Here at Tech-Research we've been pondering about the hype surrounding the NFC (Near Field Communications) mobile payment market; and, also starting to ask ourselves when this technology is really going to take off. Discussing NFC with industry insiders it seems like there are mixed opinions, with some stating that there remain significant barriers to overcome and thus market growth will be subdued for a few more years yet.
A Growing but Fragmented Mobile Payments Market
NFC mobile payments, according to Gartner, is, as a mass market technology, at least 3-4 years away and growing more slowly than expected. So why is this?
The problem lies in the fact that there are already several different ways of making mobile payments and NFC is, quite frankly, late to the party. Indeed, the overall mobile payment market is very definitely growing rapidly but it includes SMS-based payments, web- and mobile-app based payments and NFC payments. Gartner is forecasting this overall mobile payment market to reach a value of $171 billion globally in 2012, a 62% increase over 2011; and, $617 billion by 2016. It also sees user numbers climbing significantly (32% in 2012) to 212 million users; and, will reach 448 million users by 2016.
So, where does NFC payments technology sit in the grand scheme of things? Current forecasts for NFC payments show the market growing from some $7.7 billion in 2011 to 34.5 billion by 2016 – small in comparison to the total mobile payments market of $617 billion. In the US, this equates to less than 12% of US mobile payments coming from NFC-enabled phones by 2016. That’s disappointing for a technology that’s been a long time in the making!
Why the "Hype" Now?
NFC has been around almost 10 years and there have been hundreds of pilots instigated around the world and we're still waiting for the technology to take off… so why the big surge in interest now? Well, some of the fundamental barriers to adoption are starting to come down.
NFC-enabled phones
For example, one of the main barriers was a lack of NFC-enabled phones. As late as 2011 there were only about 30 million NFC-enabled mobile phones in the marketplace - but all that is expected to change over the next couple of years, with perhaps up to 700 million mobile phones being NFC-enabled by 2016 (almost 50% of all mobile phones). Evidence of this can be seen by the launch of multiple smartphones this year with integrated NFC capabilities, including the Samsung Galaxy SIII; and, even Apple is expected to have NFC capabilities in its new iPhone 5 coming out later this year.
Electronic Wallets
Another key component of the NFC technology will be the development of electronic wallets such as the Google Wallet technology that allows its users to store credit cards, loyalty cards and gift cards (and the ability to redeem sales promotions) on their mobile phone. Visa has also recently announced its V.me payment service that will allow V.me service users to store their card details in their digital wallet; MasterCard has its PayPass contactless payment scheme; and, Barclaycard has its PayTag sticker technology for NFC payments of £15 and under.
But there are also non-NFC alternatives, such as PayPal’s Instore app and AmEx’s Serve card that doesn’t rely on NFC at all – and therefore doesn’t require retailers to install new NFC-enabled terminals.
NFC-enabled POS Terminals
The other big technological barrier around NFC is the current lack of point of sale terminals. The biggest problem here is that many retailers have been struggling to see a viable business model to move forward with. However, growth in NFC terminals seems likely to rapidly expand over the next few years; Berg Insight forecasts a CAGR of 49% through to 2017; this translates to US and European NFC terminal penetration levels of 86% and 78% respectively.
Regulatory Issues
One issue not discussed much is regulatory issues; for example, the proposed mobile payments joint venture between Vodafone, O2 and Everything Everywhere ( Project Oscar ) is currently with the EU regulator looking at this potential tie up and how it might affect competition in the mobile payments market.
The Final Frontier: Consumer acceptance
But you need more than NFC-enabled phones and readers to drive mass market adoption…Indeed, the other primary barriers has been convincing consumers to pay with mobile phones instead of cash and cards. Part of the concern here surrounds privacy and security issues. Indeed, some consumers are reticent to give up their privacy and want to be able to pay “anonymously”, thus giving retailers and merchants less insight into their buying patterns.
On the security side, many users are also concerned about device theft and lack of purchase authentication, although fingerprint sensors are being integrated into some phones to be released later this year, providing another level of mobile transaction security.
Conclusions
So, the barriers to NFC mobile payments are finally starting to fall but is it all too little, too late? Perhaps, as Gartner predicts, the majority of mobile payments for the next 3-4 years will be web- or mobile app-based rather than NFC. "NFC payment involves a change in user behaviour and requires collaboration among stakeholders that includes banks, mobile carriers, card networks and merchants," said Gartner. "It takes time for both to happen, so we don't expect NFC payments to come into the mass market before 2015. In the meantime, ticketing, rather than retail payment, will drive NFC transactions.”
But here's a thought - if web and mobile apps are technologies that already work for mobile payments then why would users require the entire ecosystem behind NFC? Perhaps PayPal was right... NFC is already redundant!
Note: Tell us what you think. Do you agree or disagree with our commentary? Have we missed something obvious? We'd love to hear from you!
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