NFC – It’s about the e-wallet

I’ve been really excited about the NFC technology since it’s been announced an have been reading quite a few articles about it. Over time, it has made me re-evaluate why I’m as interested in the idea as I am. After the soul searching, I came to the conclusion that for me, NFC is a means to an end. It’s really the e-wallet idea that really intigues me.

I don’t know when the idea first intrigued me. Perhaps it was being in HK and watching others use the “Octopus” card but it wasn’t until Dexit came to Toronto that it became more of a reality. Dexit failed but Mastercard introduced PayPass and provided a broader infrastructure and it is still being actively used. To me, the idea really sunk in when I was part of the beta group for a Zoompass initiative. The idea of being able to wave my phone at a device to pay was great. Almost everyone who saw me do it enquired about it. Most were disappointed when they couldn’t be part of the program that enabled them to use paying by their mobile device.

There have been a few concerns about the concept that are interesting that I’d take the opportunity to discuss:

Low Volume of Adoption
For the most part, the segment of people that would benefit most from this technology are people with smartphones. Although there have been discussions about embedding the NFC chip into the SIM card to enable older generation phones to have this capability, I suspect that anyone who would be really interested or will benefit from the technology would likely own a smartphone to begin with.
It’s hard to dispute that the volume will be low initially. Smartphone usage still represents the minority of users in the world. While this number is growing, it is still not there. However, the one thing that should be compelling for payment providers is the segment that they represent – affluent because these devices aren’t cheap. It’s inconvenient and uncomfortable

One of the major concerns have been that it is not convenient to pay with a phone as most people already are comfortable with paying with a credit card. This is probably true if you look at the population as a whole. However if you focus your market segment to people who own smartphones, the argument can be contested. A smartphone to most people is more than a device to receive phone calls. For most smartphone users, the phone is either out in hand or readily available. It is at worst as convenient as trying to access your wallet.

Another argument I’ve read is that it is cumbersome to look for a payment app on your smartphone which is a bit of an absurd argument. Most smartphone users arrange their apps to optimize their usage where the most used apps are also the most accessible. The other thing that the argument doesn’t account for is how modern smartphones work. These apps can be programmed to run on the background and come to the forefront when required.

It’s not secure
One of the more intriguing things about NFC is that it is short range and more importantly, can (and should be) implemented as a two-way communication device. This makes it possible to do a secure handshake to allow for a secure transmission of a financial transaction. I often imagine that you could mimic the workflow of entering your PIN of your payment card on a payment terminal with your smartphone to ensure the security of every transaction.

Consumers don’t care for it or don’t understand it
I would agree that NFC doesn’t mean anything to the general consumer. However, I would argue that smartphone users get the idea of a smart wallet. Back in the day of PDAs, exchanging business cards via infrared was acceptable. Today using Bump to exchange information is not uncommon. There were 10 million instances of the app downloaded in March of 2010. Companies like Paypal have partnered with Bump to facilitate peer-to-peer payment. Starbucks has reported that payments from their mobile app represents 22% of their total payments.

The thing that I like about NFC is that the infrastructure already exist. In Canada, Mastercard PayPass, Shell EasyPay and Esso all use some form of NFC technology. Given that it is based on radio frequency, scanning for an ID would be a lot easier than trying to scan a barcode off a device. NFC could be game changing.

One of the reasons why I think it will be particularly interesting to follow is The Apple Factor. It is public knowledge that I am not a fan of Apple mobile products to date. I don’t find them technologically innovative. The one thing you can’t deny, however, is no one innovates consumer experience like Apple. They have been able to make something nerdy like mobile phones to be cool and socially acceptable. If they release the capability on the iPhone, there’s a good chance for rapid user adoption.

Then there is also the The Google Factor. Google is really interested in NFC but I suspect it’s not for payment reasons. Google had a product called Tag that was associated with their Google Local product line. Tag was basically giving merchants a QR Code for users to scan. I suspect Google will use NFC to beef up it’s Local product to give users a richer and more proactive localized and targeted ad experience. QR Codes was pretty reactives and so are check ins. With NFC, Google could potentially identify where an individual is within a relatively close range outside of GPS coverage and serve up ads within a close proximity of a location.

Another interesting thing about NFC and the eWallet is that it should cause some changes in the industries. Some of the beneficiaries will be:
Mobile payment vendors like Paypal and Zoompass will definitely be the big winners in this space. NFC could represent the ability to bypass credit card companies like Visa and Mastercard and be another legitimate financial vendor. It’d be easy for small companies to use their phones as a credit card device. While technologies like Square already does it but you need an attachment to do receive payments.

Credit card companies like Visa and Mastercard would definitely benefit from NFC. Paypal would likely be able to target segments that larger credit card companies would consider not as lucrative. NFC could influence higher micro transactions and it be an area of increased revenue.

Loyalty programs could definitely be huge winners with products line NFC. Unlike credit cards where consumers are only inclined to carry one, an e-wallet would enable a consumer to carry as many loyalty cards as they deem necessary without bloating their wallet. Loyalty programs should be really interested in an e-wallet not only from the ability for them to better understand their members but also be able to send very targeted promotions to members therefore providing a much better service and incentive to merchants who use their products.