Mobile payment systems that mimic the capabilities of near-field communication chips are often categorized as a "bridge technology," but they may ultimately turn out to be a bridge to nowhere.
These systems are aimed at satisfying early adopters who are unwilling to wait for the day when phones with built-in NFC chips are commonplace to make contactless payments. The question for backers of the intermediate technologies, however, is whether a critical mass of retailers will pay up to install stop-gap alternatives even as Google Inc. and other big backers push them to invest in full-fledged NFC payment processing systems.
"At this point in the game the money is on NFC irrespective of what else is coming out," said Nick Holland, a senior analyst with the Yankee Group research firm in Boston. "To pick an alternative route seems pretty audacious."
Google, MasterCard Inc., Visa Inc., Citigroup Inc. and several wireless carriers are developing multiple payments systems that allow users to access a mobile wallet that can transmit payment details to special readers at the point of sale.
Some observers believe these systems are still years away from ubiquity and opportunities remain for alternatives that rely on less costly hardware.
Vendors include the likes of Naratte Inc., ProPay Inc. and Square Inc., which are developing services that allow consumers to pay by phone without an NFC chip.
Naratte, unveiled its technology on Monday. It has developed software called Zoosh that uses ultrasound signals to transmit information between devices, such as two smartphones or a smartphone and a merchant's terminal, using the handset's speaker and microphone. For the system to work with a terminal, a merchant must install a $30 dock. For a few bucks, merchants can install a smaller version of the dock that works with audio systems built into some point of sale systems, Naratte's executives said.
"We look at it as … a complement [to future NFC systems] because we can do it now," Naratte Chief Executive Brett Paulson said in a Monday interview. "We can enable hundreds of millions … of phones today."
For consumers to use Zoosh, application developers must install its software code in their programs. Zoosh is likely to serve as a bridge to other systems under development but also could "stand side-by-side with NFC when it comes out," Paulson said.
Naratte's first partner SparkBase, a Cleveland, Ohio loyalty and prepaid card platform provider, is using Zoosh in a new smartphone app called PayCloud. It would allow consumers to add loyalty accounts for multiple merchants. Instead of pulling out a plastic loyalty card to earn a discount or rewards points, a PayCloud user could send information via an audio signal.
Naratte's technology may appeal to merchants for the same reason that other NFC alternatives have in the past. Namely, it eliminates some of obstacles that have slowed down NFC adoption, including problems with handset compatibility, revenue-sharing and risk management, said Richard Crone, chief executive of payments consultancy Crone Consulting LLC in San Carlos, Calif.
"The appeal to merchants is it's device-, carrier- and bank-independent, so a merchant could easily add this capability to its own shopping application and have mobile payments," Crone said.
ProPay and Square are also pushing services that allow consumers to use phones to pay for purchases without NFC.
ProPay, a gateway operator, is preparing to relaunch its Zumogo service, which it tested in January in Salt Lake City. Zumogo allows consumers to register existing payment cards with a smartphone app, and then make payments with retailers that have signed up to accept Zumogo payments with ProPay.
Gary Goodrich, the president and chief executive of the Lehi, Utah, company, said that its service also is complementary to future NFC mobile payments.
There will be "many places that don't have installed NFC readers … for many years," Goodrich said. "It may be six years before they plan to change out their readers, so in the meantime we need to secure a means of transacting social, mobile payments."
Square, the company headed by Twitter Inc. co-founder Jack Dorsey, recently rolled out a mobile payment service that works alongside the square-shaped mobile card reader it has built its brand around.
Crone cautioned that many merchants may be unwilling to invest in these technologies if they perceive NFC systems to be around the corner.
"The question for a merchant is: Is this sustainable technology? Sustainable at the point of sale, sustainable in the ecosystem, sustainable for all payment types? Or is it just an interim step?" Crone said.
Mobile NFC payment transactions are expected to reach $50 billion worldwide by 2014, with North America and Western Europe accounting for half of the market, according to a recent report from Juniper Research. The firm cited the rollout of new pilots as a sign that such systems are taking hold.
Other mobile payments ventures that have tried to convince merchants and consumers to adopt them on the basis of immediate availability have failed to build long-term franchises.
Bling Nation Ltd. of Palo Alto, Calif. pushed a system that enabled consumers to affix stickers to their phones and make contactless payments at customized point-of-sale terminals. Bling recently wound down its operations after several iterations but says it will unveil a new payment model later this year.
Mobile payments systems that do not use NFC technology have had successes. Starbucks Corp. has quickly become the poster child for a sleek, easy-to-use mobile payments service with a two-dimensional bar-code system. Starbucks customers can make purchases from the retailer's prepaid card accounts by displaying a bar code on their phones at the point of sale. The company's app is available on Apple Inc.'s iPhone, Research In Motion Ltd.'s BlackBerry and mobile devices running Google's Android operating system,
"The success of these things is going to depend on whether merchants see enough critical mass on the consumer side to want to invest in that specific solution, even though it may be a relatively inexpensive solution," said Paul Grill, a partner with the payments consulting firm First Annapolis Consulting in Linthicum, Md.
NFC backers have made a convincing enough business case for their systems to entice payment terminal manufacturers to begin including NFC support in their new products, which could also give the technology an edge in terms of merchant adoption, Grill said.
Paulson said Naratte is in discussions with banks and other potential partners that could use the company's service; he declined to name names.
Byron Alsberg, the chief development officer for Naratte, said even when NFC is widely available, the company could tailor its service to other uses.
"In five years when NFC is in every phone in the U.S., there will still be some pretty unique experiences that will have a lot of value to consumers" with Naratte's technology, Alsberg said.