Analysis: NFC and the merchants of menace

Announcements from vendors gambling millions of dollars on mobile payments are commonplace. Just this week saw announcements of liquid handsets, tipping points and more joint ventures. The hype cycle is in full swing.

However, NFC, or near field communications, and other mobile payment technologies, have their doubters, and those doubters have their reasons. First, breakthroughs in payments technology seem to happen regularly – and disappear just as quickly. A decade ago Visa was at the forefront of contact smart cards. Loyalty programs and vouchers were set to take the marketing and payments worlds by storm. Retail giant Target bought in big, according to NFC News, but had to scrap the nine million terminals it had bought to be ready for the new wave—a wave that never came.

According to the same, pragmatic but downbeat article, “the biggest problem still exists as it did a decade ago; convincing retailers to switch their point-of-sales devices to accept these new payment types.”

The second issue is simply speed of change. The realists know that universal, commercial roll out of NFC-enabled solutions is several years away. Rather like the dear old FDA, a company can announce a miracle cure today and then be forced to spend years testing it. There are many parts of the ecosystem that need to come together and much testing needs to be done. Meanwhile, PayPal, for example, is on course to process $3.5 billion this year, five times the volume it did in 2010. This is not a time in our history when people will wait around for a solution, particularly when there are already many alternatives.

The third issue is that the arguments for NFC and mobile phone payment methods, as they stand, are flawed. They are more secure, for sure, but, for customers, security is table stakes. If there were real issues about security, NFC would never have a chance. With security issues covered, NFC has half a chance. NFC and paying by smartphone is not noticeably faster, and while it may be more convenient, putting all your money on one device is a step too far for many. Finally, customers are not convinced about this new revolution anyway.

And then, squashed in the middle are the merchants. Life for them has become very complicated and they are under pressure. It is these merchants and retailers who will have to make the decision – to bet on NFC – or to stay safe and go with whatever contactless payment technology emerges from the trials by the big payments processors. It sounds encouraging when news breaks of a big retailer signing up to NFC. The problem, though, is not the ‘big boys’. Customers may well spend $1 in every $8 in Tesco (in the U.K.) – but that leaves the other $7, which represents the thousands, if not millions, of smaller retail outlets. For them, the risk is even greater. Those smaller merchants can, and will, wield enormous power. The only thing that might convince them are the less talked about benefits of NFC. If a retailer knew who was walking into his store, what his preferences are, how he likes to buy things, when his mother’s birthday is, then the merchant might be convinced. Sadly, that goal, too, is being pursued by other means – and vigorously (CP: I love it when an eco-system comes together).

Finally, until next time, look at Apple. Clever, smart, cool, canny and the biggest company on the planet – sometimes – Apple has been expected to have NFC enabled devices in ‘the next release’ of its iOS platform for over a year now. And it hasn’t. The industry might want to ponder why.