Near field communication (NFC), the much-maligned technology that once was held as the future of mobile payments, may not be dead yet. Richard Char, global head of digital networks and merchant Services at Citi, believes that two emerging trends — one in the payment industry and the other on the consumer devices —will turn the tide for NFC, dissolving many of the infrastructural barriers that have mired its growth.
“By the end of 2014, you’re going to see NFC clearly emerge as the victor in the mobile wallet race,” Char told an audience during a Mobile Marketer event in New York Wednesday. Char, who heads up Citi’s digital wallet initiatives, believes that the introduction of EMV, better known as chip and pin, cards to the U.S. will bring about “a Y2K moment” for retailers, providing the necessary incentive for sellers to adopt new card processing technology capable of supporting NFC transactions.
EMV, which stands for Europay, Mastercard and Visa — the three companies that first advocated on behalf of the technology — uses an encrypted chip embedded in a card rather than a magnetic strip to a transmit a user’s credit card information to a merchant’s terminal. The technology already dominates in nearly every country outside the U.S. and industry analysts believe that 95% of credit cards within the U.S. will have chip and pin within two years.
According to Char, what many in the industry overlook is that the radio signal, which a chip transmits to a terminal, is nearly identical to the one created by NFC. This means that as long as a user is using a credit card from an issuer, which a retailer already accepts, the terminal cannot tell whether the signal is coming from an EMV card or an NFC-enabled phone.
Citi recently worked with mobile network operator 3 Hong Kong to create a mobile wallet pilot in Hong Kong using NFC. Char says that because EMV acceptance in nearly ubiquitous in the city-state, the company did not have to convince merchants to install new software or hardware, an issue, which has deeply stunted growth of NFC-based mobile wallet programs in the U.S.
In addition to the growth of EMV in the U.S., Char also believes that a technical change to the newest version of the Android operating system — the only OS that currently supports NFC – will help push the technology forward in 2014. Applications, which us NFC to transmit financial information, have been required to store financial data on a secure element such as a SIM card, which carriers include in phones. That meant that mobile payments companies which used NFC were subject to the whim of a carrier that could eventually decide to charge a payment company to store such data. Android’s KitKat update, however, supports host card emulation, a protocol that allows an application to store the financial data on the device, and avoid the carrier altogether.
The potential resurgence of NFC comes as an initial wave of mobile wallet projects have struggled to gain meaningful adoption, with a number of large initiatives failing to live up to expectations. During a presentation Wednesday, Denée Carrington, lead mobile payments and digital wallet analyst at Forrester, says the research firm plans to revise its projection for the mobile payments industry downwards in coming weeks, flatting the once-anticipated hockey stick growth trajectory to a more incremental projection.
“For the amount of conversation and innovation that there is in the marketplace, the mobile payment industry is growing relatively slowly,” says Carrington, who added that interest in mobile payments among consumers grew a meager 5% last year. “The existing payment infrastructure works very well — and that’s fundamentally one of the largest barriers to adoption [for mobile payment companies]. They need to make the user experience or the value proposition for merchants as good or better [than the existing payments industry].
For Google, eBay, and a host of other startups looking to cash-in on mobile payments, the opportunity remains clear. While ecommerce has grown in recent year, in-store purchases still account for 90% of retail revenue in the U.S. and accessing those transactions opens up massive opportunities not only as a payment providers, but as a data supplier as well. Controlling those transactions would position these companies at the center of a massive ecosystem of marketers, developers and retailers — all of whom are deeply interested in accessing and building services around consumers purchase data.
Just as Google knows what people want, and Facebook knows who people like, a mobile wallet company, or whomever controls the payment, could know what people buy. And to Citi’s Char, that might not be in the form of an app.
“I’m not sure payments in the long term should be an application,” he said. “Payments should be something like camera or maps on your phone. The ability to pay should be something that’s independent of an application, a fabric [on which other applications are built.] Most of the time payments should be a utility as well.”
The two problems facing mobile payments — the inter-device (how information is passed between devices) and the intra-device issues (how that information is then dispersed and managed within an operating system like iOS or Android) — are as much an ecosystem dilemma as they are technological problem. What will open the door for mobile payments isn’t necessarily innovation, it’s cooperation.
Steven Jacobs is Street Fight’s deputy editor.