doesn’t happen with contactless.
In spite of that, there are understandable consumer concerns about security, which is why users can add a pin number, making the contactless facility more like a traditional chip and pin. Will contactless catch on? Certainly Orange and Barclaycard have massive confidence in the scheme, and will be rolling out other handsets shortly (lets hope one of them is a decent smartphone). The potential of contactless as both a payment and marketing channel is there, however there is one big but. Consumer adoption. In spite of large investments in mobile NFC by banks, operators and handset manufacturers, there is little evidence that consumers are demanding contactless payments. Pushing technology to consumers does not a promise of success. The world of mobile is littered with failed technology (mobile TV, video calling, any Nokia phone in the last three years …). What is disappointing with the Orange/Barclaycard offer is that neither the handset nor many of the brands involved are exactly cutting edge (contactless in a Little Chef???). True, you have to start somewhere, but this isn’t going to reach the kind of social opinion formers who will evangelise about the technology. Maybe it will all happen with a contactless iPhone 5!
With all the talk of mCommerce and contactless (NFC in particular), a war between the operators and handset manufacturers was always on the cards. It looks like it’s beginning to kick off. The Wall Street Journal reported on Friday that RIM (BlackBerry) was ‘locking horns’ with operators over who controlled the NFC customer data. The issue is about where ‘credentials’ (the encrypted personal payment information) will be stored. Will it be on the SIM card (operator) or the phone memory (handset manufacturer). This is much more than a row over a technical function, as the customer will be tied either to their network or handset depending on how this data is stored. Whilst RIM talked about their close relationship with operators at the Mobile World Congress, one senior figure at Bell Canada recently stated “we expect some closed operating-system vendors will probably try to build into the handset. RIM and Apple fall into that category”.
The problem from an operator perspective is that whilst revenues are being squeezed, customers are demanding much more for their money, in particular they want more data. How do the operators make more money in already saturated markets? The answer is through providing mCommerce. In order to do that they will need to invest in expensive security infrastructures, making it even more critical to keep their customers with SIM-based credentials. On the other hand, we have increasingly seen handset manufacturers and handset operating systems define the mobile market and mobile content. The two that have done most to drivfe this change are Apple’s iPhone (and appstore) and Google’s Android.
My money is on the handset/operating systems winning out. Apart from their obvious success in defining the mobile content channel, they seem to have the revenue model right. Operators tend to charge consumers or merchants/content producers high transaction charges – look at app stores before Apple (£1000 + to get your game listed) and the low payouts on premium SMS. On the other hand, Apple and Google are past masters at the freemium model – get something for free and pay if you like it. And there’s no question about which model consumers prefer.
The latest proof that NFC (Near Field Communications) or contactless payments will be big in mobile comes from BlackBerry. First, leaks from Google showed how they had big plans for contactless payments and advertising. Then there was the evidence pointing to Apple’s inclusion of NFC in the iPhone 5. Now, RIM, the Canadian company who manufacture the BlackBerry have once again confirmed their commitment to contactless. UK MD Stephen Bates, said that NFC would be in “all of our new devices moving forward”. Pretty conclusive.
With a commitment from the handset manufacturers, card payment companies and mobile operators it looks like there’s little to stop NFC. Well, little apart from consumer adoption.
All the signs are there that the next iPhone will include contactless:
- Richard Doherty, director of consulting firm Envisioneering Group who work on NFC hardware, told Bloomberg that the next iPhones/iPads will have NFC.
- AppleInsider has discovered that Apple this week put out a call for an engineer with NFC experience.
- Apple filed a number of NFC related patents in 2010.
Aside from all these signs, NFC makes a lot of sense for Apple. At the moment their itunes store pays massive transaction charges for purchases bought on credit cards. Though highly profitable, it would be much cheaper for Apple to see more NFC payments which would debit a bank account and reducing their transaction costs. Google have already added NFC to their Nexus S, but the addition of a contactless iPhone will make the technology almost inevitable.
The infrastructure of contactless is appearing in many countries – aside from Japan and Korea who have had contactless phones for years, the US now has 750,000 contactless payment terminals. In the UK similar NFC devices are being rolled out in numerous shops and restaurants where there are 42,500 contactless payment points. Barclaycard and Everything Everywhere (Orange and T-Mobile) re-announced their plans to deliver a contactless handset from April 2011. With the payment technology added to phones there technological barriers to contactless will be removed. Of course, there is still one big ‘if’ with the whole – will users want to adopt it? It looks like the handset manufacturers (and banks and operators) are assuming they will. However, mobile is littered with technologies that users weren’t interested in (in spite of Face Time, how many people actually make a video call?). When it comes to NFC payments the big question from users will be security. How easy will it be for someone to get hold of my money?
I really can’t make up my mind whether this is the best or the worst idea ever. It’s the NFC shoe. Fashion house WeAretheSuperlativeConspiracy (there’s a catchy name if I ever heard one), have embeded an RFID chip into a shoe. It allows the wearer to walk over pads to trigger a number of actions: take a photo and send it to Flickr, add a friend to Facebook. I’ve never been one for wearable technology – most of them make people look stupid, but this has the advantage of being invisible. Given that the next couple of years will be big for contactless, maybe, just maybe the contactless shoe will catch on.