As the hype for widespread mobile payments enabled by near-field communcation technology continues to heat up, eBay Inc.'s boss doused some cold water on the concept, suggesting instead that large merchants will resist the unproven technology.
"While I think there will be experimentation with NFC, I don't think you're going to see widespread adoption of NFC in the large merchants for quite a while until there are standards," John Donahoe, eBay's chief executive, told analysts July 20 during eBay's second-quarter earnings conference call.
One large merchant Donahoe said he spoke with deemed NFC to mean "Not For Commerce."
"When you're a large merchant and you have 500 stores and 14 checkout lanes per store, you want zero friction at checkout and the point of sale," he said. "And they're not going to allow anything that has friction – no proprietary systems."
Donahoe mysteriously failed to mention the NFC efforts of eBay's PayPal Inc. payments unit. In June, PayPal demonstrated at a conference an NFC Android application consumers may use to transfer funds between PayPal accounts by tapping together two Nexus S smartphones.
Nick Holland, a senior analyst with the research firm Yankee Group in Boston, agrees there is friction because "the installed base of contactless readers isn't there yet," and consumers are unfamiliar with the technology.
But Donahoe is missing the point about NFC in the retail environment, Holland believes. "Intrinsically, it's not going to be about the payment," he says. "It's about completely augmenting and radically changing the entire retail experience."
Indeed, instant discounts via coupons or loyalty points are high on the list of must-have terminal software as it relates to the NFC ecosystem, observers say. As for industry standards, an international one for contactless payments already exists called ISO/IEC 14443, Holland says.
Donahoe said that PayPal is better poised to find itself at the point of sale than NFC-based services because its system is proven.
"With PayPal, we've had merchants reach out to us quite aggressively and say they want us to bring PayPal into the point of sale," he said. "We see it as … a fairly significant incremental opportunity that will play out over the next three to five years."
PayPal will be in trial with a major U.S. retailer later this year, Donahoe said, and some 20 merchants will participate in tests next year.
PayPal reported its first quarter of $1 billion in net revenue, earning $1.07 billion for the three months ended June 30, up 31% from the same period a year earlier. EBay did not report PayPal's net income.
As of June 30, PayPal's active account total rose 15%, to 100.3 million. The unit's net total payments volume rose 34.7%, to $28.7 billion.
Overall, eBay reported second quarter net revenue rose 22.7%, to $2.7 billion from a year earlier. Its net income dropped 31.3%, $283 million.
EBay attributed its lower profit to the GSI Commerce Inc. acquisition, which is expected to close in the third quarter. GSI is a provider of electronic commerce and interactive marketing services.