NFC Shouldn’t Be About Payments, It Should Be A Platform

I posted a link on Monday to a story about yet another small-scale NFC trial, this one in France, wondering when we’d ever see an actual commercial launch of one of these plans. In the comments, Raddedas from the always-entertaining Techype pointed out that with no NFC-equipped handsets available in the west, and none visible on manufacturers’ roadmaps, such a launch is unlikely.

With that still fresh in my mind, I saw the headline NFC: Technically Viable, but is It Desirable? pass through my RSS reader this morning, and clicked through. The general gist of the piece is that yes, NFC works, but there’s not much consumer demand for it, despite a lovely survey from Visa that says “61% of Americans aged 25-34 would want to use their cell phones to make payments.”

NFC has two big problems. First, nobody can agree on how to make money for it. It’s red ink for handset vendors to include NFC chips in phones, unless they get a cut of the payments that pass through it. Operators don’t see much point in pushing NFC, unless they get a cut of the payments that pass through it. Credit-card companies and banks don’t want to give up a cut of the processing fees they’ll get from NFC payments, and don’t want to subsidize the devices. And retailers certainly don’t want to have to pay for new POS equipment to accept NFC payments, or pay for them through increased processing fees.

Second, what’s the real benefit of NFC payments for consumers? Using your phone to pay for stuff offers a marginal increase in convenience, at best, over existing payment methods like credit and debit cards, and can add significant inconvenience if users are required to maintain some sort of prepaid account to pay for said stuff. Furthermore, as credit cards themselves gain contactless technology, that marginal convenience benefit declines even more.

Simply put, NFC, and nearly every other mobile payments platform, faces a very bleak future. But if the focus shifts to NFC as a transaction platform, things aren’t so bleak. Take, for instance, the Oyster card system used in London for public transport. The Oyster is an RFID-equipped card that replaces normal bus and tube tickets. The existing card offers tremendous benefits for users — not the least of which reduced fares over cash — and for Transport for London, which runs the city’s transport, as well. Building the Oyster functionality, or ticketing for public transport in general, into mobile phones (which TfL is apparently exploring) adds a lot of value for users. It negates the need for a standalone card, for starters, and it offers the potential to add additional functionality, such as balance lookups, from the handset. (Before you jump in and say that NFC payments can replace credit cards, let’s be realistic — we’re a really long way off from people stopping carrying wallets.)

If NFC can be a transaction platform that allows enables all sorts of applications, and not just credit-card replacement payments, it will have more value. With mobile payments the only visible application, of course operators and handset vendors are going to want a cut before they support NFC. Their reluctance to support a feature that’s only going to make other people money is to be expected. But adding non-payment applications could lessen that resistance, and make NFC worthy of their support, even if they’re not getting a cut of the payments. An NFC-equipped phone then isn’t just a credit-card replacement, it’s a tool to deliver all sorts of non-payment transactional services. An NFC-equipped phone becomes more desirable to consumers, which holds value for handset vendors and operators selling them — and they can also be used to deliver services these parties can control and profit from.

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