The is the first of a two part post on near-field communication. Part 1 looks at the key players driving NFC forward, and Part 2 looks at how NFC works, the barriers to success, and the possibilities for marketers and brands.
Back in 2006, I was at the checkout of a Tesco store in Edinburgh, and a thought hit me. Your wallet contains your bank cards, your photos, your DVD rental card, printed vouchers folded ridiculously small, and numerous loyalty cards. Why couldn’t all this data be stored on a USB key? I thought I was onto something. When you want to pay for goods at a shop, simply insert your USB stick, pick your payment card, vouchers and store card, pay, and away you go.
However I didn’t consider the barriers and implications. I didn’t consider security. I didn’t consider scale. I didn’t consider personalisation. I didn’t consider compatibility (the iPad still doesn’t have a USB port).
Then, a couple of years later, I saw the first Barclaycard waterslide advert and all the thoughts I had when packing away the chicken & veg came back. That was when I first noticed contactless payment, and near field communications (NFC).
Put simply, NFC is a short-range wireless technology that allows for the exchange of data between two devices, when in close proximity. If you live in London, you’ve no doubt been a servant of NFC for a few years by using an Oyster Card to pay for tube journeys. Payments using NFC technology are already commonly used for transport. As well as the London Oyster Card system, toll booths on major roads in the USA use NFC in the form of RFID (radio-frequency identification) to allows regular commuters to pay a lower toll fare.
In May 2011, Google Wallet was announced. For mobile payments, this was a giant stride forward. Google recently overtook Apple in the smartphone OS wars and announced that 550,000 new Android device activations happen each day. This provides massive potential for NFC to boom. It’s no wonder NFC technology is said to be the biggest change in the payment of goods since the introduction of the credit card 40 years ago.
But – is NFC really worth all the hype? Jupiter Research thinks so. Their estimate states that in 2014 over $110bn will be spent worldwide through NFC payments.
Oyster Cards have been a great success, so surely other NFC mobile payment formats will take off? I believe so, but much like a rugby scrum, all the key players need to work together and push in the same direction.
A look at the key stakeholders
Phone Manufacturers – without phone manufacturers adding NFC compatible chips into handsets, NFC falls down at the first hurdle. Over the last decade, both Nokia and Samsung have experimented with phones that come equipped with NFC technology, most notably with the Nokia 6131.
From a Google perspective, one of the most notable additions to the Google Nexus S was the addition of NFC technology. For iPhone lovers, Apple have been filing patents for NFC payment systems, potentially through Apple’s iTunes platform. It has also been strongly rummoured that the next iPhone will come equipped with NFC technology.
Phone Carriers – in an interview with The Telegraph in February 2011, Telephonica’s Matthew Key explained how O2 was now in a world of ‘co-opetition’ with phone manufacturers and other carriers, meaning they have to co-operate (as well as compete) to push the business forward. He’s not wrong. In June 2011 it was announced that O2 UK, Vodafone UK and Everything Everywhere had declared a joint venture to offer mobile wallet services to their customers. Interestingly looks like the first products of this joint venture will be about mobile advertising rather than NFC payments. Indeed, Orange currently offer only two handsets which are equipped with NFC technology. Whilst the UK is only just getting going, AT&T, Verizon and T-Mobile joined forces in the US back in November 2010, announcing a joint payment service called ISIS. Sprint (ironically) have been faster off the mark, and are planning an NFC commercial services launch before the start of 2012.
Banks – Contactless debit cards are already available from Barclaycard, VISA and Mastercard, and banks such as HSBC, Barclays, NatWest and Lloyds TSB are all beginning to hand out cards to their customers. It is estimated there are currently 11 million cards in use in the UK. HSBC and RBS have also trialed NFC payments in house. Across the pond, U.S. Bank has been testing an NFC service in twenty different markets. The service debuted in November 2010 in partnership with VISA.
Retailers- Near-field communication payments are on the verge of rolling out into supermarkets, restaurants and shops across the UK. Tesco will be rolling out NFC capabilities to its 38,000 checkouts across Britain. The likes of McDonalds, Pret a Manger, Subway and EAT already have near-field comms equipment set up in their stores, as does AMT Coffee and Co-Operative Food.
Whenever there is a new mobile retail initiative most look towards the big players to set the pace. NFC is no different. Amazon’s payment unit (aptly named Amazon Payments) is exploring the possibility of starting an NFC service to ensure it remains one of the biggest players in mobile commerce.
Payment Providers – there are many parties involved in ensuring NFC payments are possible. They include Mastercard, VISA, Paypal and Verifone.
- Mastercard – according to James Anderson, VP Mobile, Mastercard have been looking into mobile payments since 2001. Those who frequent EAT or Pret a Manger stores may have seen the Mastercard PayPass system at the checkouts. This was launched by Mastercard in 2002. MasterCard also worked with Motorola to test NFC technology that year. By 2007, there were 28 million PayPass devices accepted by 80,000 merchants. Today, there are approximately 88 million PayPass cards and devices in use at 276,000 merchant locations, plus trials and rollouts underway in 36 countries. Mastercard plan to rollout a number of SIM-based NFC solutions this year.
- Paypal – aside from taking mobile payments for eBay transactions, Paypal also want a chunk of the NFC market. Paypal recently acquired mobile payments provider Zong for $240 million, and have also recently updated their Android app to allow peer-to-peer payments. Paypal has a broad user base, but as many have commented, Paypal is not a tangible part of a consumers wallet – so why would consumers pay with Paypal in-store versus a credit card?
- Verifone – though not a direct payment provider, Verifone have a big part to play in the NFC success story, as they are aiming to add NFC to many point-of-sale terminals, and upgrade existing systems to support NFC. Dave Talach, VP of Global Product Marketing, believes the NFC fight will eventually boil down to Apple and Google. “Apple has the clear advantage of having the strongest connection to it’s consumers“, he says, adding: “NFC is a natural fit with Google’s DNA“.
- VISA – VISA saw NFC coming too. No less that fourteen US and Canadian banks have signed up for a new ‘digital wallet‘ – due to go live this autumn – which can be used for contactless transactions. VISA haven’t been shy with partnerships either, as they’ve partnered with Samsung to bring NFC and m-commerce to the London 2012 Olympic Games. For a peek into VISA’s digital wallet vision, have a look at the short video below:
Stay tuned for part 2!