Gartner recently reported that more than 200 million near field communication (NFC) enabled handsets will enter the marketplace by the end of 2012. While this is encouraging news for the evolution of contactless payments and the mobile wallet, it’s only one piece of the puzzle.
In order for the technology to establish a foothold, it will need some long term cooperation between the four ‘pillars’ of the market. This will include NFC device developers, the payment platforms they run on, the merchants that enable them and the consumers who ultimately must have confidence in them. Three of those can be tracked. The fourth, consumer confidence, will be harder to gauge and ultimately define the evolution of contactless transactions in the United States.
While significant growth in the number of consumers with NFC-enabled devices is positive, the increase is irrelevant if there is nowhere to use the technology. Merchants will have to invest in point-of- sale equipment upgrades to enable contactless payments. At a minimum, this will require attachments for existing equipment and many merchants will have to install completely new payment readers. Additional enhancements to merchant networks and point of sale systems may be required to allow consumers to make use of mobile wallet functionality. A variety of merchants (McDonalds, Duane Reade) are on the leading edge of contactless payments. Assuming the market continues to evolve, those ‘first to market’ providers will have an inherent advantage.
A proliferation of NFC-enabled devices in the market and merchants set up for contactless payments are both key components to the evolution of the contactless space. However, an equally important third piece of the puzzle is the platform itself.
Card issuers and their associated networks, also known as the payment card industry, have invested large amounts of time and money to enable contactless payments. Companies such as Isis are working to provide depth to the contactless market though the introduction of a mobile wallet. Those companies are betting that enabling consumers to make payments, receive and redeem offers, and manage loyalty programs via their mobile device will be attractive enough to replace the wallet and credit cards.
Similarly, companies such as Isis are betting that the ancillary benefits of mobile payments (loyalty programs, coupons and daily deals) will be enough to encourage merchants to adopt the technology. Chief among the incentives will be the ability to better connect with potential customers.
Of the four contactless payment pillars, the three already noted have a measure of predictability and can be tracked. The fourth, and perhaps most critical component of contactless evolution, will be consumer confidence. Companies investing the time and money to enable a new method of payment are making the assumption that U.S. consumers are ready to accept the security of contactless transactions.
This acceptance will be the most difficult issue to measure, but will ultimately dictate the pace at which contactless transactions are adopted. The early stages of internet commerce were impacted by security concerns and these same concerns will shadow the evolution of mobile commerce.
As the contactless marketplace evolves, stories will continue to appear that focus on individual elements of the overall picture. While relevant, it is important to maintain focus on the related components that define the space. All will play an equal part in determining the speed at which the market evolves and the success of migrating consumers to a new commerce format.
Terry Flanagan is a partner at Navint Partners, a Chicago-based management consulting firm specializing in change management. Terry has worked with some of the earliest adopters of mobile payments in implementing mobile payment strategies and infrastructure.
NFC payment photo via Shutterstock
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