In the long run, it’s all about identity

[Dave Birch] 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 recently so I know he’s a smart guy, 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 Bluetooth or anything else.

Jukka Saariluoma, development director for Finland-based Hansaprint said QR or other 2-D bar codes are now a common feature alongside RFID tags for any NFC service-discovery projects the company works on… “Using NFC is so intuitive; it is much more pleasant than scanning or taking a picture of 2D bar code, and with NFC you don’t need to install anything on your mobile,” he said. “As long as you have NFC, you simply touch and it works.” But he added “As we all know, the spread of NFC phones is so limited for consumers. It’s close to zero.”

[From Pioneering NFC Service Provider Adds Bar Codes to New NFC Trial | NFC Times – Near Field Communication and all contactless technology.]

In Europe it isn’t close to zero, it’s statistically indistinguishable from zero, but that’s hopefully about to change as the handsets finally reach the shops. Apart from convenience, however, what else could the technology offer? To be honest, we still don’t know, because it’s taken a long time to get it into the market and there aren’t enough people playing around with it. We need to find ways to open up the technology and get creative people experimenting with it. Here’s what i wrote five years ago:

I was of the opinion that we should help to operators to develop “internet” business thinking around NFC: open it up and let a thousand flowers bloom, all of which would use SMS, GPRS, 3G or even voice communications, all of which generate more revenue for operators.

[From Digital Money: NFC “challenges” in payments]

At the same time, based on work we were doing for a number of different clients, I also noted that while most of the focus on NFC was about using phones to make payments, there was another aspect to the technology that deserved attention.

A much more interesting, and much more strategically disruptive, integration between the emerging technologies will be the use of mobile handsets as POS terminals (see graphic) because NFC phones can read contactless cards (and other NFC phones of course). As we have been saying for a long time, it is the ability of the mobile handsets to accept payments that is the critical factor in trying to determine the long-term direction of the industry

[From Digital Money: It’s all about density]

This has been borne out by the rapid growth of Square, which has just attracted another $100m of investment following on from the strategic investment by Visa earlier in the year.

Keith Rabois, Square’s chief operating officer, said the relationship between Square and Visa was a natural one because Square could convert the 27 million businesses that don’t accept credit cards into Visa customers.

[From Visa Invests in Square for Mobile Payments – NYTimes.com]

Visa’s customers are, of course, banks rather than you or me, but you see his point. As I blogged about Square literally a few hours before this announcement was made,

In a way, this is a real-world PSP and an fascinating niche play in a large volume-driven acquiring market, one that can be seen to adumbrate mobile disruption and our projection that the mobile-phone-as-POS meme will be more revolutionary than the mobile-phone-as-card meme

[From Digital Money: Innovation is technology-enabled]

Square is now processing $4m per day in payments and still growing. So will the long-term impact of NFC be greatest there? I think the opportunities are huge, but they are still not the biggest impact. I think Sam is definitely right to focus on one thing and that’s trust. I know it’s tedious to keep referring back to snippets of ancient discussions, but I do want to make a point about the kind of advice we were giving to clients back in 2007 when I wrote that

Despite the focus on mobile payments and transit, my view of the long-term impact of NFC was unchanged: in the long term, it will be the identity management functionality that changes the world, not the payment functionality.

[From Digital Money: NFC world]

I also said, at that first NFC World Asia, that no customer would walk into a shop to buy a mobile phone because of proximity payments, although they might because of ticketing. I stand by that: once a consumer buys an NFC phone, then I’m sure they’ll appreciate the new payments opportunities. But will they buy it because of payments? Not for the foreseeable future. Therefore, it seems to me that we need to have more experimenting and that that experimenting should focus on identity. And here, as in the case of payments, it’s the key transformational role of the phone as “acceptor” that will change everything. It’s one thing to have an “ID card”, but what good is it if only the government, or whoever, can verify it? When the repair guy shows up at my mum’s door with his British Gas ID, she needs to be able to verify it – and this is where the phone can make for a new value chain.

NFC phones can be ID cards, but they can also be ID machines. By reading a contactless ID card (or, indeed, another phone) and then verfying the ID (going on line if necessary) they can play a crucial role in making identity infrastructure a simple proposition for mass market consumers. That’s how the nightclub bouncer can check that you are over 21, how the retailer can check that you are an EU resident, how the Glastonbury steward can check you have a valid ticket. No more special gates or custom boxes: every phone will be able to do this, just as every phone will be able to accept payments. The only difference will be that everyone will use the ID functions, whereas they may not all use the payment functions.

So will consumers care about NFC? Well, would my mum ever buy an NFC phone so that she can tap and pay in Tesco? No. And she shops in Tesco all the time. Would she buy and NFC phone to collect vouchers to spend in MacDonalds? No. Would she buy an NFC phone so that when people come to the door she can check who they are by tapping their ID cards against her phone? Well, if she wouldn’t then I’d buy it for her.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers