NFC + Retail = Fail

Amidst all the legitimate news coming out of Mobile World Congress in Barcelona last week was this (justifiably overlooked) little trial of Near Field Communications, better known as NFC. A consortium of the technology’s backers gave 400 attendees Samsung handsets that had been loaded with airtime and about $100 to spend at local businesses. The failsafe scheme will enable NFC proponents to call the trial a success, as The Register wryly noted.

Indeed, “successful” trials of NFC have become as commonplace in mobile as dropped calls and novelty smartphone apps. Nokia was among the first to pursue the technology with a trial at a handful of Dallas-area retailers in 2003; since then a host of mobile players and financial institutions have toyed with the stuff around the world.

But NFC’s supporters have failed to lay the foundation for any viable ecosystem in the retail world, preventing the technology from even leaving the gate. Retailers have yet to be convinced that investing in NFC readers will pay off, giving manufacturers no real reason to include the technology on their handsets. And because there’s no real added value to consumers — who aren’t willing to pay a premium for the privilege of using their phones at the sales counter instead of reaching for their wallets — there’s no room for carriers and manufacturers to create a new link in the value chain. Which is why they haven’t invested to put the chips in their phones in the first place.

Oddly, analysts continue to produce confident forecasts regarding NFC. Juniper Research recently predicted the technology will explode in North America and Western Europe by 2014, when one in every six mobile subscribers will own an NFC-enabled device. Yankee Group is equally optimistic, predicting a “rapid rise” in NFC usage that will see nearly 5 billion transactions globally by in the five-year span ending in 2013.

Those rosy outlooks belie a couple disconcerting recent developments, though. China Mobile — which, like every Chinese carrier, is government-owned (and therefore extremely influential) — has actively begun backing RF SIM, a competing technology that has the advantage of working in every existing handset that uses SIM cards. And in a move that drastically underscores NFC’s lack of traction, Nokia last week scratched plans to put a long-awaited NFC handset into production, claiming “the consumer experience was not what it needed to be.”

That’s not to say that NFC has no future, however. The technology is gaining ground in emerging markets, where it brings modern-day convenience to users who often have no bank accounts. NFC is already powering peer-to-peer activity that is enabling both money transfers and small business transactions, spurring commerce in undeveloped regions. Also NFC could be extremely useful in supporting specific applications like mobile ticketing, which is expected to ramp up dramatically in the next few years. Indeed, the projected surge in ticketing is linked directly to NFC, which can ease consumers’ hassles in receiving and redeeming tickets on their handsets.

But those scenarios are based on bringing added value to consumers, vendors and financial institutions. That’s not the case in more mature markets, where it adds little or no value for consumers and carriers at the retail counter. And while some have proposed NFC-enabled smart posters and other proximity-based marketing programs, such efforts are already being powered by Bluetooth — which, of course, exists in a wide range of handsets already on the market. Given its flexibility and broad base of support in the mobile industry, NFC is sure to be key for some niche uses and as a foundation for m-commerce in emerging markets. At modern-day retail counters, though, it’s simply a solution in search of a problem that doesn’t exist.

Question of the week

Will NFC ever gain traction with mobile transactions in mature markets?
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Colin Gibbs

Colin Gibbs

Founder and Principal Peak Mobile Insights

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17 Comments Subscribers to comment
  1. The question is cost for the incumbents. Why invest more on something that will not increase their revenue?

  2. @David — You and I disagree on the definition of obsolete, but yeah, I see your point that they’re a huge security vulnerability.

    But we’re in lockstep with the argument that the entrenched players won’t allow another link in the value chain until they’re forced to. And on the retail side, at least, there’s little reason to think that’s going to happen soon.

    Incidentally, a nod to one scenario offered by Pavan: http://gigaom.com/2010/03/09/are-virtual-keys-the-key-for-nfc/

  3. Michael Scharf Monday, March 8, 2010

    Colin: David is right, MagStripes are obsolete. Not that they are not used, but that they are easily hacked and have been surpassed by other technologies (of which NFC is but one). Mag Stripes are a major source of credit card fraud.

    The issue is not the technology, but rather that each player (bank, credit card association, carrier, handset manufacturer, etc.) believes that they each are due 100% of the value created by this new payment mechanism. Until something forces their hand, the existing players will not let another player into the mix.

  4. You’ve offered some pretty interesting examples, Pavan, but Apple’s backing in itself won’t move the needle much. NFC will be as big as consumers make it, and at least at the retail counter there just isn’t any demand.

    Credit cards are obsolete, David? You and I must be shopping at different stores. =)

  5. Well said David. NFC cards have already begun to grow the market in the UK. What about elsewhere? I would be really interested to know.

    The potential for NFC is huge and exciting. Apple will surely contribute to growing the market. Here are some examples on it’s application for inspiration:

    http://www.nearfieldcommunicationsworld.com/2009/11/05/32191/apple-testing-rfid-enabled-iphone/

    http://www.nearfieldcommunicationsworld.com/2009/07/08/31384/apple-to-build-nfc-into-the-next-generation-iphones-touchscreen/

    http://mobileinc.co.uk/2010/02/apple-patents-show-iphone-macbooks-to-feature-nfc-this-is-big/

    This is as BIG as we (or Apple) make it. Sign me up too.

  6. Mobile consumes adjacent technologies. It’s growing appetite requires ever expanding markets. None bigger than payment/transit.

    Credit cards are obsolete. Carrying stacks of embossed plastic provides no utility to consumers. ”Secret codes’ printed on backs of cards are laughable. Mag stripe is no better – a 40 year old technology any 2nd rate hack can crack. Similarly no excuse for having to wait in line to buy a transit pass as your train leaves.

    There is nothing lacking in the demand equation for NFC. Lack of adoption speaks more to the carrier/handset manufacturers’ historic stranglehold on the market and their lack of innovation.

    Google/Apple are changing the balance by introducing phones/ features based on consumer demand, not carrier requirements.

    Picture Apple’s ad campaign featuring new payment enabled iphones. Just the sort of ecosystem problem they’re known to solve. Coming soon? Hope so. Sign me up.

  7. Thanks for the note, Derek. And yeah — I’d be happy to trial your steamy dog heap (and give rave reviews!) for $100 to spend around town. Meanwhile, it will be interesting to see just what kinds of niches NFC can fill over the next few years.

  8. I think I could “field trial” a steamy dog heap, and find market acceptance…as long as I attached $100 in free stored value for each test subject!

    Of course, I’m just bitter, because I didn’t get mine at MWC;-) I think their goal was just to expose some influencers to how easy it is to transact once an account is set up, and infrastructure is in place. That part is good, but…

    ^^^You’re right. NFC trials are pretty much pointless. The technology solution is not in question. What IS in question is the ecosystem and true market viability. You can’t “trial” market viability – you go to market and either succeed or fail.^^^

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