Mobile 205 (required): GPC Payments Value Proposition
Lesson 2 Discussion Board: What is the most significant contributor to the slow growth of mobile NFC? Click here to respond.
New Phone, New PoS Terminal, New Consumer Behavior? No Problem. Could it be that the place the mobile and payments industries decided to begin in their quest to create the killer consumer combination might have been the last place they should go? Granted, the concept of the phone as a physical payment device is a pretty good one. Create a payment from the point of sale using a wallet in the phone software, a chip inside the phone with near-field communication (NFC) capability to transmit the payment information, and a supplemental reader at the merchant checkout to capture the payment information from the chip and generate a transaction that looks almost like a regular run-of-the-mill card transaction. Consumers carry the phone already. This will just eliminate a step.
Maybe, but the challenge to date has been building critical mass on both sides of the transaction message to make that work. Device manufacturers need to add NFC chips to their phones. Merchants need to upgrade their points of sale to include NFC chip readers. And in addition, others in the value chain need to make investments. Operators need to open up and enable provision of credentials information (through a process called “over the air personalization”) through their networks, and they need to promote NFC devices at retail. Financial institutions need to invest in driving network upgrades and consumer adoption to make it all work. Everyone in the chain would be pleased to make these investments for a large and lucrative opportunity in mobile point of sale payments. But, where is the revenue in that opportunity coming from? Is it large? Will consumers generate enough new transaction activity to make the whole thing pay back? Unclear…
Can Technology Solve a Business Model? Adoption of mobile NFC payment has been challenged to date not so much by the technology, which has reached a relatively stable condition for market-readiness, but by the business model challenge of building a network effect for the provision of payment. NFC requires the combination of both enabling handsets for NFC payments origination and upgrading merchant points-of-sale for payments acceptance. Mobile NFC has seen some limited adoption in markets where NFC acceptance is already deployed, in which case the incremental expense for NFC handset deployment is offset by either participation in transaction revenues or in customer acquisition and retention from the feature benefit. However, in most markets, adoption is at a stalemate as mobile operators and financial institutions/networks debate revenue participation in the context of the expense incurred to deliver integrated NFC handsets and terminalize acceptors.
A couple of recent developments may create a catalyst for change in this condition, most notably 1) the emergence of micro-SD and sticker solutions that alter the issuance model to consumers, and 2) the potential creation of closed-loop NFC payments capability among network operators that improves their business case for building a payments network effect through direct ownership of transaction revenues. A host of third-party technology companies provide mobile-NFC services for handset enablement, and the acceptance marketplace is well-served by traditional payments technology players. Revenue distribution in this marketplace is still a work in progress, and is (as mentioned above) the key challenge for broad adoption of mobile NFC.
Going Mobile, But How? So how do you solve a business model stalemate like this? Well, if you’re a mobile operator, you might try to find a way to close the loop on NFC payments by making almost all the revenue your own. That could certainly capture enough value to make the transactions positive on a unit basis. But what about the costs of NFC deployment in mobile phones, as well as the big cost of NFC deployment at the point of sale? Maybe you can find a card network or a processor to help shoulder the burden of deployment? Maybe you can find a financial institution to sit on the back end and handle the money?
At the end of the day, everyone involved will need to make money from this to pay back the investment in rebuilding the network effect to make the mobilization of card payments a reality. Is that revenue assumption predicated on consumers shifting their spending from a payment form they use today to a new one from a new provider that works in a new way? Is the business case built on the assumption that consumers will spend in new places where they hadn’t before? Or perhaps there is some other drive of value capture. Perhaps something to do with retailer marketing, location-based services, and real-time loyalty? If the financial institutions that have been providing payments to that consumer suddenly and radically alter the value proposition for core payments at the point of sale, maybe they’ll switch to a new private label payment from the same folks that manage their calls?
Maybe…
Lesson 2 Discussion Board: What is the most significant contributor to the slow growth of mobile NFC? Click here to respond.
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Mobile 205 Lesson 1: GPC Mobile Landscape
Point of Transaction 201 Lesson 2: PoT Evolution
Driving Payments Innovation through Education- PYMNTS University
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