Mobile NFC Payments – Reality or Hype?
The industry’s enthusiasm for mobile NFC payments has reached fever pitch. Am I alone in remaining sceptical?
Superficially the proposition is attractive. We all love our mobile phones, and technically it is a simple matter to load a payment application on the handset and use Near Field Communication (NFC) technology to support a simple Tap and Go payment at a contactless merchant terminal. Beyond this, there is the prospect of leveraging the phone’s processing power with facilities such as geopositioning, couponing, or advertising. But the devil is in the details and there is a lack of clarity on several issues including standards, business models, the strength of the consumer and merchant propositions, and alignment of stakeholders’ interests (see Bulletin, September 2010). Above all, mobile NFC will not make sense until there is an acceptance infrastructure in place, in other words a critical mass of contactless terminals at merchant outlets.
Such contactless terminals are already being rolled out to support payments using Visa PayWave and MasterCard PayPass cards. According to the UK Cards Association, just over 50,000 contactless terminals had been installed in the UK at the end of 2010. At about 5% of the total POS terminal population, this is far from critical mass, and as my predecessor Rob Walker pointed out (see Bulletin, August 2010) the number actually operational is probably somewhat lower. Even more worryingly, Barclays announced a milestone of 1 million UK contactless transactions in November last year, which, in relation to a total yearly volume of about 10 billion card payments represents a market share of about 0.01%! Clearly, contactless card payment is taking off much more slowly than envisaged at the high profile London Launch in 2007. So why should mobile NFC payments be any different?
Meanwhile, a largely unreported trend is the increasing use of standard, contact payment cards instead of cash for relatively low value purchases such as a sandwich in a supermarket or a pint in a pub. This is partly due to the increased convenience of chip and PIN, but also represents a significant social change, especially amongst younger people, both customers and sales staff, and is reflected in the huge growth in debit card payment volumes in recent years.
Of course contactless payment comes into its own in niche environments where speed is at a premium, the prime example being urban transit systems, as illustrated by TfL’s recent announcement that it will accept contactless bank cards on all networks by the end of 2012. No doubt payment via mobile NFC will in due course also become a viable option in these environments. But for the vast majority of payments, the saving of a couple of seconds compared to a standard chip and PIN transaction seems trivial.
So call me a Luddite, but whilst I accept that mobile NFC has enormous potential in the long term, I believe that we will be using boring old plastic cards for most payments for many years to come.
Nick Collin, Banking Automation Bulletin, April 2011