By Scott Henry
VeriFone Inc.
Near field communication (NFC) encompasses contactless payment technology. But it does much more than enable electronic transactions. That's why industry giants from varied segments - Internet, banking, telecom, mobile phones - are suddenly jockeying for position to cash in on a new era of payment-enabled capabilities at the POS. NFC's broader functionality makes it more likely to succeed where contactless stumbled.
Early implementations of contactless payment began well over a decade ago. A key advantage of implementing those solutions is the technology's ability to adapt to current payment systems. Existing POS terminals can be easily modified with an interface to a contactless radio frequency reader, giving retailers a future-proofed solution to support full-scale contactless rollouts.
The major card brands tried to foster card issuer and merchant adoption of contactless payments - MasterCard Worldwide with PayPass and Visa Inc. with payWave. American Express Co. and Discover Financial Services offered their own contactless technologies, while financial institutions Citigroup Inc. and JP Morgan Chase & Co. in the United States and Barclays Bank in the U.K. began issuing cards to consumers.
But consumers and retailers barely responded to the pitch that contactless would provide greater speed and convenience at the checkout. In general, highly publicized pilots seemed to wither on the vine or fail to evolve into full-scale implementations.
The technology didn't match expectations largely because the promise of speedier checkout was not enough incentive for either merchants or consumers. The difference between a contactless and a swipe payment is marginal to the average consumer and insufficient to convince merchants to upgrade their acceptance devices.
NFC, however, builds on the speed and convenience factor of contactless by offering substantial incentives to both merchants and consumers. Merchants gain from the prospect of combining brick-and-mortar checkout with online promotions and electronic coupons. And consumers will be enticed by the convenience of storing electronic wallets on mobile phones that allow them to easily cash in rewards and discounts electronically while leveraging the capabilities of social media apps.
NFC uses the same radio transmission frequency (13.56 megahertz) as contactless smart cards. But cards are passive objects that respond in the presence of contactless-equipped readers. NFC, on the other hand, is a more interactive, multi-use technology that makes it possible to integrate contactless payment with intelligence embodied in a smart phone or other device.
While NFC has a range of potential applications, its use as a reader and writer in a mobile phone generates the most excitement. Embedded NFC chips allow smart phones to operate as either cards or readers.
So, while an NFC-enabled phone can emulate an existing contactless card, it can also read tags embedded in other devices, such as NFC posters or kiosks, and engage in two-way communication with other NFC chip-enabled devices. Because it operates in passive mode, the NFC chip conserves battery power, but the user can easily put the phone into active mode.
NFC-enabled smart phones are about to change everything. From mobile payment and electronic ticketing to in-store couponing and loyalty programs, NFC technology is here now and ready to transform how we live, work and play.
Merchants and retailers of all kinds can leverage NFC to turn their POSs into much more valuable points of interaction that give customers intelligent checkout capabilities. Some NFC-enabled functions at the POS include:
With NFC, new media technology converges with new payment solutions. This shift is much more than just payment merging with media. It's the integration of offline and online marketing and promotions.
In addition to payment capabilities, NFC provides presence, which connects location-based social media online services and capabilities to the store, the lane and the checkout. Consumer tapping of NFC phones alerts merchants to their presence and automates their intentions. This capability enables online discount providers to integrate electronic coupons, promotions, discounts and rewards with the consumer's physical checkout transaction, so there's no need to fumble for printed coupons.
But the POS is far from ready: In the United States today, most estimates peg the number of installed contactless readers at less than 200,000, which is just a smidgen of the total number of installed POS devices.
To get ready, millions of payment devices in the field need to be retrofitted or replaced with NFC capabilities. In early 2011, VeriFone Chief Executive Officer Douglas Bergeron urged would-be NFC service providers not to be complacent about the challenge. "This isn't just an issue of adding an NFC reader," he said. "It requires deep software richness at the point of sale to interact with the smart phone and manage a services-based model encompassing new applications and deployments without disrupting operation of existing card systems."
Deployment and management of complex NFC technologies will require significant ongoing services from payment systems providers. Until retailers are assured of receiving real value from mobile commerce, service providers who stand to gain from carrier fees, ad revenue and transaction charges must be willing to bear the costs of this highly disruptive paradigm shift.
Mobile commerce must go from zero to 90 mph in five seconds. Consumers will not embrace mobile commerce unless it is widely accepted.
In the past, various players assumed that if they could create a few high-profile pilots for a new payment paradigm - for example, smart cards or contactless - the rest of the merchant universe would follow rather than risk falling behind. But history shows merchants are conservative when it comes to investing at the POS; they want to be assured of net gains before buying new technology.
For that reason, we as an industry also need to evolve our sales paradigm. The new era will be focused on services, not devices. Because the mobile payments world will continue to evolve, the industry can no longer expect new terminals to run unaltered for five, seven or 10 years.
Enabling NFC payments and nonpayment applications requires acceptance devices for a variety of environments and secure gateway services that provide integration of payment with value-added online services. We must also ensure that merchants large and small migrate easily to this new era with the confidence that their investments today will be viable as new capabilities and payment services tomorrow.
As this future develops - and we think it will happen rapidly - you'll increasingly be selling services rather than terminals. The devices themselves will be offered in a bundled service package with few or no upfront fees, but a continuing month-to-month revenue stream and almost unlimited potential for adding new revenue-generating services that provide merchants with greater possibilities to engage their customers.
Scott Henry is Director, North America Product Marketing, for VeriFone Inc. He can be contacted at scott_henry@verifone.com.
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