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Contactless, Mobile, NFC .... is it all hype?

The start of a new year seems like a good time to have a lively debate, so let me play devil’s advocate with an outrageous suggestion that the current frenzy of interest in what I’m going to label “contactless, mobile, NFC” payments represents a triumph of hype over reality.

Let’s start with mobile NFC payments, the idea that we’ll soon be routinely making payments at the physical point of sale using our mobile phones rather than plastic cards.  After all, the technology all works – it is a simple matter to load a payment application on a phone, or attach a sticker (ha!) and then use contactless NFC to link to the POS terminal.  The trouble is, this proposition only works when there’s a critical mass of contactless terminals in place, and this doesn’t seem to be happening, or if the terminals are there, then they don’t seem to be used much.  This was brought home to me most forcefully by Barclays’ announcement of a “milestone” of 1 million contactless UK payment transactions in 2010 (Finextra, November).  That sounds good until you realise that total UK card payment volumes in 2010 will be close to 10 billion.  In other words, three years after the high profile “London Launch”, and despite intense publicity on the part of both card schemes and banks, contactless payments account for about 0.01% market share!

Obviously, contactless payment makes sense in certain specialised environments such as urban transport, where it really is important to have transaction times of less than one second, but I just don’t buy the idea that a couple of seconds makes much difference in the vast majority of retail outlets, including fast food.  On the contrary, what the mobile/contactless hype is masking is a remarkable and very important trend towards the use of the humble debit card instead of cash for much lower value purchases, such as sandwiches in supermarkets or pints of beer in a pub.  This is partly due to the convenience of chip and PIN, but also represents a huge social shift, on the part of young people in particular, and is reflected in the inexorable growth of debit card payment volumes in the UK.  This phenomenon goes largely unreported.

Moving on to other much publicised forms of “mobile payments”, it’s important to define terms.

First we have “mobile banking” – ie using a mobile phone rather than a PC to bank online.  Whilst, as a grumpy old man this is not something I’d want to do myself, I can see that many people would, and indeed do, and I can be persuaded that a subset of this population will take the next step of initiating credit transfers from their mobile phones to pay their utility bills or, more likely, transfer funds to family and friends.  But the mobile dimension here is just another delivery channel – the real hero of the story is Faster Payments – a truly revolutionary development and a huge leap forward compared to the three day clearing period of Bacs.  Once again, the UK payments industry and its media commentators are curiously shy on this subject.

Secondly we have “m-commerce” – ie using a mobile phone rather than a PC to buy things over the internet.  This also strikes me as a case of “just another delivery channel”.  Moreover, while it clearly makes sense for purchases which are in some way associated with the mobile phones itself, such as top-ups, ring tones or apps, I can’t see it taking off in a big way for the majority of e-commerce transactions, where oldsters such as myself like to sit at home in front of a large PC screen as we research, compare, or simply scratch our heads before actually making a payment which (after about 10 years) is now fairly secure.

Finally we have true “mobile payments” exemplified by the hugely publicised M-PESA scheme in Kenya.  This really does seem to be revolutionary.  But I get suspicious of any hyped payments development which always uses the same case study.  I’ve never been to Kenya, but I suspect it’s something about that country rather than the mobile payment proposition itself which is responsible for the success of M-PESA.  Like the lack of a conventional banking infrastructure, or maybe something else – I note that a similar scheme does not appear to have taken off in neighbouring Tanzania.

I could go on but I won’t.  OK, I’ll be called a Luddite, out of touch, unimaginative or simply a spoilsport, but I do think it’s important that someone at least raises the possibility that the emperor has no clothes.  Maybe 2011 will be the year when the payments industry starts to see through the hype surrounding “contactless, mobile, NFT” and begins to start celebrating real long term success stories such as Faster Payments, debit cards, chip and PIN, and secure e-commerce.  What do you think?

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Comments: (7)

Matt White
Matt White - Finextra - Toronto 05 January, 2011, 11:00Be the first to give this comment the thumbs up 0 likes

For a good analysis of M-Pesa's success in Kenya read this.

Nick Collin
Nick Collin - Collin Consulting Ltd - London 05 January, 2011, 14:06Be the first to give this comment the thumbs up 0 likes

Thanks Matt.  You're right - that "Innovations" article on M-PESA is excellent - by far the most comprehensive analysis I've seen.  It tends to reinforce my suspicion that the success of M-PESA is driven mostly by factors specific to Kenya itself - not just the lack of a robust banking infrastructure, but also patterns of urban-rural migration, the dominance of Safaricom in Kenya, and very clever marketing and management by Safricom.  Interesting that similar schemes seem to have been relatively unsuccessful not just in Tanzania but also South Africa.

John Dring
John Dring - Intel Network Services - Swindon 07 January, 2011, 04:09Be the first to give this comment the thumbs up 0 likes

Good effort, but we don't get many 'lively debates' on Finextra. A couple of replies is a good effort ;)

NFC will continue it creeping rollout (because the card issuers are pushing it), but it has very little to do with 'mobile payments'.  The only difference seems to be that instead of wafting you NFC card from your wallet, you waft your mobile phone infrom of the NFC enabled reader instead.  Its not your mobile account that gets billed, its your NFC linked bank account.

Mobile Payments is about being able to pay for stuff 'with your mobile and applied to your mobile pre or post paid bill'.  In effect, this is defined by the Payforit scheme in the UK and offered via Payment Intermediaries (like OpenMarket). There are rules for stopping recurring charge bill shock subscriptions, and 'double opt-in' flows to be really sure the consumer knows what they are buying. Consequently there is a big disadvantage compared to the 'tap and go' vision of NFC.

How about - make the phone itself the POS terminal.  Have the merchant bluetooth/NFC the bill to the phone, the phone relays the charge to their mobile operator, the merchant gets a confirmation and the success of the payment and (optionally) hands you a receipt. You get a SMS receipt too. 

Sending a SMS payment like PayPal mobile or m-pesa is also cheap and nasty and works, but not great when standing at the bar. 

 

Nick Collin
Nick Collin - Collin Consulting Ltd - London 07 January, 2011, 13:51Be the first to give this comment the thumbs up 0 likes

Thanks John.  Yes, the lack of a "lively debate" is disappointing - I'd expected a deluge of angry replies - but undeterred, here's a few more comments.

I agree with you that billing directly to the mobile account does indeed represent a genuinely new form of "mobile payment", and I can see that it has real potential for digital downloads to mobile phones, but could it be extended to the physical POS?  Also, from what I can see the amount the merchant pays is an order of magnitude higher than with card payments.  Do you have any stats on PayForIt volumes?

I also agree with you that using the mobile as a terminal may have potential, irrespective of whether the back end processing is via the card payments networks or the telecom operators.  I know there is interest in this as a possible replacement for cheque payments to plumbers etc.  However, I suspect the real alternative in this sort of situation will continue to be cash payments, simply for anonymity and tax reasons.

Getting back to contactless/mobile/NFC, I think it might have a chance of taking off if the whole card payments business model was reengineered to drive down costs by simplifying and stripping out things like receipts, chargebacks and itemised statements.  I believe this was the original intention, but it never seems to have happened.  Probably too difficult, which is another reason I think that if this sort of thing does take off it will be in 10 years rather than 2.

Matt White
Matt White - Finextra - Toronto 07 January, 2011, 14:01Be the first to give this comment the thumbs up 0 likes

Nick, John

On the 'lively debate', I'm afraid you can lead a horse to water but you can't make it drink. That said, we're always open to new ideas so if you've any suggestions on how we can encourage participation, let me know.

A Finextra member
A Finextra member 10 January, 2011, 09:46Be the first to give this comment the thumbs up 0 likes

I wouldn't call M-Pesa revolutionary, at least not anymore. It was a few years ago when it was launched but if you look at other cases in Africa (look at where Rabo is present, e.g. Rwanda) and Asian countries (for example Obopay in India), I'd say it's pretty much bread and butter for telecom companies these days. As I pointed out in a blog last year, it's time the the verb "to empesa" gets an entry in the Oxford dictionary.

I agree with the comments on NFC, indeed it's waiting for someone to go big on deploying NFC terminals in shops. I suspect Google or Apple could play a role here. Anyway there's certainly no lack of ideas in this space.

Faster payments and similar schemes are to be seen as an enabler for mobile payments. Indeed, no point being able to do a payment anytime, anywhere, when you need to wait 3 days for it to be cleared. Might as well do it at a desk then. 

I do agree there's a lot of hype, and the hype can be likened to what we saw in 2000, albeit a bit more prudent in its implementation. But something useful will come out of it. Whether it's being able to pay in a shop using your phone remains to be seen.

A Finextra member
A Finextra member 10 January, 2011, 13:34Be the first to give this comment the thumbs up 0 likes

Yes, the King does not have clothes on and someone is brave enough to say it.