Feb 16 2012
Industry pundits have been anxiously declaring the “Year of NFC” for the past several years. Near Field Communication (NFC) was supposed to revolutionize the way customers interact with the point of sale. Various beneficial consequences of NFC adoption have been touted - everything from security to efficiency and just about everything in between. Large companies have put a tremendous amount of resource behind igniting NFC platforms. So much emphasis was placed on the likely success of NFC that three wireless giants formed a joint venture, ISIS, dedicated to the prospect. However, NFC has failed so far to take off as has been expected. In fact, at least one company recently jettisoned its NFC plans after tests revealed that “NFC is actually a step backward” in the Point of Sale (POS) experience. While plans remain to work with NFC technology in some capacity, the company has stated that it doesn’t fit with its POS strategy. So what does this mean for NFC?
First, it should be noted that a number of companies remain devoted to the notion that NFC will enjoy mainstream adoption in one capacity or another in the near future. The card brands and other companies are still experimenting with NFC technology in a variety of capacities. That means that we’re going to continue hearing about the Year of NFC for some time yet.
Secondly, it should also be noted that the emphasis in payments now, particularly with mobile technology, is moving away from the traditional POS. Mobile technologies should allow merchants greater freedoms. NFC, by nature, requires customers to go to the checkout counter in order to make a purchase, so while it’s a mobile technology in that it’s deployed on a SmartPhone, it is not mobile in allowing merchants to accept payments in a mobile fashion. Nor does it free customers from having to stand in line at a terminal in order to make a payment.
When examining mobile solutions, merchants are well-served to ask some questions of themselves before selecting a vendor. First, merchants should have a sound understanding of what their mobile strategy is. If the merchant has a high-volume, low-price business, like a convenience stores, then NFC may be a good option. However, many small merchants are looking for mobile solutions that will free them from the check-out counter. So, if a merchant is looking for a truly mobile solution, what are the options?
Text – Simple Message System (SMS) is a system for sending short text messages between mobile devices. Text or SMS payment solutions are growing increasingly popular in the realm of digital sales and Peer to Peer (P2P) payments. In this model, a payment authorization is transmitted via text message and the amount of the payment is charged to the user’s mobile phone bill. This method proves effective in high-volume, low ticket sales, such as P2P or digital goods. However, there are still some points of concern for merchants, not the least of which is “When does the merchant get paid?” Customers, too, may have questions. When using a payment card, there are fraud and theft protections. If the card is stolen or used for a fraudulent transaction, the customer is not held liable. Similar regimes do not necessarily exist in this model.
Portable Card Swipe Device – The most prevelant form of mobile payments to date, is not surprisingly, the portable card swipe device (See ProPay’s JAK). The reason this is so prevalant is because it offers mobility without requiring a significant change in behavior from either the merchant or the consumer. The action of paying is almost exactly the same as it would be “in store.” The caveat to this type of solution is that merchants should ensure that the product they are using is what is called an “encrypted swipe” device. Using and encrypted swipe device ensures that the payment data is protected before it even gets to the phone – it is encrypted by the magnetic head that reads the card data. If the merchant loses the phone, or if a “hacker” breaches the payment application on the phone, no card data would be available to them.
Application Based -The application based mobile payment has not been as prevalent in the mobile payment movement as the previously discussed methods. With the rapid adoption of Smartphone technology, though, these types of solutions are likely to become more prevalent. In this model, a consumer downloads an application to their Smartphone and configures his or her user profile and payment methods. The consumer and the merchant can then interact through that application. Merchants and consumers should do due diligence to ensure that security has been built into the application, but these types of applications are on the rise. (See ProPay Link)
NFC will not be abandoned in its entirety, but neither will it be the paradigm shifting payment technology that had been envisioned. At the end of the day, there are applications for each of the mobile technologies discussed here. The challenge for merchants is to find the one that best fits their overall business strategy and offers robust security for their customers.
Dr. Heather Mark, PhD; SVP of Market Strategy
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