Several major banks and credit card companies are pushing the idea that mobile phones will eventually offer contactless payments, arguing that the capability could drive up transaction volume and revenue.
But according to one analyst, turning phones into payment tools will largely cannibalize existing card transactions, and much of the incremental gains will be eaten up by the costs of developing the technology and getting it into consumers' hands.
"The only thing that makes a difference to a bank is how much more transaction volume you can get from an account," said Red Gillen, a senior analyst at Celent, a financial research and consulting firm based in Boston. "They should not set their expectations too high."
How high is not too high?
According to Gillen, $1.83, per debit account, per year.
That limited increase aside, most observers agree that near-field communications, the technology behind contactless payments, is coming to a handset near you, sooner or later, and the technology has the potential to change consumers' payment behavior. NFC, future-watchers say, could open the door to a wide variety of new uses, including mobile marketing, "smart posters," or swapping photos or music files.
And while Gillen acknowledged in an interview that his analysis may not take in all the potential uses of NFC-equipped phones, he noted that many of these uses do not generate interchange fees.
Gillen's study, released Tuesday, said that besides existing card purchases, banks are hoping NFC-enabled phones will capture a significant portion of about $225 billion in purchases that are made with cash today, or about $500 per card; in early trials, users have shifted 10% to 20% of their cash purchases to NFC-capable phones, and Gillen estimated that once the technology becomes mainstream, banks can expect that number to increase to about 30%. That translates to $150 annually in incremental transaction volume, or $3.29 in increased interchange revenue for the issuer.
Subtracting out a bank's costs — provisioning the handset with account credentials; customer service; sending text message receipts — leaves the $1.83 net annual revenue gain per account, he found.
Many of the potentially most appealing applications for mobile NFC are already closed off to banks, such as transit turnstiles, Gillen noted. "A lot of cities around the world have already invested in these closed-loop systems," he said. "They're not likely to rip them out anytime soon so they can accept Visa and MasterCard."
Banks have been swept away by marketing hype around mobile NFC, Gillen said.
"There are some banks that will do it because of marketing and prestige reasons. There are some banks that are scared not to have it," he said. "But a banking relationship is not form factor-dependent. It's about interest rates, where's the nearest branch, it's my dad's bank — things like that."
He also said that given the low anticipated return from mobile payments, banks should be reluctant to consider subsidizing the mobile carriers' expenses in installing NFC chips in their handsets.
Dion F. Lisle, an executive vice president in the growth ventures and innovation unit of Citigroup Inc.'s global consumer group, said his company believes in the future of NFC payments, arguing that the technology could be a game- changer like Apple Inc.'s iPhone or Amazon.com Inc.'s Kindle.
"It doesn't jump out at you as the opportunity of a lifetime," he said, "but it's enough of a trend to get you started down that path."
