Near Field Communication will outlast other mobile-payment technologies such as microSD cards and two-dimensional barcodes, observers contacted by PaymentsSource generally agree.
NFC gained another ringing endorsement Nov. 16 when wireless carriers AT&T Inc., T-Mobile USA Inc. and Verizon Communications Inc. confirmed their rumored plans for a mobile-payments network that would put payment-enabled phones into their customers’ hands (
Still, the different mobile-payment methods now available might prevent any particular one from dominating the marketplace as consumers and merchants determine which technology provides the most benefits, observes one analyst.
“To have all these different technologies out there freezes the market,” says Paul Tomasofsky, president and executive director of the Secure Remote Payment Council. “There is not enough critical mass in any one of the technologies, and the marketplace doesn’t know what to do.”
Tomasofsky’s organization is developing a set of best practices for payments companies involved in mobile and Web-based initiatives.
NFC’s primary setback always has been how the card brands, issuers, mobile operators and handset manufacturers divvy up transaction revenues. Merchants play a role, too, because they ultimately would accept NFC payments.
The absence, however, of a clear business model might have merchants purposely standing on the sidelines instead of helping NFC gain mass adoption. “If merchants are hearing about [business-model issues], I wouldn’t be surprised if they are hanging back to see what develops,” says Red Gillen, a senior analyst at Celent.
Merchants likely will get behind NFC if they see clear incentives to do so, Gillen adds. The new joint venture might be able to accomplish that if it provides retailers with “really good promotional tools [such as coupons and discounts] and a lower interchange rate,” he adds.
Unlike other contactless technologies, NFC supports two-way communications, which means NFC phones also can upload information, including coupons, by communicating with other NFC chips placed in payment terminals or even promotional signage, such as posters. So payments might not be the only factor that drives NFC adoption.
While the NFC market continues to figure itself out, barcode technology is emerging as a less complicated method to complete mobile payments.
Starbucks Corp and Target Corp., for example, each use barcode payment systems for their store-branded prepaid gift cards. “The barcode is more ubiquitous and easier to get into consumers’ hand and has the advantage [over NFC and microSD cards] in that regard,” says Tomasofsky, who also is president of Two Sparrows Consulting.
Gillen and other observers view barcode technology as a bridge to NFC payments.
At least one company that developed a mobile-payment barcode technology product will look to get its offering on NFC chips when the time is right.
Aaron Greenspan, founder and CEO of Think Computer Corp., says his company will move away from barcode technology when NFC chips become more prevalent on mobile handsets.
Think Computer has developed a mobile application that uses two-dimensional barcode technology to complete transactions at participating retailers. The barcode also contains the user’s digital image to enable the merchant to authenticate the transaction.
“If an [NFC] chip gets integrated into a phone, Apple and Google will release new software-development kits built around that chipset,” Greenspan says. “As soon as those kits show up, we’ll start writing [software] code that uses the chip.”
MicroSD chips’ prospects likely will depend on what happens with NFC, Gillen says. “MicroSD will become less relevant, since NFC chips will be embedded in the phone,” he adds.
In August, Bank of America Corp. announced it is collaborating with Visa Inc. and DeviceFidelity Inc. on a mobile-payment trial involving microSD chip technology integrated with a mobile payment application (
The microSD chip has long-term potential because mobile phones have a SIM card slot. The obstacle to mass adoption, however, is convincing consumers to get a chip and assuring merchants that consumers will use the chip to pay, Tomasofsky says.
Each technology has roadblocks to widespread adoption, but the different players should be ready when a leader emerges, Tomasofsky advises. Companies should stay flexible and change their business model if one technology gains mass adoption over another, he adds.
One technology might be able to gain greater use if a company focuses on a particular consumer segment and break it down even further by particular transactions, such as groceries, Tomasofsky believes. Companies that can capture a certain segment and do well can branch out to others and build critical mass with a certain technology, he says.
Meantime, the mobile phone continues to dominate the payments space as different sectors seek to take advantage of the momentum.
Apple Inc. already has built NFC-enabled iPhone prototypes using chips from NXP Semiconductor, according to technology blog TechCrunch. Apple also has filed patents related to NFC technology and an iPhone application that would initiate mobile payments.
Google Inc. at a conference Nov. 16 demonstrated an Android-powered handset that featured an NFC chip.
“All the stars are starting to line up and show how the mobile phone can be used to create a secure payment environment,” Tomasofsky says.
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