Using NFC (Near Field Communication) to pay for something is not much different than swiping your credit card on a terminal.
Anyone fighting the battle to improve payments will agree it’s an all-out war against the decades old practice of using plastic cards and a centuries old tradition of paper and coins. These payment methods are so ingrained in our everyday life we hold on to our wallets like our lives depend on it. So how are we going to transition into the cashless society everyone keeps talking about?
Enter NFC, or Near Field Communication, which can be loosely described as chips built into our mobile devices that transfer information to another device when placed at a specific distance from a reader. Some think this is the future of mobile payments, and some don’t. I think ReadWriteWeb’s Dan Rowinski says it best:
From a technological perspective, near field communications (NFC) is one of the most powerful and prominent innovations to come about in the last several years. But from a functional, real world standpoint, NFC is a technology without a clear-cut purpose. What problems does it actually solve? When it comes payments, how much different is a tap with your smartphone than a swipe of your debit card? What about the ability to open doors or share content with your friends? There are solutions already available on mobile devices for many of these “problems.” So, what is the real future for NFC?
Even before I put my gear on, saddled up my horse and rode it directly in the middle of the mobile payments battlefield I questioned NFC as the next big thing in payments. Why? Because using NFC to pay for something is not much different than swiping your credit card on a terminal. Although there is more to the technology, like the ability to include services and software in the payment experience, I believe it is not fundamentally going to change the payment industry for a number of reasons.
Problem 1: Hardware Requirement In Phones
Your ability to swipe your phone and pay for something (via NFC) is dependent first and foremost on you having an NFC enabled device. This is determined by an NFC chip placed inside your mobile phone when it was assembled. The majority of phones on the planet carried by most people are not NFC enabled. Although millions of phones will be shipped this year with an NFC chip inside, it will pale in comparison to the number of phones currently being used that lack the technology. The mobile device you hold in your hand should not qualify you to purchase a product.
Just as SMS texting technology has nothing to do with your specific device, your ability to pay via your mobile device should not rest on the fact that you are “NFC” enabled. In fact, what if SMS technology was not just for messaging between friends and family but actually carried a transaction between two parties – be it friends or customers/merchants? More than 8 trillion text messages were sent around the world last year and those were pretty much all words between people. It will be interesting to see how a communications technology that is already prevalent and widely used around the world can be leveraged for quick payments. It’s would be adopted a lot quicker than a technology that will take at least three to five years to get traction and requires a big investment in hardware by merchants.
Problem 2: Hardware Requirement For Merchants
The second biggest requirement for an NFC transaction to work is the merchant must have an NFC enabled terminal so you can swipe your phone. Expecting consumers to purchase new mobile phone hardware every 2 or 3 years is not too much to ask, but thinking merchants are going to upgrade their point of sale terminals to enable NFC mobile payments is outrageous. Being on the front lines of servicing local merchants, I personally know these proprietors will do almost anything to not have to spend money upgrading their payment terminals.
And since technology is moving so fast these days the hardware that comes out this year will be ancient in a few short years. So what are businesses supposed to do then? Not accept mobile transactions anymore? Requiring local business owners to upgrade their terminals every couple of years is a losing proposition.
Like anything, the answer is not more hardware but better software. That is why even though PayPal is experimenting with NFC in some capacity moving forward, the company ultimately believes that the technology is a step backward when it comes to point-of-sale transactions. Web enabled software connecting customers to merchants for communication and transaction is what will win the battle for mobile payments. The solution that eventually goes deep into “main street America” will not depend on any new hardware that needs to be replaced every few years, but will leverage existing technologies and networks already in place and which are cost effective to both merchants and consumers.
Problem 3: Your Physical Presence is STILL Required
Something I am not sure most have thought about when considering the payment experience is the concept of presence. Many NFC supporters will talk about the security of NFC, meaning it’s safer because you have to be there and swipe to make transaction, similar to how most credit cards work today. Although that is true, unfortunately this does not make the payments industry any more efficient than it already is. Even when using a “new” technology like NFC, physical presence is still a requirement. The point of a new transaction experience is to replace a wallet full of cards, not create new cards or re-create the card present experience.
What happens if I want to pay for something like tickets to an event, a dinner I want delivered to my house, or my rent due every month for my apartment? Based on the requirements of Google Wallet and NFC, I have to do what I have done for the last 20 years and actually be present to use the payment technology, or call and read them my credit card numbers.
Even Erick Schonfeld agrees: “Waving a card (or phone, for that matter) over a reader is not a huge improvement in ease or convenience to simply swiping a credit card. Credit cards work. More importantly, people know how they work. They are not going to stop swiping and start waving without some incentive to do so.”
At Seconds, we believe the future of payments will be found in your ability to make payments regardless of your physical presence. That is why we are very excited about our Pay by Text technology, we see a whole new world of payments when you disassociate proximity from transaction.
Whatever happens in war for mobile payments one thing is for sure, the battlefield will see many warriors and the ultimate winner will own a very large territory.