Does NFC have a Role in the Future of Payments?

Industry commentators and entrepreneurs have spoken of alternative and emerging payment technologies for many years.  Mobile payments, and in particular Near Field Communication (NFC) technologies, have been a focus for nearly a decade. 

Unlike other mobile payment technologies, NFC is to a large extent hardware-driven, in that a smartcard is installed on the mobile device that enables wireless communication with a reader at the POS.  This provides superior security and convenience to other mobile payments technologies.

Despite countless statements of intent and pilots, little progress has been made towards mass adoption.  The card-based payment infrastructure has proven highly resilient for three reasons:

·  Complex network of participants cooperate effectively along shared standards

·   Infrastructure is decentralised and expensive to replace

·  Traditional customer needs are optimised: reliable, convenient, secure and cost efficient

The failure of NFC can be seen against these dimensions:

·  Industry bodies and players have been unable to agree shared standards for authentication and software protocols.  Instead they have developed proprietary and incompatible systems

·  Hardware upgrades are required to enable both mobile devices and POSs for NFC

·  Beyond the convenience of contactless payments, few customer benefits have been demonstrated

Recent months has seen encouraging news for NFC technology.  The three largest US operators have announced a joint venture to develop a mobile commerce network utilising NFC and Google has pledged support for NFC in the next version of Android. 

There is also more focus on non-payment benefits of NFC, such as identity, access and marketing.  As more phones become NFC enabled, it could be that these features will encourage consumer adoption of the technology.  This could well be the push the payments industry needs to develop a comprehensive payment solution around NFC.

Still, the challenges to replacing the card-based infrastructure may be too great for NFC.  My bet would be on a different, more disruptive and less hardware-driven technology winning the day.  Most importantly, any such technology needs to deliver customer benefits beyond what we associate with traditional payments.  These benefits could be related to new marketing approaches, such as location-based marketing, or an entirely new shopping experience.  Regardless, this will likely see new entrants entering the payments industry and shake up the current landscape.