Don’t write NFC off just yet

NFC once seemed destined to become the underpinning technology of mobile payments systems around the world, but it has become the Rodney Dangerfield of the tech world. More than a decade after it was first used in mobile payments trials in the U.S., NFC-powered systems such as Isis and Google Wallet are all but ignored by all but the most tech-savvy users. Meanwhile, Isis lost one of its three founding credit card partners last fall when Capital One pulled out of the initiative, and 7-Eleven and Best Buy have begun shutting down NFC at their registers.

Bluetooth low energy (BLE) has emerged as the technology most likely to “kill NFC,” according to some pundits, thanks in part to the low cost of installation for businesses and the ease of use for consumers. But a few recent developments illustrate why it’s still too early to write NFC off in mobile payments.

Rollouts are ramping up in other markets

While NFC-based payments systems are clearly spinning their wheels in the U.S., though, they’re still being pursued aggressively in other markets by carriers, banks and other governmental agencies. In just the last few weeks, we’ve seen reports that Transport of London is talking with operators about launching NFC-based mobile wallets for commuters on bus networks and the Tube; Canada’s largest carrier rolled out an NFC-based wallet app; initiatives are coming to market in Kenya and in Italy; and one of the biggest financial services companies in Brazil – which is a massive emerging market – is preparing to launch a payments system based on the technology this summer.

Two longstanding U.S.-based skeptics of NFC may be softening their stances as well. Earlier this month, Apple Insider reported that KGI analyst Ming-Chi Kuo claimed that Apple is planning to launch two new versions of the iPhone, each with support for NFC. (Others have even suggested NFC could be used to connect the iPhone to a rumored Apple smartwatch.) And PayPal President David Marcus last week took to his company’s blog to state that he has become “cautiously optimistic” of NFC’s prospects “in very specific shopping use cases.” That’s a far cry from dismissing NFC-based payments systems as “technology for the sake of technology,” which Marcus did just last December.

HCE could be the key

As Marcus cited last week, one major reason NFC is once again attracting attention is Google’s development of host card emulation (HCE), which debuted last fall with the launch of Android 4.4 KitKat. The technology essentially allows mobile payments providers to store a “secure element” in the cloud or inside an app, eliminating the need to store the user’s identity on the smart card in the handset itself. That prevents mobile operators from interfering with NFC-based payments systems such as Google Wallet, which had been blocked by Verizon Wireless, AT&T and T-Mobile because it competes against their Isis initiative. Both Visa and MasterCard announced upgrades to their point-of-sale systems in February to support HCE, enabling any developer to integrate the technology into their apps.

And while the overall market for mobile payments in North America and most other regions has yet to get legs, the foundations for NFC-based systems are slowly being laid. Berg Insight predicted last summer that the number of NFC-enabled point-of-sale terminals will grow from 6.7 million units in 2012 to 44.6 million by 2017. Meanwhile, a recent forecast from IHS indicates shipments of NFC-enabled handsets will increase dramatically over the next several years, reaching 64 percent penetration worldwide by 2018.

NFC, BLE and even QR codes and SMS have distinct advantages and disadvantages in the world of mobile payments, and we’re still a long way from seeing the development of sophisticated business models and partnerships that will be necessary for mobile payments to enjoy mass-market uptake. But it’s very likely we won’t see one winning technology emerge – we may use NFC to get on the subway, BLE at the mall and other kinds of services for more remote purchases. Retailers, advertisers and app developers should be careful not to put all their chips on a single technology.

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Colin Gibbs

Colin Gibbs

Mobile Curator Gigaom Network

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4 Comments Subscribers to comment

  1. Hm, put NFC in a wrist device (I refuse to use watch or iWatch). Nice idea. Two convenience factors: 1) No pocket diving; 2) No fat physical wallet jammed with credit/loyalty cards.

    1. Agreed, Fred. Particularly for scenarios like mass transit.

  2. The terminal part of forecast has been around since 2012 – I just don’t see it happening. What is the motivation for retailers to upgrade their POS to support far less than 2% of their transactions.

    Indeed, I agree we shouldn’t write of NFC yet, but its bigger opportunities lay first and foremost outside of mobile payments. If we’re going to see adoption it will be as a quick and painless proximity connection mechanisms to “internet of thing” devices – whether those are watches, ID cards, printers, security access…
    …and even then its in a death race with BLE..

    1. Thanks for the comments, Bob. Always good to hear from you.

      It’s true that the study I cited is a year old, but other positive forecasts are more recent. (One from Research and Markets is here: http://www.businesswire.com/news/home/20140224006474/en/Research-Markets-Global-NFC-POS-Terminals-Market#.U1lK8lcqjIU

      I absolutely agree that NFC is likely to gain traction in areas/applications aside from mobile payments, and some IoT devices will create opportunities.

      BLE has tremendous potential, to be sure, but the fact that it doesn’t require the “tap” that NFC does could be a drawback in some use cases. (Customers who don’t want to automatically be pinged as they walk through the department store, for instance.) The next 12 to 18 months will tell us a lot about the most appropriate uses for BLE.

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