Get all the best news and insights in payments everyday in your inbox.
/commentary
- BOKU Launches Complete Mobile Payments Platform for Mobile Network Operators: “BOKU® Accounts”
- American Express Moves Ahead of MasterCard; U.S. Credit Card Purchase Volume Marks First Double-Digit Growth Since 2007
- MasterCard Launches Partnership Program to Enhance Mobile Money Services for Underbanked Consumers in Developing Markets
- Rocksauce Studios Releases Brewski Me App “Tasting Notes,” Beer Enthusiasts Get Social
- Jack in the Box Inc. Reports First Quarter FY 2012 Earnings; Updates Guidance for FY 2012
Will Apple Get Us to Wave At the Point of Sale?
by Karen Webster
Reader Warning: My usually sunny demeanor has been replaced by a little crankiness, given an unfortunate, unintended consequence of the snow and ice that has plagued Boston for what seems like months now. Last Tuesday, I slipped on the ice and broke my right wrist. And yes, I am right-handed. The surgery Friday and a big cast that keeps me from doing even the simplest things with my right hand have given me a tiny case of the grumps. However, thanks to dictation software, I am somewhat productive and thought I would use it to write my reactions to the stuff I have been reading about my two most favorite topics: NFC and mobile phones.
The week started with an interesting article on CNN.com in which a number of analysts and the new CEO of the ISIS mobile payment system were quoted about its impact on the world. The analogy was made that ISIS is to payments what digital recordings are to vinyl records. Aite Group had a graph in the article that showed mobile payments volume growing from $10 billion in 2010 to $250 billion in 2015. Wow! Then, the Web has been buzzing over the announcement made by Apple that they will enable their iPhones and iPads with NFC functionality this year. Finally, analysts are saying there is proof that mobile payments powered by NFC will take off this year. (Related Article: Google, Apple, ISIS: Which Will Ignite NFC Payments)
I have couple of observations.
First, let's say that you completely concur that both of these announcements mean that NFC will ignite mobile payments. Does anyone really think that in four short years the growth in mobile payments volume will increase 25-fold (a compound annual growth rate of 190 percent)? Even with my case of the grumps, I find that figure so incredulous. The payments world version of the Immaculate Conception would have to happen in order to drive that kind of growth. Adopting and igniting anything new in the payment world takes time and has to solve the chicken-and-egg issues inherent in getting customers and merchants on board. Five years certainly is not enough time to create that kind of growth and ignition, which by the way provides the kind of real opening for solutions that are easier for consumers and merchants to use, like the Starbucks mobile payment solution that is being rolled out nationwide.
Second, I don't understand why the chicken-and-egg issue gets completely dismissed when the topic of mobile payments arises. My colleagues and I are firmly convinced that mobile will transform payments in a way that we haven't even begun to imagine. However, we also understand the complexities of igniting new payment types. Simply having iPhones and iPads that have the capacity to transact at a point-of-sale doesn't mean that they can or will – or will want to. Merchants have to install new equipment, and consumers have to be trained to use it, which all takes time. Will Apple's announcement cause merchants to think more seriously about upgrading their terminals sooner? Maybe for some, but the penetration of iPhones and iPads is very, very small. Just because you and the people you hang out with have them doesn't mean that most people do. Just to throw a little data at this, Less than 3 percent of the U.S.’s 276 million wireless subscribers use iPhones, according to Rob Havasy, a business analyst at the Boston-based Center for Connected Health [1].
Third, the interesting application of NFC isn't the ability to substitute a phone for a plastic card. There are millions of contactless cards in circulation today that no one uses, because there's no inherent benefit in tapping versus swiping. The potential for NFC is having a really smart computer chip interacting with my really smart phone and a really smart merchant point-of-sale device that provides a better experience for me before, during and after my shopping experience. No one talks about that. Until a value proposition that wraps value around NFC is really brought to market, not only will consumers lack enthusiasm, other more nimble, IP-enabled solutions will have an opportunity to leapfrog that technology. (Related Article: Nokia, INSIDE Secure and More Discuss U.S. Business Case for NFC)
Fourth – the other thing that no one talks about, maybe because it's too scary – is the real advantage that I see Apple having over ISIS, Google, PayPal and even Facebook. There are more than 160 million iTunes users in at least 23 countries [2]. That makes Apple potentially one of the largest alternative payments networks out there. Can you imagine the persuasive case that Apple could make by simply offering to bring merchants their iTunes account customers? That is a much more persuasive case to merchants than bringing 17 million AT&T subscribers using iPhones enabled with NFC chips [3] in their hands.
Fifth, the other interesting thing about Apple is that they actually have their own spiffy mobile point-of-sale solution that's now being piloted outside of Apple stores. It basically turns Apple devices into mobile electronic payments acceptance terminals. That really gives Apple an interesting advantage when talking to merchants about transforming transactions at the point-of-sale. They really have a pretty self-contained solution, which covers the spectrum of issuance to acceptance.
So, I completely agree that 2011 will be an important year for mobile payments/mobile commerce but not because NFC is or will drive it. I think that a number of solutions that have been quietly piloted, like the Starbucks barcode system, which will begin to emerge as serious contenders. In addition, I think we’ll begin to learn more about the plans that ISIS and other large players have around mobile. It's going to be worth tuning into.
Sources
[1] http://mobihealthnews.com/6178/study-42-percent-of-u-s-uses-a-smartphone/
[2] http://techcrunch.com/2010/09/01/itunes-ping/
[3] http://online.wsj.com/article/SB10001424052748704030704576070090093187986.html
Karen Webster is the President of Market Platform Dynamics (MPD), a consulting firm that helps companies find, implement and monetize innovation. She serves as an advisor and member of the board for a number of companies operating in the payment, technology and digital media industries. More info here.
Post your comment
Comments
A very well thought out article and a fascinating and perceptive dialogue in the stream that follows. I'm new to the debate of when NFC will displace cards and and how fast. I have had a lot of experience looking at new technology introduction and mapping at 3M.
As in most things technological, I found the Japanese market comments reflect the state of the future to come for most of us. But Japan has some economic, cultural and demographic advantages for piloting technology: compared to many other societies, there is scope to create a relatively closed ecosystem (geographically), but with a population big enough to create an economically viable critical mass. It is very interesting to read the rates of adoption.
In the meantime, while the subject seems to attract some hype in the wider press, I can't help but refer back to the Gartner curve. For those not familiar with it - look it up on Wiki. Where is NFC - at peak of inflated expectations, approaching the trough of disillusionment or about to climb the slope of enlightenment towards productive adoption? Japan shows it is possible to cross the disillusion divide - and there seems to be a key in there being far more than payment to the slope of enlightenment. But how does the position on the curve look elsewhere?
Posted by Rob Bennett, 30/03/2011 5:56pm (11 months ago)
A very well thought out article and a fascinating and perceptive dialogue in the stream that follows. I'm new to the debate of when NFC will displace cards and and how fast. I have had a lot of experience looking at new technology introduction and mapping at 3M.
As in most things technological, I found the Japanese market comments reflect the state of the future to come for most of us. But Japan has some economic, cultural and demographic advantages for piloting technology: compared to many other societies, there is scope to create a relatively closed ecosystem (geographically), but with a population big enough to create an economically viable critical mass. It is very interesting to read the rates of adoption.
In the meantime, while the subject seems to attract some hype in the wider press, I can't help but refer back to the Gartner curve. For those not familiar with it - look it up on Wiki. Where is NFC - at peak of inflated expectations, approaching the trough of disillusionment or about to climb the slope of enlightenment towards productive adoption? Japan shows it is possible to cross the disillusion divide - and there seems to be a key in there being far more than payment to the slope of enlightenment. But how does the position on the curve look elsewhere?
Posted by Rob Bennett, 30/03/2011 5:55pm (11 months ago)
A very well thought out article and a fascinating and perceptive dialogue in the stream that follows. I'm new to the debate of when NFC will displace cards and and how fast. I have had a lot of experience looking at new technology introduction and mapping at 3M.
As in most things technological, I found the Japanese market comments reflect the state of the future to come for most of us. But Japan has some economic, cultural and demographic advantages for piloting technology: compared to many other societies, there is scope to create a relatively closed ecosystem (geographically), but with a population big enough to create an economically viable critical mass. It is very interesting to read the rates of adoption.
In the meantime, while the subject seems to attract some hype in the wider press, I can't help but refer back to the Gartner curve. For those not familiar with it - look it up on Wiki. Where is NFC - at peak of inflated expectations, approaching the trough of disillusionment or about to climb the slope of enlightenment towards productive adoption? Japan shows it is possible to cross the disillusion divide - and there seems to be a key in there being far more than payment to the slope of enlightenment. But how does the position on the curve look elsewhere?
Posted by Rob Bennett, 30/03/2011 5:55pm (11 months ago)
Simply waving a device (as opposed to waving a card or swiping one for that matter) does little to advantage the consumer. The value for the consumer appears when the open-loop charging concept is augmented with second-path transaction vetting. If every transaction to my Visa account required me to respond to mobile challenge I know I'd buy in for that alone. Then come all the additional financial services that are already itching to get into this loop. It would be amusing for mint.com to intercede and ask me, "Do you really need that latte to be a venti?"
However, as your chicken/egg point hints at, none of this can happen until there is enough cooperation throughout the ecosystem to create that reliable, global chain of hand-offs. Did someone win in that 4-way shootout when I wasn't watching? I would be delighted to see some government backing to shoot the operators in the head and get them back to being the minimum-cost bit pipes they should be.
Posted by Rob Scott, 12/02/2011 5:36am (1 year ago)
Hi Karen,
So happy to read your article. I have been in the mobile payments space since 2005 and ran PayPal Mobile's Business Development efforts for North America for 2 years before starting my own consulting practice in this space - mPay Connect. I believe that most of the people feeding the hype (companies and research firms) have little incentive to provide a realistic vision of what mobile payments (NFC) really means. Over the years, I have taken a complete 180 turn in my view and believe that there needs to be a SUBSTANTIALLY better value proposition to get consumers to want to use it en masse. My mantra: When seeking out mobile payments opportunities, look for cash, not card. NFC payments seems to have an almost cult following in the market now... I pose the question: What's the value proposition to the consumer over a sophisticated card infrastructure today? By the way, I do believe NFC has substantialy better value in other areas beyond payments.
Posted by Menekse Gencer, 07/02/2011 7:32pm (1 year ago)
Hi Karen:
Well put.. speaking from my experience of commercially deployed mobile NFC offering here in Japan for some 6-years now, a few points.
- We now have an est. 80% penetration of chipped devices with about 30% considered regular active users. Therefore about 1/4 of the total country population routinely uses tap & go with their phone.
- One reader at the cash register is configured for wide range of available apps on any given handset is standard.. see image link below from our local 7-11.
http://wirelesswatch.jp/image_library/nanaco_pos.jpg
On-tap it knows which services are available, and allows you to choose if more than one option exists.
- Indeed, making payments is 'interesting' however the real juice will come from all of the other related, as result enabled, activities. Whether it's Phone 2 Phone exchange of contact details (etc), access info from a 'talking' poster, logging into your laptop, holding concert tickets, boarding passes, collecting loyalty points and coupons or punching the clock at the office.. it's all happening here for some years now already.
- While Apple sure gets alot of buzz, I would suggest that it's actually Android - with so many handset makers pushing - that will make the difference. In the end, as you wisely note, it's the POS challenge = it take two to tango!
Easy to predict NFC will be huge, I'd shy away from forecast $$ volumes in near-term. At any rate, little doubt we will see NFC follow the same path as camera-phones. So, difficult to imagine finding new handset in 2015 without this feature, whether you want/use it or not.. 8-)
Cheers from Tokyo!
Posted by Lars, 01/02/2011 9:37pm (1 year ago)
I see that the Cardis technology solution is not mentioned although it saves the merchant enormous amounts
Posted by simon horn, 01/02/2011 11:49am (1 year ago)
Hi Karen,
I have read your article with great interest.
The real problem is that everyone (iPhone, PayPal, Visa, Master Card etc) are all working on their own solution.
Launching so many solutions will require that the shops will need a whole row of NFC readers on their counters. A row of readers holding their own logo and NFC solution.
Also it will require that the users has an App for each NFC solution.
In the end both the shop as well as the consumer will get confused.
We at MSPay already developed a method that can handle payments on the Internet and by NFC in physical stores.
The solution we developed can be implemented in any existing payment solution without changing the infrastructure.
Overall we have developed a layer that can exist in any solution that can handle any kind of payments (credit cards, billing services, wallets etc.)
Also we have protected this solution by patent and the solution is documented with the highest security level possible and is documented ready for commercial use.
The solution has been under heavy handling by specialist of cryptology’s and protocols and they all have concluded that this protocol can’t be hacked or compromised.
The uniqueness is that with this method there will no longer exist voulnable information (such as credit card information) on the mobile phone or on the SD/SIM card.
Meaning that if one loses his mobile phone there will be no information on it that can be misused or comprehended.
This protocol has been under development in the past 4.5 years.
We are currently working on implementing this protocol in different kinds of existing payment solution so it can be prepared for the launch of NFC in mobile phones.
Our protocol can make it possible that a shop only need one NFC reader and a consumer only needs one app and through that one solution our protocol can handle all kinds of existing payment solution (such as Visa, Master Card, PayPal) and only require one app on the mobile phone.
This also solves the chicken-and-egg issue because it only require simple onetime setups for shops and users.
If you want more information about our protocol you can visit us at http://mspay.dk and also you are more than welcome to contact us.
Regards
Mads Siim - Partner MSPay
Posted by Mads Siim, 31/01/2011 4:55am (1 year ago)
Very interesting. I think that if the mobile technology can be combined with discounts, they offer something of real value.
Lynn
Posted by Lynn Sullivan, 29/01/2011 10:42am (1 year ago)
Interesting take on the situation. Note, though, that — despite your claim — Apple made no announcement about NFC. I believe you're repeating an analyst's guess that Apple will implement NFC given the patents they recently received. Apple would never announce a feature for an unreleased product without holding an event to announce the product itself. Regardless, it will be interesting to see how this all shakes out.
Posted by Kawika Holbrook, 28/01/2011 7:26pm (1 year ago)
1 2 3 next »
RSS feed for comments on this page | RSS feed for all comments