Forces against NFC

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27 Sept 2012

Although I’m not known for short blog posts.. I thought I would try one. Like grabbing a cereal bar for breakfast instead of my normal 3 pancakes, eggs, bacon, OJ, coffee… it will of course leave me with a large empty place… but sometimes it’s good to be hungry.

I read Scott Loftness’ tweet on no need for dedicated POS terminals if phones take off. Also was thinking of Square’s strategy of enabling all consumers to have an account (think cloud wallet), and my blog earlier this week on EMV/Verifone’s imaginary vision of the future (contactless EMV).  As a side note Verifone is telling investors the retails will by a massive display payment terminal to market to their customers.. FUBAR! Take a look at how IBM values the POS business.

Forces against NFC

  1. Cloud Wallets. Much is made of NFCs ability to interact independent of network.. This is great.. but remember the POS system and payment terminal are always connected. How many of you remember the days where someone pulled the blue paper over the embossed card number? All that is needed is a key… voice print, loyalty card, qr code, …  There is no need for specialized hardware today.
  2. Credit card only. Issuers, Mobile Operators and Payment Networks worked to position NFC as a “premium service”. How many of you have seen contactless debit cards? Merchants are aware.. and top 20 retailers (with few exceptions) have walked away.
  3. POS systems. Why on earth would any small merchant want to buy a dedicated POS system with a cash drawer? I think we will see tablets really start to take over this space. Although I’m not a big fan of in aisle checkout… there are variants that could work. Even more so if you eliminated cash as a payment option.
  4. If tablets become POS systems…. Then Verifone is a short.. or a long short. In the next 3 years they will see a big bump in re-terminalization due to EMV. Here is a picture of a mobile chip and PIN reader my friends at Baclays put together. All of their UK consumers have one.
  5. Mobile phones.. there will be instances where consumers can pay for their purchases before they collect them, or for small merchants and small businesses where payment is to a sole proprietor  (remember there are 474,000 US restaurants with under 500 employees). IMHO THIS IS WHERE PAYPAL SHOULD FOCUS.
  6. UBIQUITY. No merchant is going to invest where only 2-3% of customers can use the product. There are not enough phones in the market, and not enough payment terminals (<200k in US) that support them
  7. No compelling value. NFC must do something else beyond payment… there are no payment problems. Therefore NFC must start with something like unlocking doors or beaming pictures..
  8. Supply chain chaos and standards. NFC will take off in homogeneous markets (or those dominated by a monopoly)  that can force a standard (Edy/Suica in Japan, Octopus, EZ-Link, The French, … ). Today’s phones largely feature an embedded NFC SE made by NXP. The carriers want SWP based solution but Gemalto can’t get the SIMs out the door. It also doesn’t help that NXP’s current chips can take only one card emulation application (only paypass, or only paywave.. but not both).. which means that the little sticker on my phone does just about everything I need.
  9. NFC is anti cloud.. everything is locked up inside this little secure vault.. it ONLY does POS payments. I can’t do a mobile checkout with an NFC phone….

11 thoughts on “Forces against NFC”

  1. Tom – wholeheartedly agree with your perspectives on this and have been advising my clients for sometime to be extremely cautious about investing in NFC-based mobile solutions.
    One additional issue you could add is the inherent complexity of NFC-based payment solutions – with more parties playing there is simply more to go wrong and a greater challenge in delivering elegantly simple and easy to use consumer applications.
    The UK experience around contactless has been, frankly, dreadful – many retail/food outlets that theoretically take contactless have frequent occasions when it doesn’t work at all and in other cases it requires the staff to ‘turn it on’ making the whole process less convenient that a standard card payment. Early Google Wallet implementation experience seems to have been similar. Contrast with even Starbucks’ QR based system and it’s hard to advocate NFC.

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  2. I totally agree. I personally think the value of NFC will be in initiating services. For example walk into the doctor’s office and tap and all the health records and appt info is started, renting a car, going to DMV or the post office. The cloud-wallet will dominate since you can stack revenue generating services.

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    • During the demo session by MSFT (Win 8 mobile) at the NFC World Congress in Nice (France), each tag reading session was based on a pop-up message that was saying something like (almost ad verbatim): “Someone wants to use GRT34TX with your phone” (similar to this one – http://images.anandtech.com/doci/6027/20120620_100022.jpg)? How many times should a tag, that you see in a legit environment, lead you to a porno site for your to stop scanning any of them?..

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  3. = All that is needed is a key… voice print, loyalty card, qr code =
    Exactly: NFC is not about payments (you cannot pay with NFC, barcode, etc), it’s about closing the loop. There are indeed multiple alternatives for doing that, but as far as ad hoc communication session and protocol flexibility are concerned, NFC is hard to beat. If implemented correctly.

    = Why on earth would any small merchant want to buy a dedicated [NFC] POS system […]? =
    There are many ways to skin a cat with NFC. We are looking to implement an (extremely) low-cost mobile- and tablet-based solution (think of Square…) to accept payments from any EMV-compliant contactless banking card. Why? To leverage those hundreds of millions of contactless cards which are/will be issued whether the consumers want them or not. (Better keep my mouth shut for now…)

    = Here is a picture of a mobile chip and PIN reader my friends at Baclays put together. All of their UK consumers have one. =
    We all carry three objects with us daily: a mobile phone, a wallet and keys. Carrying anything else – “UX sucks”. Especially if you are banking with 2-3 banks. There is a much neater, elegant and more ubiquitous way of turning any smartphone into POS (and much more) – http://tedipay.tumblr.com/image/32390919233 >> visit http://www.tedipay.com to see it “in action” (disregard the application shown there).

    = No compelling value. NFC must do something else beyond payment… there are no payment problems. Therefore NFC must start with something like unlocking doors or beaming pictures. =
    One word – transit…

    = NFC will take off in homogeneous markets (or those dominated by a monopoly) that can force a standard (Edy/Suica in Japan, Octopus, EZ-Link, The French, … ) =
    I am not sure whether you realized it or not, but most of those examples relate to… transit (see previous para). That’s the entry point. Add ability to ACCEPT contactless (EMV) cards via the same platform (Square model for retail, including NFC-enabled tablets…) and suddenly the big picture starts taking shape… Transit (NFC), contactless EMV (NFC), secure (“chip-n-PIN”) online payments, cardless ATM withdrawals… Bring Google style wallet to the equation (i.e. ability to use ANY of your existing cards for any of the above applications) and you get a game-changing platform (where NFC is one of the elements).

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