NFC faces continued disappointment in 2013, according to Celent

For many years, near-field communications (NFC) technology has been touted as the next big thing; an opportunity for operator to get themselves into the payment space. However, the technology is yet to take off outside of select markets and now faces continued disappointment in 2013, when it is likely to be overshadowed by other developments in retail payments, according to a new report by financial research firm Celent.

“”To use [NFC] to make payments using a phone, as though it were a card, is still very hard,” said Zilvanas Bareisis, senior analyst with Celent’s banking group and author of the report. “Some markets, such as Poland, are well ahead with the infrastructure – making it more likely to prevail there – but in other markets, such as the US, the infrastructure bill is huge and convincing retailers and merchants is difficult.”

Online and mobile payments are predicted to make up approximately 45 per cent of UK retailers’ total revenue by 2014, according to some estimates. However, many businesses have been reluctant to invest in the technology as yet due to a combination of high costs and scepticism over whether the retail customer will use it.

Part of the problem for NFC digital wallets is that while the physical POS world is dominated by cards and the mobile equivalent is to have payment credentials inside the phone and sent to the POS via NFC, the online world is dominated by cloud-based wallets such as PayPal. That makes it difficult to bridge the online-offline convergence of customers who use their mobiles while shopping to read product reviews, compare prices and order online, or pick up an item from a local store, according to Celent.

Further compounding the difficulty is the limited ability of the consumer to use the technology. Apple’s newly released iPhone 5 does not support NFC – a state of affairs that presents a “huge drawback” given the popularity of the phones and their high share of the smartphone market, says Bareisis. In addition, customers often do not realise that to make NFC payments, they need to ensure that their device has an NFC SIM installed – a requirement that adds further cost.

While several consortia have been set up in recent years, these have struggled to achieve success. In the Netherlands, a joint venture between the country’s largest banks and mobile network operators known unofficially as ‘Sixpack’ disbanded without achieving its goals, when T-Mobile, one of the founding partners, decided to follow its own route to market. In the US, a similar project called Isis is also struggling, according to Celent. In the UK, Project Oscar, an initiative between mobile network operators, has been delayed by the European Commission and has not yet led to any payments solution.

Other top trends identified by the firm for the upcoming year include the growth of the digital wallet, and the rise of cloud-based wallets.

For Bareisis, the advantage of cloud-based wallets is their ease of use. Users are able to sign in with a username and password, rather than re-entering their entire card number and details every time they want to make a transaction. In the coming year, he expects more providers to look at ways to bring cloud-based wallets to the point of sale.

“Cloud-based wallets have a lot of potential,” he said. “I don’t know if it will happen in 2013, but the cloud will come to the POS.”

Both Visa and MasterCard developed their own digital wallet solutions in recent months, V.me by Visa and PayPass Wallet Services.

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