Why Haven’t NFC Payments Taken Off?

With the EMV 2015 milestone approaching rapidly, there’s been renewed interest in smartcards, those credit cards with an embedded computer chip.  Back in 1996 I was working for a vendor helping Visa introduce a stored-value smartcard to the US.  Visa Cash was debuted at the 1996 Olympics in Atlanta, and I firmly believed it was the beginning of a cashless society.  (I later worked on MasterCard’s system called Mondex, from the UK, which debuted the following year in Manhattan).

But since you don’t have a Visa Cash card in your wallet, it’s obvious the project never took off.  It was convenient for consumers, faster for merchants, and more cost-effective for banks, so why did it fail?  All emerging payment systems suffer from the chicken-and-egg dilemma.  Consumers won’t carry the cards if few merchants accept them, and merchants won’t install the terminals if few consumers have cards.

Today’s emerging payment providers are in a similar pickle.  There has to be enough value for all three constituents – consumers, merchants, banks – to change the status quo.  And it’s not enough to exceed the value, it’s got to be a leap in value, because people generally resist change.  ATMs and transit cards are great examples of this, and airline kiosks and self-checkout systems are to a lesser extent.

Although Google Wallet and ISIS, the two leading NFC payment platforms in the US, have shown strong commitment, there’s been very little traction.  Yes, I can load my credit card number into my phone then tap to pay, but what was the incremental value over swiping my old card?  For it to be a leap in value, it has to offer more than just payment, which I can do very easily today.  The other two ingredients are thought to be loyalty programs and digital coupons, but neither Google nor ISIS really did them well.

Of course a large portion of the mobile phone market doesn’t even support NFC thanks to Apple, and since it’s not in their best interest that situation is unlikely to change.  Another issue is getting access to the “secure element,” the chip inside the phone where accounts numbers can be held securely.  Telco providers and handset manufacturers own that area, and they’re not willing to share with banks.  (Host Card Emulation, which has been endorsed by MasterCard and Visa, might be a solution.)

Square recently gave up on its wallet, and MCX (the group of retailers trying to create a mobile payment platform) is very slow out of the gate.  That leaves PayPal and a slew of smaller companies trying to introduce easier ways to pay.

But is it really so cumbersome to carry and swipe (soon to insert) a credit card?  Aren’t there more important problems to solve in the retail customer experience?  Maybe Apple will come up with some novel way to use iBeacons and fingerprint identification to make payments, but for now I think we need to focus on upgrading to Chip-and-PIN and tightening security.  In the meantime, NFC payments will continue to struggle.

Comments:

This article should be renamed Why Haven't NFC Payments Taken Off in the US! Here in Australia half of Visa transactions are conducted using payWave equating to more than 40m transactions per month. Merchant acceptance is now so widespread that you can go for days without signing or using PIN. In fact from August you will no longer be allowed to sign for POS transactions.

Posted by guest on May 27, 2014 at 03:10 AM CDT #

Good point! Just as the US lagged with EMV, the rest of the world seems be doing much better with NFC.

Posted by David on May 27, 2014 at 08:05 AM CDT #

Lots of reasons.

1) I have been watching closely, and there is not a desire from US banks to issue NFC enabled cards. I think Chip and Signature v. Chip and PIN is part of this; US banks need to commit to issuing cards that follow the worldwide standards rather than a one-off solution that is part of this. But the fact is, EMV makes "certification" and support of any solution very costly, and I don't see a desire for US merchants to roll-out technology that will not be used.

2) ISIS and Google Wallets are the problem. The business model of these solutions are based on the value of the customer data. US merchants are wise to follow the publicly stated goals of WalMart, Target, and other large retailers to protect there customer data and not give it away to marketing firms disguised as payment solutions. I honestly do not believe that both of these solutions will exist in two years and it will be interesting to see which exits first. A solution has to meet the needs of all stakeholders (customers, issuers, and merchants); and the solutions out there today too often treat the merchant as an afterthought that needs to be tricked or coericed into participation.

3) Payments in the US are NOT based on a cost/benefit model. Too much investment in the last 7 years are forced on merchants to "comply." The worst kept secret is there is ZERO ROI on EMV, and resources that could be looking at payment options that might improve customer experience are instead spent on complying with solutions that may have already outlived their usefulness.

I really sense the state of the retail industry is to scramble to again update our systems to EMV compliant while keeping costs in line. Perhaps in a couple of years when we have EMV, P2P, Tokenization, etc. in place, we will have time to look at these solutions. But today, there is so much on the plate, and it is hard to determine what the final solution is that will best meet the needs of all stakeholders (customer, card issuers, and merchants).

No one is asking what is best for merchants in this. And until that happens, the cost and experience of EMV means, I think, we are a long way from seeing this happen.

Posted by Marc Windahl on May 27, 2014 at 11:22 AM CDT #

All excellent points, Marc. MCX is the "merchant's payment solution," which I interpret to mean lower fees, and protection of customer relationships. But fighting the banks and telcos will not be easy.

Posted by David on May 27, 2014 at 11:31 AM CDT #

NFC is starting to take off in the UK, some of the bigger retailers have NFC enabled their Chip & Pin card units, and it is quicker than EMV CHip & PIN, as fast as swiping without a signature where Chip & Pin usually takes 20 seconds.

It is increasingly popular in convenience stores and fast food: McDonalds made it available relatively early, as did the Post Office; Tesco and ASDA-Wallmart (supermarkets) have equipped at least some of their self service registers, and Transport for London has rolled it out as an alternative to Oyster transit card to all the buses, making the buses completely cashless in the process (flat fare makes this easy, although you forgo the daily fare cap), and is working on it for the Underground and Overground (the real time fare zonal calculation and daily fare cap makes this more difficult, the card has to be tracked in and out of the system to calculate the right fare).

The only blip is sometimes Amex is not enabled for NFC, even if the retailer accepts Amex for EMV.

What has definitely not taken off is NFC for mobile phone wallets.

Posted by Miles Thomas on May 30, 2014 at 08:12 PM CDT #

This is what I have been working to build over the past year. A few things are obstructing progress

- Google's HCE which eliminates the need for physical secure element, which is endorsed by Visa and Mastercard.
- Google's stopping of support for physical secure element
- Telco operators turning off HCE in android phones they carry
- no support for NFC in iphone other than through iCaisse from Device Fidelity
- Nobody knows whats apples' take on this.
- NFC's range is too small to make payments without pulling hair
- No standardization of protocols or specs for Gift card and Loyalty Cards.
- Very few retailers want to upgrade their cash registers to accept NFC based payments

Everyone wants a piece of Mobile Wallet pie and no one wants to compromise.

We need something like ARTS to build a spec around Gift Cards and Loyalty cards and card issuers need to buy into and contribute to that spec

Posted by guest on June 03, 2014 at 01:49 PM CDT #

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David Dorf, Sr Director Technology Strategy for Oracle Retail, shares news and ideas about the retail industry with a focus on innovation and emerging technologies.


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