Mirroring what others are saying about the future of Near Field Communication-enabled mobile payments in the United States, the Federal Reserve Bank of Boston reveals in a May 23 report that widespread adoption of the technology will not occur for at least another five years.
The report highlights some of the barriers blocking NFC mobile payments, including the lack of a business model that would benefit card brands, issuers, mobile operators and handset manufacturers. That fact has hampered the ability of one company or a group of firms from taking the lead with NFC, the report says.
Another adoption barrier is the high consumer and merchant cost to upgrade their technology, the report says.
NFC chips add an estimated $10 to $15 per phone. Combine that with consumers changing mobile phones approximately every two years, and mobile carriers and handset manufacturers have a limited amount of time to recover costs associated with the phone.
The bank believes an even bigger obstacle is the widespread installation of contactless readers, which has stalled. The report estimates the additional cost of a contactless reader at $200 per terminal. While some large merchants have deployed the terminals, many merchants will not invest in an upgrade until it is absolutely necessary, the bank argues.
Payment executives argued last week at the 2010 Payments Conference sponsored by the Federal Reserve Bank in Chicago whether consumers truly see a need for NFC-enabled phones (
“Consumers in the U.S. don’t see a burning need for it,” Jeff Semenchuk, head of growth ventures at Citigroup Inc., told conference attendees. “They want it but are not clamoring for it.”
Despite the severe barriers to adoption, the bank believes the potential long-term benefits mobile payments would bring to consumers are hard to ignore. Some of those benefits include the possibility of a “fully-enabled digital wallet” that includes the storage of payment accounts and health records.
The Boston Fed believes a public transit system could lay the foundation for mobile payments in the U.S. Such has been the case in Hong Kong, Japan and the United Kingdom, where consumers can pay transit fares with their mobile phones. A closed-loop transit environment at first might be best option for NFC in the U.S.
The bank also suggests three general policy initiatives for the Federal Reserve to help regulate mobile payments. The Fed, it says, should conduct survey research to learn about the advantages of mobile payments to consumers and businesses, promote and participate in the establishment of appropriate regulatory oversight for mobile payments, and facilitate coordination among private-industry stakeholders to help them establish common industry standards.
