In some quarters it has been assumed that when mobile payments really take off it will be NFC (Near Field Communications) technology underpinning the solutions that make it work. However, for a long time many of us who watch this fascinating market closely have argued that the NFC-based model of mobile payments – where the phone is placed on to a terminal (as per contactless card payments) – is flawed and will not be the eventual driver of consumer adoption. Why flawed? Well, let’s go back to the three factors that I have previously argued will define the mobile payments battleground:
- Value to consumers
- Value to retailers
In terms of value to consumers PayPal President David Marcus sums up the issue neatly in a recent quote for Finextra:
"Is tapping a phone on a terminal any easier than swiping a credit card?" he asks. "I don't think so – it's not solving a real consumer problem and it’s not providing additional value to encourage me (or anyone else for that matter) to change my behaviour."
By contrast, cloud-based solutions such as Square’s Wallet app combined with its Register product for retailers do not require the device even to come out of your pocket or bag. The app and geo-location approach also make the deployment of real-time offers specific to that customer in that store pretty straightforward. “Ah yes”, say the NFC acolytes, but “there’s nothing to stop you doing the same thing with an NFC-powered app”. True enough but if you’ve gone to the trouble of creating the app to handle your loyalty and offers management then why not complete it with a hands-free payment mechanism?
In terms of value to retailers there are a couple of clear advantages with cloud-based mobile payments solutions. I’ve previously written about the take off in Mobile Point-of-Sale (POS) that offers tremendous advantages in terms of in-store experience (been to an Apple Store? Exactly). Supporting NFC payments from – let’s say – an iPad is not impossible but it would be clunky and most importantly, an unnecessary complication. Also, retailers I have spoken to foresee minimal benefit in upgrading their terminals to support NFC but will do it in time as part of the natural refresh cycle. However, talk to them about mobile POS which can be delivered on cheap, easily upgradeable hardware such as tablets and they get really excited about the potential for transforming the in-store experience.
Considering the likelihood of NFC to achieve ubiquity, it has received strong backing from the card schemes who have invested in subsidising the roll-out of contactless card terminals as a means of driving the usage of cards for small value transactions, of which they then take their cut. So we will see increasing numbers of stores being able to take contactless cards and soon enough NFC. However, as those of us who like to try new things have found, the reliability of contactless terminals for card or mobile-handset payment has a long way to go.
So it has been fascinating to read Marcus’ comments and see that PayPal at least has really come off the fence in forecasting the victory of cloud-based rather than NFC solutions in the mobile payments background. How will the card schemes and other advocates of NFC respond?