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Mark Gerzso - Bankfutura E-Finance Research

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Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Is mobile NFC the future of the payments? Pros and cons

17 October 2012  |  5963 views  |  3

As Apple launched its iPhone5 without NFC, lots of us asked the question: is this just a commercial strategy from Apple, or they simply don’t believe in the future of NFC? Many researchers and analysts are desperately seeking an answer for this question, and I would like to put my bet now.

Let’s start from the basics: NFC is a form of radio-frequency identification (RFID) and it enables exchanging data without a physical contact. Important to emphasize that this technology enables a two-way communication, while earlier contactless smart cards offered only one-way communication. NFC can be used for lots of purposes and one of the possible use cases is payment. This type of payment can be done at merchants who are equipped with NFC enabled POS devices. According to the statistics and forecasts, NFC-enabled POS terminals worldwide will increase substantially from 3.9 million units in 2011 to 43.4 million units in 2017. The highest usage is expected to be in North America: 86% of POS terminals in North America will be NFC-enabled by 2017. While in Europe the penetration rate is expected to be 78%.  A bright future for NFC, isn’t it? (Source for the figures)

Let’s have a look at the issue from the customer’s perspective. Let’s assume that Jill and Jane are standing at the cashier in a shop. They both pay 32 EUR. Jill has cash in her hands while Jane wants to pay with her NFC-enabled mobile phone. Jill hands the cash to the shop assistant, while Jane unlocks her mobile. Jill receives the change while Jane starts the payment app. Jill takes the goods she bought and is leaving the shop, while Jane still has to authorize the transaction. Is this that way of payment people will fall in love with? I doubt it. OK, you can say that putting the cash into Jill’s pocket is also an effort and takes some extra time, which has to be taken into consideration. That is correct, but even if Jill uses her NFC bank card, the payment process would be still quicker than the phone because there is no need to start the payment app on it. Moreover, there are some possible issues and risks attached to mobile such as error during the transaction, lost mobile or empty battery.

Am I saying that NFC is dead? Definitely not! When I arrived in London a few days ago the first thing I bought was an Oyster card – a contactless card for transportation ticketing. And I loved it.

Contactless is a great technology. But people do not want to use it just because it is a fancy technology. WAP was also a fancy technology in its time, and nobody used it – because it did not offer an added value for the users. What users want to have is a good user experience and value added services. If providers will add this extra value to NFC payments then the usage of it will skyrocket – and not only NFC but all kind of mobile payments. But NFC payments as they work today seem not to be streamlined enough to convince the majority of the people to use this technology. However I am absolutely certain that NFC will be more and more used: if not for payments than for other purposes, like ticketing.

TagsOnline banking

Comments: (6)

Alexander Peschkoff - TEDIPAY - London | 17 October, 2012, 11:39

Correct comparison would be: from the word "Go!" Jill and Jane reach, respectively, for a wallet and a phone. 

Cash: open wallet, decide on which banknotes (and/or coins) to use, hand cash over to the cashier, wait for the change, check the change, place the change into the wallet (notes and coins separately), close the wallet.

I am not (at all) convinced that the above is faster and/or more convenient than launching an app, entering PIN and then tapping the phone on the terminal.

Mark Gerzso - Bankfutura E-Finance Research - Budapest | 18 October, 2012, 11:29

Hi Alexander, thank you for your comment! I agree with you that the user experience can be analyzed along several methods. As an advocate of the e-payment innovations I also hope that we will see NFC payments rising in the future. Despite of my hopes there are still blockers in the road for NFC payments - and I wanted to point out these blockers in my post.

Nick Collin - Collin Consulting Ltd - London | 18 October, 2012, 11:41

As a long time Mobile NFC sceptic, here's my take on the subject:

http://www.collinconsulting.co.uk/opinion-articles-quick-link/129-mobile-nfc-rip.html 

Mark Gerzso - Bankfutura E-Finance Research - Budapest | 19 October, 2012, 10:42

@Nick: Great post, thank you! Your concerns should be taken into consideration, if we really want to see mobile NFC spreading

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 20 October, 2012, 17:47

@MarkG:

Very balanced post. I share your love for Oyster Card and skepticism for NFC mobile payments, for reasons I'd covered in this post. The context of that post was security, so I hadn't covered the following value-adds offered by Oyster Card: (1) No need to take it out of your wallet, just sidling past the reader with your wallet still inside your pocket will suffice to open the turnstile. This is a great thing if you're lugging around a couple of bags (2) No need to calculate the applicable fare between two points A and B, no anxiety about underpaying or overpaying, the system behind Oyster Card takes care to compute the the Least Cost Fare between A and B and deduct that amount automatically from the credit balance. This is extremely useful especially when you visit new places where you're not familiar with the topography or language or both. 

The way NFC mobile payments work, value add # 1 is absent. Maybe if I start getting offers if I pay by NFC mobile payments - and don't get them if I pay by plastic - I'll take that as equivalent of value add # 2.

Mark Gerzso - Bankfutura E-Finance Research - Budapest | 24 October, 2012, 11:06

@Ketharaman: Thank you for your comment! I agree, mobile NFC should deliver an added value for the users besides of the payments.

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