NFC is pottering along

1. The economic buyers – i.e. the Mobile Operators and Issuers – have not solved their rivalry: Behind the scene a furious battle has raged on the ownership of the secure element used to secure transactions, a proxy for the question of who will own the customer relationship.
2. Consumers have good enough methods of payments as it is: Without prejudice for the vision behind NFC, the need for a new method of payment delivery based on handsets is tenuous… Absent a reason for consumers to want it and a business case for Issuers to support, standalone payments is an unlikely “killer application.”
3. No good path has been proposed to reach a critical mass of users: If I had a penny for every time I have heard about “the-chicken-and-egg” problem, I would be retired by now.

[From NFC: Past, Present and Future – pymnts.com]

Patrick’s analysis explains the paralysis in the operator-handset-bank domain that has allowed Google Wallet (and next year, I’ll wager, the iPhone, despite the 4GS  lull) to steal the agenda. Operators were slow to get behind NFC, but customers liked it and they appear to want more services: hence some observers see the action shifting from a consensual evolution at the interface between the mobile industry and the financial industry to a “screw you” revolution where more aggresive service providers (not only in payments) are using stickers (Albert Hein), microSD (Samsung/Visa) and other technologies (Google Wallet) to simply bypass the bank/operator interface. It’s also worth noting that other players are bypassing the banks and operators in other ways, although that’s not the main point of this post.

We certainly live in very interesting times. The traditional players are zigging – away from mag stripe card technologies (with, perhaps, the exception of Citi and its work with Dynamics) toward a world of NFC/contactless payments. Meanwhile, it seems that PayPal isn’t waiting for that world. Instead, it’s zagging toward a speedier implementation of, arguably, a new and convenient way to pay that’s card-less and avoids the requirements of rebuilding so much of the payments ecosystem.

[From Zigging and Zagging toward Mobile Payments in the US — Payments Views from Glenbrook Partners]

So I’m not saying that the only way forward for mobile phone-based retail payments is NFC, although I do think that the convenience of NFC ought to translate into pretty significant market share. For what it’s worth, and despite the slow start, the latest forecasts are very bullish about NFC, even in North America.

NFCNews also reported that North America will have the biggest chunk of the NFC market by 2016. This will correspond to around $113 billion in mobile transactions. Furthermore, 1 out of every 5 smartphones worldwide will carry NFC technology come 2014, translating to almost 300 million NFC-enabled smartphones.

[From Mobile Payments: Rid the World of Plastic, $50 Billion Industry by 2014 | SiliconANGLE]

As an aside, I read that one UK operator is especially keen to get NFC out of the labs and into the mass market as soon as possible!

The researchers also believe that internet companies such as Apple, Google, and Yahoo are best placed to take advantage of this technology.. Incumbent players in the telecoms market are at risk of being left out.

[From 588 million using NFC payments and services by 2015 NFC (near field communications) news blog]

It’s difficult to disagree with this given the current state of things, but it’s not a foregone conclusion. It’s true, I think, that the operators in developed markets made a mistake 2-3 years ago by not ordering NFC handsets. At the time, as we all remember, the operators found it very difficult to justify the additional cost of NFC because they couldn’t see a business case in their spreadsheets and they wanted a more detailed exploitation path. So this is how we’ve got to this point, where even the people who do have handsets with NFC aren’t able to play with it for “serious” applications. Remember this?

Nokia’s C7 handset, released some nine months ago, includes NFC hardware but it is currently inactive. This summer, when the phone gets the Symbian Anna operating system upgrade, the NFC chip will be activated and end users will be able to start using their phones to read and write to NFC tags — but won’t be able to use them for secure NFC services.

[From Nokia: No mobile wallet support in current NFC phones • NFC World]

It’s fair to observe, as I have done before, that there’s a lot more to NFC than secure services (such as payments). But one cannot negate a universal affirmative, as they used to say on Monty Python’s Flying Circus. A mobile proximity payment service must be secure, but not all secure services are mobile proximity payments. There are plenty of interactive services that will still need to have security. The operators need platforms and interfaces for access to secure NFC services for all sorts of applications, including ones we haven’t thought of yet. Yes, this is more complicated than simple interactions, but that’s why there is more value in it. Hence you can understand why industry observers are somewhat puzzled by operator strategies.

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