The discussion around near field communication (NFC) is often framed as if mobile payments have been driving the car while other uses of the technology — mobile marketing, person-to-person information sharing, virtual fingerprints — are merely along for the ride. But increasingly, the conversation is shifting. Far from being a passenger, mobile marketing, along with consumer loyalty, will be in the front seat as well and will be critical in helping to drive the growth and adoption of NFC.
That’s because while the idea of contactless payments is intriguing, there is increasingly an awareness that tapping a phone to pay for an item will not sell itself. To reach widespread adoption, NFC needs to provide real value for both consumers and merchants, and that’s most likely to come from discounts, daily deals and loyalty reward programs that can be activated through NFC technologies.
Drawbacks of NFC payments
NFC payments were touched on at GigaOM’s Mobilize conference last month — though not necessarily in a positive light. Some NFC opponents, like Square’s COO, Keith Rabois, declared that NFC “has no value proposition for consumers and merchants.” PayPal’s Laura Chambers, the senior director of mobile, also dismissed the technology (but explained that what people need is more of an end-to-end solution, something PayPal is working on).
Rabois and Chambers obviously have a vested interest in criticizing NFC, because their mobile payments systems don’t rely on the technology. But they bring up a critical point: Contactless payments using NFC by themselves are of little value to consumers compared to cash and credit, which are pretty painless. Indeed, Chambers said that even with the introduction of contactless payments credit and debit cards, less than 0.1 percent of transactions were conducted through them.
The problem is that contactless payments by themselves only offer the chance to shave a couple of seconds off a purchase. That is probably not likely to get merchants to pay for new NFC terminals, which can cost several hundred dollars each. And the slim time savings at checkout may not be enough of a boost to get consumers to put aside any security concerns and jump onto a new payments mechanism. As Brad Greene, the Senior Business Leader at Visa, said at Mobilize, the key is not in payments but the features layered on top that will convince consumers and merchants.
Consumers are slow to embrace new functions. Gary Kim, the editor of Mobile Marketing and Technology, an online publication, said that it took over ten years before more than 50 percent of people used ATMs and debit cards. He said it will take something significant to get them to embrace NFC payments.
Beyond mobile payments: Isis and Google Wallet
That, Kim said, will be discounts and loyalty rewards for consumers and data for merchants. If people use their phones to pay for items, check in to stores for coupons and grab deals from NFC-embedded posters and use them as loyalty cards, it could provide critical data to retailers, helping them craft offers for users, tweak inducements, track sales and change their product lineups. The ultimate goal would be to get consumers to signal their intent to buy something by tapping an NFC tag next to a product, which would allow a retailer to hit them up with another offer before they check out.
This is increasingly what the two big U.S.-based NFC platforms are focusing on. Isis, the joint venture with Verizon, AT&T and T-Mobile, was launched last year as a mobile payments system that could rival the credit card networks. But this spring, the carriers shifted gear. Instead of focusing on getting a slice of the payments, they opened up their platform to other credit card companies and banks and began talking more about the opportunity in delivering targeted offers to consumers. Isis has called it an acceleration of its original plan; it’s still expecting to generate revenues from payments, but its cut of payments won’t be as significant as when it was going to run its own network.
Google also unveiled its Google Wallet in May and said right off the bat that it wasn’t taking a cut of the payments transactions, perhaps as a signal to partners that it wasn’t going to compete for a share of payments revenue. Instead, it was focusing on combining Google Wallet with Google Offers to help advertisers and retailers reach customers with personalized offers that could be redeemed through their phone.
In both cases, consumers will be able to find discounts that are redeemable through an NFC payment, which will help retailers strengthen their relationships with their consumers by embedding their loyalty cards into these digital wallets.
Finding the real value in NFC
David Talach, the VP of Global Product Management for VeriFone, which makes most of the point-of-sale terminals that will support NFC, said the shift to more marketing and loyalty happened because Google and Isis realized that it’s hard to make money in payments if you’re not the credit card companies or the banks. The opportunity for Google and Isis lies in being the go-to resource to deliver loyalty rewards and coupons to consumers and being top of mind for consumers looking for deals.
In this scenario, payments are a necessary part of the equation, because that’s how deal redemption can be tracked and how retailers can understand the return on their marketing investment. But the transaction itself is not how these digital wallet platforms are making their money.
Jaymee Johnson, the marketing chief for Isis, said the spotlight is now shining more on the marketing opportunities around NFC, in part because of the always appealing promise of delivering savings to consumers and the new channel of communication it opens up between merchants and consumers.
“NFC is injecting a real level of interactivity and that’s one of the underreported features of NFC, the ability to bring new interactivity and direct communications between advertisers and retailers and customers,” said Johnson.
NFC is still gathering steam, and both Isis and Google have shown a lot of progress lately. Google Wallet finally launched, though on just one Sprint phone, the Nexus S. But it’s first out of the gate and is lining up a host of retail partners. And it announced that it is also opening up its platform to work with Visa, American Express and Discover in addition to launch partner MasterCard.
Meanwhile Isis already has the backing of all the major credit cards and recently announced that six major handset makers, HTC, LG, Motorola Mobility, RIM, Samsung Mobile and Sony Ericsson, will launch NFC-enabled mobile devices that use Isis’ NFC contactless technology.
But with both systems essentially tapping the same credit card networks, the payments portion of each system will probably not be that different.
“Whether it’s Isis or Google they will have all the same payment capabilities,” said Jim McCarthy, the global head of product for Visa. “It will depend on how those services get provided and the economics delivered through Google or Isis. The consumers will have the choice.”
Visa is also an interesting company to watch. It, too, is launching its own digital wallet that will cover both online and in-store payments. But like PayPal, Square, American Express and other competitors, it is emphasizing the importance of deals and offers, something it has tested in trial with the Gap. These payments networks realize that they too need to step up their game in providing targeted offers and deals to users, because that’s where the market is shifting.
I’ve played with Google Wallet, and it was fun the first few times I paid by tapping the phone. It certainly got attention from people. But the value was not really there. I didn’t get any receipts or additional offers, because many of the retail point-of-sale terminals haven’t been upgraded to the necessary software. But that’s changing as more retailers sign on. MasterCard says there are more than 300,000 merchant locations that can take PayPass contactless payments. When NFC payments work well, users can clip coupons online or redeem them at the point of sale and NFC readers will automatically detect any applicable discounts. And eventually, merchants will be able to reward customers after the transaction with more discounts and offers.
That’s where things get interesting. And that’s the future the NFC players need to pitch. Payments will facilitate all of this, but it will be discounts, offers and the exchange of information that will show people what they can really do with NFC and its inherent value.