Is the business case for NFC strong enough? - Mobile World Live

Is the business case for NFC strong enough?

15 OCT 2010

Almost six years after Nokia claimed to have launched the world’s first NFC (Near-Field Communications) product, the mobile ecosystem finally seems to be close to completing the complex mobile payments jigsaw puzzle.

South Korean mobile operator KT said this week that it is launching a NFC handset (the Samsung A-170K), which can store credit card details and coupons, enabling KT customers to make payments and redeem electronic vouchers at point of sale at participating retailers.

The KT announcement follows a Bloomberg article in August reporting that AT&T, Verizon Wireless and T-Mobile USA are planning to set up a joint venture to enable their customers to use NFC-enabled handsets to make payments in American retailers, restaurants and the like. Bloomberg said that the three operators may work with Discover Financial Services and Barclays to test the technology at stores in Atlanta and three other US cities.

The US joint venture would be just the latest in a series of mostly-successful operator-led NFC trials to have taken place around the world over the past few years. Back in 2008, O2 announced that 78 percent of the 500 people trialling the operator’s NFC handsets in London said they “would be interested in using contactless services….. convenience, ease-of-use and the status of having such an innovative device were seen as the main benefits.”

Such enthusiasm among participants in trials has prompted the GSMA and some of its operator members to issue frequent calls for handsets with NFC chips. There are now signs that the handset industry is finally beginning to respond with some conviction. For example, Nokia’s recently-launched C7 smartphone, a mainstream handset, has a NFC chip inside, according to a report by Dan Balaban, a veteran commentator on this space, in the NFC Times.

Although the C7 will apparently need a software upgrade to make the NFC chip work, the hardware is a tangible sign that Nokia intends to deliver on Anssi Vanjoki’s promise that every Nokia smartphone running the Symbian operating system will include a NFC chip from 2011. Although Vanjoki, a member of Nokia’s Group Executive Board, is now working out his notice, Nokia’s smartphone roadmap for the first half of next year will have been drawn up on his watch.

Balaban also reported that three to four NFC-enabled smartphones supporting Google’s Android operating system could become available in the first quarter of 2011.

Beware foursquare et al

The arrival of appealing NFC handsets will fill an important piece of the puzzle, but to complete the mobile payments jigsaw, the industry still need business models that will satisfy everyone in the value chain, from the consumer to the merchant to the payments processor to the mobile operator to the systems integrator to the handset maker and the point of sale terminal supplier. That business model obviously needs to generate enough revenue to more than cover the operating and capital costs involved (the Federal Reserve Bank of Boston has estimated that merchants would have to spend US$200 on each reader and it will cost between US$10 and US$15 to add NFC to a handset).

While contactless payments at point of sale should enable merchants to process more transactions faster, that efficiency benefit probably isn’t enough on its own to justify large scale adoption of NFC-enabled mobile payments. Interestingly, KT is reported to be charging customers almost US$2 a month to use its service, but they do receive US$2 worth of coupons each month as compensation. Still, the business case for NFC-enabled mobile services really rests on merchants being able to use the interactivity offered by a mobile phone to build a closer and more profitable relationship with their customers.

The question is: Do retailers and restaurants really need NFC-enabled mobile payments to get closer to their customers? Or will they turn to location-enhanced social networking services, such as foursquare and Facebook Places, which already enable merchants to offer rewards to regular visitors? By the end of next year, I suspect the mobile payments jigsaw will either be complete or it will have been put back in the box.


David Pringle

This article was first published on the GSMA’s Mobile World Live portal. David moderates discussion forums on the site and is a freelance media and investor relations consultant.

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members


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