There are a number of generally held perceptions in the executive strata about the future of mobile NFC payments, some of which are true, some of which are most certainly not. Invariably, these mobile truths and myths end up driving projects where the rationale is invariably “we are doing something with mobile because…”
Real innovation in the card payments industry is rare due to the simple fact that it works pretty well as it is. And it does that because it’s evolved over time with a strong focus on ensuring the integrity of every payment while increasing convenience and offering additional features that improve the experience of the cardholder or merchant – NFC for payments actually came into being over 10 years ago. However, the big flaw with this trickling, steady evolution is that the world of commerce has down-shifted, floored the accelerator and is now changing at a rate hard to keep up with. This is where mobile is looking to bridge the gap.
…there are more mobile phones than payment cards
While the statement that there are more mobile phones than payment cards is perfectly true (nearly 7bn versus nearly 2bn), the same could be said for cars (over 1.2bn today and 2bn by 2025) which are typically shared by a number of people meaning that around 3bn people now have access to one. Just because something has become ubiquitous doesn’t mean that it fits the need for payments, as aptly demonstrated by the lack of take-up for BMW’s PayPass-enabled car key. The essential component of a payment transaction is a transfer of value from the cardholder to the merchant in return for goods or services, the reciprocal action to a commercial transaction. In order to find the right token to do this with, currently the card, then we need to examine more closely how cardholders use the tools that they have to perform other tasks.
…our customers expect us to
Expectation weighs heavy on some businesses. In the mobile world they know about expectation with every hotly-followed model launch by Apple, Samsung, RIM, Google et al apparently determining whether these international behemoths will rise or fall. There is a great part to this reason, ‘customer’, which is the only place to begin when creating a new solution. However, there is growing evidence that while consumers are interested in mobile payments, few actually want them, and they do not figure in the rationale for changing banking provider for the vast majority of people.
…if not us, someone else will
For a long while there were many that panicked over the impending overtaking of all payment services by Google and PayPal. To date it hasn’t happened. Sure enough there are many non-bank players that have captured a share of the estimate annual 3.5 trillion electronic payment transactions, but the reality is there’s a pretty big pie to carve up and the losers will be those for which payments was a peripheral business anyway. However, if you do nothing and others expand their services, there is a danger of you losing some customers, but typically with few disruptive players aiming at the full service banking market it is more a risk of disintermediation than total separation.
…it is inevitable that people will pay this way
Consumers have a habit of grasping the most ridiculous of concepts or things, and ignoring the absolute deep-seated logic of a well-constructed product. On the face of it, the electronic purse card for low value payments was a sound invention, yet no implementation could be termed successful. When mobile phones moved into mainstream use, who could have predicted the success of SMS as a service and how it has now changed the way we communicate and the way that language is used. The traditional logic for mobile NFC is sound – mobiles have become an everyday tool and create an interactive environment allowing enhanced transaction security. However, there is growing evidence that the device of choice for banking in many markets is the larger tablet format, with a recent customer survey by ING showing that tablets have overtaken PCs as online banking device of choice and drive consumers to pay bills more on time and reduce time spent in overdraft.
Although the market has settled on the bar format for mobile phone during the last few years, a new format war is about to begin amongst the major mobile manufacturers. Apple, RIM and Samsung have all mooted plans for a big move to the watch format, Google continue their experiment with Google Glass and more wearable devices, all of which take us back to the original concept behind contactless cards and NFC (and mobile) – when the R&D guy at MasterCard in 2001 uttered the immortal words ‘wouldn’t it be cool if instead of a card you could pay with your watch?’ Of course, back then at the turn of the century most people wore a watch – mobile proliferation wasn’t anywhere near today’s levels and telling the time was a matter of looking at your arm and not in your pocket (unlike at the turn of the previous century when people kept their watches there!).
Initial contactless efforts were hence focussed on the watch format – but as the noughties drew to a close, numbers of watches being sold was in decline as consumers looked at their phone instead, and so the associated card genii tried to work out what to do with their huge investment in contactless. The answer, it seemed, was in targeting the device that had replaced the watch – the ever-present mobile phone. And so in 2011 we had ‘the year of mobile payments’, and again in 2012, 2013 and probably next year as well. But what of the humble watch, did it give up its contactless ambitions? Not just yet. There is growing evidence that the wrist-watch is making a comeback as a re-invented status symbol, and as mobile manufacturers return to more wearable formats, your arm may find itself useful again.
Defining the ‘something’
We’re finally seeing some big issuance and acquiring programs in a number of markets globally – and the ongoing battle for customer ownership in mobile payments – but perhaps, as mobiles become more personal, and less likely to be left behind as they are now wearable, the original idea of contactless payments will be the potential next evolution of mobile NFC. So what does this mean for NFC payments with mobile?
It means that there are a few choices ahead of banks looking to deploy something in this area – continue with the traditional format and create something with potential limited consumer lifespan; race to get ahead of the curve and solve the ‘wearable’ problem; or focus more on the increasing use of the tablet format and see how it can be developed further for NFC. Which customer segment or transaction segment to target – closed loop, mass, LVP?
With these choices comes complexity as invariably most banks will dabble with each of these until a standardised solution emerges from consumer-driven preferences. And of course, taking into account the considerations of any solution towards the merchant community and ensuring that both sides of the commercial equation are supported.
Complexity breeds more complexity
Today we have a card. It has embossing and magstripe for certain, probably an EMV chip and potentially a contactless interface – all of which have many variables, but finitely defined in order that they can be fully certified to ensure the integrity of every payment. Even simple implementations of mobile NFC add a new layer of complexity due to the considerable variety of devices, location of the SIM and battery, security of the app or other interface and the open nature of the device. Begin to add more device types and formats and your issues grow.
So how to tackle this estuary of complexity? The first place of course is to talk to your customer base – run ideas through focus groups and ensure that there is consumer desire. Work with merchants to ensure that there will be acceptance once you hit the market. And work with an understanding vendor to help you through the certification process as everything else is a pointless exercise if when your solution goes to market it doesn’t work first time, and every time then your customers will invariably be dissatisfied and your ‘something with mobile’ will be an expensive and potentially embarrassing folly.
First published in Globalsmart NFC & Contactless report 2014 (here)