Merchants and card issuers weighing the cost of investing in Near Field Communication technology have a lot riding on the success or failure of the Isis mobile-payments test set to launch soon.
If Isis catches on quickly with consumers, it will be a big motivator particularly for U.S. merchants still on the fence about committing to full-blown NFC, which allows a two-way exchange of loyalty points, coupons and other information between NFC chips, contends Martin Ferenczi, managing director, North America, at card manufacturer Oberthur Technologies.
"The direction the U.S. mobile-payment ecosystem will go is not settled yet, but if consumers are quick to embrace Isis, NFC will get a big push," he says.
Isis has said its mobile-payments test taking place in Austin, Texas, and Salt Lake City will begin "this summer," but one source who declined to be identified says the Utah test will hit speed during the third quarter.
Mobile network operators AT&T, Verizon Wireless and T-Mobile, along with issuers and processors that include JPMorgan Chase & Co., Capital One Financial Corp. and Discover Financial Services, are part of the Isis consortium, which harnesses NFC technology for mobile payments through consumers' handsets.
Google Wallet, another NFC-based mobile-payment service
But even if Isis is an immediate hit with consumers who take to the convenience of managing all their transactions, loyalty programs and merchant deals within their phones, any U.S. marketplace shift to NFC would be gradual, Ferenczi says, citing various global markets where rollouts are already well under way.
"In Asia, Korea and Japan, there has been extraordinary evolution of NFC over several years, but those markets are much different than the U.S.," he says.
Canada had "one of the fastest" transitions to adopting contactless payment and has a "good" layer of NFC payments because the technology's emergence coincided with a mandate for the nation to adopt EMV in 2010, Ferenczi says. Canada ultimately
While upgrading their terminals to be EMV-compatible, many large Canadian merchants opted to enable terminals to accept contactless payments, including those initiated with mobile devices with NFC chips.
The merchants' embrace of contactless terminals "served as an incentive" for banks to order dual-interface EMV cards capable of conducting contactless transactions, "which propagated a faster transition to contactless and ultimately NFC," Ferenczi says.
The question for many merchants and issuers is whether they will wait until their existing point-of-sale infrastructure wears out and bankcards expire to introduce NFC, or instead move immediately to upgrade whole chunks of their systems and cardbases to NFC, he says.
"We are likely to see incremental changes," Ferenczi says, noting some issuers and merchants may ditch existing technology and move faster than others to adopt NFC if they perceive an opportunity in being among the first to do so.
Some participants may be doubtful about the benefits of investing in new payment technology because U.S. contactless card payments–minus any mobile capability–failed to take off several years ago, Ferenczi says.
"Contactless payment in the U.S. showed good growth through 2008, but then it plateaued and has been in somewhat of a decline ever since," he says.
A number of U.S. issuers already are issuing EMV cards to frequent travelers well in advance of the October 2015 deadline when liability will shift to the party that has not embraced the EMV standard, which eliminates much counterfeit card fraud.
France-based Oberthur as a result has seen demand for EMV cards in the U.S. rise sharply in just two years to "multimillions" of card sales, Ferenczi says. So far, banks have opted to order both contact-only EMV cards and some dual-interface contactless cards, he notes.
Based on trends so far, Oberthur expects to see U.S. issuer demand for EMV cards to soar beginning in the second half of 2013 and the first half of 2014, he says.
"A lot of the timing will have to do with internal changes financial institutions must make in their back-office systems to accommodate EMV," he says.
Oberthur manufacturers "a substantial number" of EMV cards already for banks in Latin America and the U.S. And through two large card-personalization sites in Virginia and California, the firm is poised to handle heavy demands from banks as they gear up for EMV adoption, Ferenczi says.
"We have basically been ready for years, but the U.S. only recently made its move to adopt EMV,” he says. “So we are still in the very early days of what is going to be a big operation."
And as issuers place orders for EMV cards, a certain number will opt for contact-only cards while others will choose dual-interface cards
