At the end of March, we learned that there is no business case for moving to NFC at POS in the USA.
Representatives of three of the country’s largest banks, Bank of America, Citigroup and U.S. Bank, attended a meeting last month organized by the Merchant Advisory Group… to talk about the new opportunities that mobile technologies, such as NFC, will create for the payments industry.
“You know what they (banks) told us? There’s just not a business case right now,” Dodd Roberts, head of the merchant group, said last week[From Big U.S. Banks Look for A Business Case for NFC | NFC Times – Near Field Communication and all contactless technology.]
That’s a shame, because it’s a fun technology that consumers like. Never mind. Of course, not everyone thinks that banks can’t make a go of it, and going back a couple of years we can find some positive projections.
Celent estimates that a 30% cash displacement ratio, or an incremental US$151 per card account, per year is reasonable, with an average revenue increase of US$1.83 per debit card account per year.[From The View from the Mobile NFC Finish Line: Bank Economics in a Mature Mobile NFC Payments World]
Anyway, a month after the US banks told the Merchant Advisory Group that there was no business case, we learned that…
France-based POS device manufacturer Ingenico has confirmed that it is working with Google on the development of NFC-based services for retailers[From Confirmed: Google developing NFC solutions for retailers • NFC World]
Was this an “Inception“-style paradox? A fault line between two sets of dreams that don’t quite connect? A glitch in the matrix that could be eliminated if we all take the bank’s blue pill? Because now someone is offering red pills…
The first NFC service launched by Google for its Nexus S phone is an enhancement to its Google Places service. Customers tap the phone against NFC tags embedded in stickers or decals that merchants affix to their storefronts to access information about the local business, including phone numbers, hours of operation, payment types, reviews and recommendations.[From Checking in with NFC–Some Social-Networking Start-ups to Use NFC | NFC Times – Near Field Communication and all contactless technology.]
Aha! So now we can see how to resolve the paradox. There’s no business case if you only think about transaction revenues (the bank model) but there is a business case if you “ignore” payments and focus on value-added services that retailers will pay for (the Google model). This has got the mobile operators interested enough to start upping the orders.
Such Android handset makers as Samsung, HTC and likely LG and Motorola are preparing for NFC, based on keen interest or orders from mobile operators, including South Korean telcos, SK Telecom and KT; China Mobile; as well as American and European carriers, NFC Times has learned.[From ‘Open’ Battles Break Out Among NFC Vendors Over Android | NFC Times – Near Field Communication and all contactless technology.]
But is Google’s interest enough to create the contactless rails for these mobile devices to run on, as we keep talking about? Chris Skinner made a very accurate post about this recently.
And here’s the rub: we need more terminals. Maybe they could learn something from Zapa in Ireland, where AIB Merchant Services has worked closely with them to rollout terminals that can use the tags. Half of all AIB’s merchant terminals are now Zapa ready: that’s 40,000 of their 90,000 terminals, with over 1.5 million contactless transactions in the year to September 2010. Compare that with Barclaycard, which has rolled out just 42,500 merchant terminals to date and is processing just over a million transactions by November 2010, and you can see the challenging dimensions they face.[From BAI | Banking Strategies | Distribution Channels | Mobile | Why Mobile is Critical to Banking]
A characteristically well-informed comment from Steve Mott delves further into resolving the paradox. Perhaps payments are losing their strategic appeal for banks because they are becoming commoditised, utility businesses that just won’t generate the cash that they did in the past.
Consultant Steve Mott, CEO of BetterBuyDesign, who also attended the Merchant Advisory Group meeting, told me the U.S. banks do see the advantages of mobile to increase transactions. But mobile confronts them with an unfamiliar payments landscape at the same time they are being squeezed by regulators with the Durbin amendment,[From Big U.S. Banks Look for A Business Case for NFC | NFC Times – Near Field Communication and all contactless technology.]
Banks aren’t stupid. They know that NFC is coming, that consumers and merchants like it, that it means disruption. But it is very difficult to change core businesses, especially at a time of great regulatory uncertainty. In the meantime, the non-payment use of NFC will lead it into the mass market. But will the new technology pull in the customers? Sam Shrauger, VP Global Product and Experience at PayPal, puts it succinctly:
People couldn’t care less which technology a hardware or software manufacturer would like to sell them. They couldn’t care less which technology merchants may or may not put in their stores. Ultimately, they just want something that makes their life better when it comes to buying and paying.[From Why the Mobile Payment Debate Is Headed in the Wrong Direction [OPINION]]
Now, as it happens, I was chatting with Sam last month and I agree with him about many things, but I think that in this particular case he may be underestimating the impact of “tap and go” technology. The point is that tapping is so much simpler, so much quicker, so much more convenient for consumers that it will make a difference to them. People will start looking for the phones that you can tap together to become Facebook friends, or whatever, because that experience blows away bumping, or texting or QR codes or whatever.
This, I think, means risky time for bank payments. Once people are using their non-bank wallets on mobile phones to execute retail transactions, initially using bank-provided payment schemes, it will be a small step to get them to move to non-bank payment schemes inside those wallets. Banks need more active responses to the changing environment and I hope I won’t be offending anyone to say that I know from personal experience with recent projects that banks are losing opportunities right now because they are not able to deliver products in the timescales demanded by other industries.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]