Forecast: the future of near field communication

1Executive Summary

Near field communication (NFC) is a very short-range radio frequency ID method that provides a way to use a cell phone or smartphone to connect a user’s physical location and online profile.

This connection provides substantial benefits for the marketer and the merchant, enabling them to identify their customers and monitor their habits while in the physical world.

We expect that NFC-capable smartphones will show a rapid increase after 2012. While growth will not be uniform across regions and operating systems, one of the primary drivers is the expectation that both Apple and Research In Motion eventually will include NFC technologies in their entire product lines. Worldwide deployment of Android and Windows Phone devices will not ramp up as quickly because they are offered by a number of handset vendors.

The forecasts in this report may appear pessimistic compared to the amount of attention NFC is now receiving. However, it is important to remember that making NFC useful requires the development of a substantial supporting infrastructure that includes compatible point-of-sale terminals, smart posters, shelf-side displays and other items. Because of this, it will be important for handset vendors to include NFC in their devices in order to entice mobile operators, merchants, marketers, terminal vendors and other members of the ecosystem to participate.

Among the findings in this report are:

  • By 2015, the worldwide sales of NFC-equipped handsets will reach 263.6 million units, with the cumulative total at more than half a billion compatible devices.
  • More than 6 million people around the world are expected to be using NFC for mass transit ticketing by 2015. This is due largely to the fact that many transportation systems already have NFC infrastructure in place.
  • Five-year forecasts for mobile payments look anemic compared to the high expectations set by media sources. The reason is that, unlike transportation, there is very little NFC payment infrastructure deployed, and many potentially contentious commercial relationships have not yet been established
  • Operators of incompatible contactless systems in Japan and Europe have committed to adapting to the global NFC standard.

NFC also faces competition from bar codes, particularly the QR code. QR codes are very inexpensive to produce and include on existing products such as advertisements. Strong growth of QR codes may impede the progress of NFC deployment for nonpayment applications.

Key to acceptance will be the critical mass of devices. This report assumes that the efforts of handset vendors and mobile operators will create a large number of NFC- enabled handsets. As with camera phones, there will be a large number of NFC- equipped handsets that are not put to use by most consumers. This critical mass of handsets will be important to encourage developers and merchants to make a commitment to the use of NFC.

In the short term, the lack of existing infrastructure and wrangling over customer ownership will be a strong barrier to NFC acceptance. In the longer term, security concerns and customer education may hinder NFC’s uptake by consumers.
Japan has had remarkable success with NFC and particularly with the adoption of cell phone–based mobile payments. However, it should not be expected that other countries can mimic that success. Japan’s more favorable regulatory climate and tremendous economic clout of NTT DoCoMo enabled the mobile operator to buy its way into the payments market. In addition, wallet phones in Japan did not have to compete with other noncash alternatives (such as credit, debit and stored-value cards), which had not yet taken root in Japan as they have in many other countries around the world.

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