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Google shocks with claim that NFC phones make cards redundant

Google CEO Eric Schmidt’s incendiary statement that near field communication-enabled Android smartphones would be positioned to replace credit cards has sent shockwaves through the mobile commerce ecosystem.

The release of the upcoming version of Android, a.k.a. Gingerbread, is only a few weeks away, and it will feature NFC technology, according to Mr. Schmidt. That will let consumers make contactless mobile payments, interact with RFID-enabled smart posters and other out-of-home collateral or download mobile coupons, along with a host of other possible actions.

“There’s still a long way to go before the market reaches critical mass, but Google’s announcement of its planned NFC support is a key step toward the day when mobile phone payments will be made at retail stores,” said Red Gillen, senior analyst at Celent, San Francisco.

“In addition to the fact that Android-powered phone will be coming out with NFC capability, the significance of this announcement is also its impact to other mobile payments ecosystem players,” he said.

“When Google signals its commitment to a certain technology, it’s a pretty strong cue to other companies to join in—in other words, [creating] a snowball effect on the mobile payments and commerce industry.”

All’s fair in mobile commerce and payments
While Isis, the joint venture between AT&T, T-Mobile and Verizon, has positioned itself in a diplomatic way, stressing the fact that it is open to all carriers, merchants and financial service providers, Google is not sugarcoating its competitive intentions.

At the Web 2.0 Summit in San Francisco this week, Mr. Schmidt said—out loud—that NFC-enabled handsets could replace consumers’ credit cards. He did indicate that a phone could be connected to a consumer’s credit card account.

Google’s top executive touted NFC’s better security features as a primary differentiator from other payment mechanisms, in addition to the fact that the consumer must actually be at the point of sale to complete a transaction.

In addition to potentially competing with credit card issuers, banks and carriers, Google is ramping up its competition with mobile commerce giants such as eBay and Amazon.

Mr. Schmidt indicated that NFC could be integrated with mobile search to increase the relevance and effectiveness of location-based marketing initiatives, making them immediately actionable, as well as increasing convenience for consumers.

Various digital goods and commerce business models could be built on top of Google’s mobile commerce platforms, per Mr. Schmidt.

To succeed, Google will have to test the level of trust that consumers have for its brand. It likely will not have to work as hard to win over developers.

“Google’s NFC announcement is an important one for the industry,” said Drew Sievers, cofounder/CEO of mFoundry, San Francisco. “An open API to NFC will drive innovation around the technology, resulting in creative applications, most of which won’t even touch on payments.

“But as users get accustomed to using their phone’s NFC capabilities, their inhibitions around mobile payments will drop and the ecosystem will finally be able to flourish,” he said. “This is huge.

“This will change mobile marketing and payments.”

Google versus Apple
Despite the buzz Google has created, some analysts are less than impressed, instead taking a wait-and-see attitude.

Google’s Nexus One had challenges getting adoption, and many believe that the Nexus Two will be the first Android device to be NFC-enabled.

“They’ll need to think of a new strategy so they don’t stumble at the consumer adoption point – if this is actually the OS on phones available at Verizon, that could be more promising,” said Sucharita Mulpuru, vice president and principal analyst of ebusiness and retail at  Forrester Research, Cambridge, MA. “It’s all well and good to have NFC embedded in the device – that’s a great first step, but until retailers can accept that type of contactless payment, it won’t matter.

“You have to also persuade customers to store their personal info on their mobile devices – security is still a big problem for customers – and there have to be enough devices out there with this personal info on them to make it worthwhile for retailers to invest in overhauling their POS systems,” she said. “Retailers haven’t even committed to upgrading their scanners to read mobile barcodes yet.

“Frankly, it would be a bigger deal if Apple announced this.”

Final Take
Dan Butcher, associate editor, Mobile Commerce Daily