NFC: New for Companies

I read an article recently entitled, "NFC: Under-hyped, ready to over-deliver" at VentureBeat, which basically argued that "The naysayers would have you believe that rival mobile technologies like SMS or barcodes are good enough, and that they can do everything that NFC promises. But in the end, NFC will win the in-store battle for five simple reasons: it's way faster and easier to use, it's infinitely more secure, it has a much lower cost to scale at the point of sale, and it's fully interactive near, in-store and at the point of sale." The argument goes on to say that mPayments is just a small piece of the puzzle, and in reality, NFC can and will be used for everything- acquisitions, marketing and payments included! My first reaction was, I don't understand how people are "under-hyping" NFC- it's been clear, from the amount of investment and news coverage its been receiving that it is anything but under-hyped.A basic search using Google Trends (below), shows that although NFC (esp. in news) has been steadily increasing, interest is definitely reaching a fever pitch in 2011.

NFC has blown up over the past couple of months. Seemingly, everything is coming up NFC. NFC, which stands for Near Field Communication, is how "touch and pay" systems are powered. So all of the news that we've been hearing recently about the microSD embedded chips from Visa or the new "NFC-enabled" phones from Google and Apple all rely on a small relay mechanism between the phone and the reader. Small amounts of information is given, and the POS still does most of the work, but the NFC bit supposedly will replace the swiping of the card by authenticating the user into the system and triggering the normal chain of events. As of right now, NFC chips are mostly one-way transmitters, but two-way interactions aren't uncommon, particularly in Asia.

Partnerships are already forming around the new potential mobile payments ecosystem, with the creation of a new player, the "Trusted Service Manager", who will facilitate the secure transmission of information between the consumer, the consumer's device and the institutions that need it. First Data and SK Telecom partnered to offer a commercial TSM solution, the first in the industry which streamlines the process so that interested consumers, MNOs, issuers, etc. can have a "one-stop shop" type of experience. Most obviously, we've seen the proliferation of "interim" solutions for the NFC push such as the microSD cards that can turn any phone that has an SD slot into a "NFC-enabled" phone. We've also seen a focus on the channel through conferences like NACHA ("The Electronic Payments Association") during its 2011 Payments Conference, with many discussions around the potential value of NFC. At the Alternative Payment Systems Innovations Conference in San Francisco in March, there was a lot of buzz around the NFC possibility, but only one participant dared to ask, "NFC has always been the solution in search of a problem. What exactly is broken with my mag-stripe card?"

And with that, I think we've arrived at the crux of the question. What does NFC bring us that our current technology can't? Well, supposedly, there's 5 reasons:

1. Faster to use
2. Easier to use
3. Infinitely more secure
4. Lower cost to scale at the point of sale
5. Fully interactive near, in-store and at the point of sale

Let's stop the madness. First of all, there's no way that mPayments is the least important part of the NFC equation. I see where they're going, and I agree-marketing, acquisitions, all that stuff is great. However, at the end of the day, if we're really just working on the marketing angle, that's nothing new and NFC could offer a "cool" factor, but really nothing that you can't do now using Google Shopper, Yelp Monocle, or the billion other apps to sell you things.

So the first two points, faster/easier to use- are questionable. NFC won't be easy to use if merchants don't accept it (because it's expensive to upgrade that software!) and it won't be fast to use if you need to input various MFA (multi-factor authentication) methods to access your funds (very, very likely, esp. if banks begin offering "debit" mpayments- PIN will most likely be required for purchases over $25). If speed and ease were the goal, I still don't understand why QR/regular barcodes aren't the answer. Software upgrade is  cheaper and scanning a barcode seems just as fast. As for security, I know that there is a large contingency arguing against it because of security, but many scanning processes still require a sign-in (something you can do while in line) and BOTH parties to confirm the transaction.

As for lower cost, esp. for small merchants, I imagine that using a company like Cimbal will be infinitely cheaper to move to than upgrading your POS reader. And as for its interactivity- again, codes can be anywhere that NFC can be (sometimes from even farther distances- see the Hana Bank marketing campaign where they plastered QR codes on sides of buildings for commuters). Additionally, QR codes offer not only "near, in-store and POS" opportunities, it also offers "right here, right now" functionality. Consumers could use it to pay for products while browsing through magazines or newspapers for example- if you like that coat in your magazine, scan and have it charged to your account and shipped to your house!

But having said all this, the bottom line is that the ecosystem doesn't know what the next big thing is, but is fixating on what they do know. NFC is tempting because it builds on existing functionality and could be integrated into existing hardware through software upgrades. But NFC and even codes are definitely not the end all be all. Mobile payments users are embracing all types of alternative forms of payment (like direct-billing). Bango, for example, just expanded its reach to Canada, embracing 200M North Americans (with over 600M users worldwide, in 120 countries!). Obopay, another mPayment firm specializing in funds transfer through text, just won the Asian Banker "Technology Implementation Award" for 2011.

So the moral of the story is that we don't what the future will be, but we shouldn't limit ourselves from exploring other options until we know more.