NFC vs. cloud-based payments: Which will reach scale first?
Following a flurry of announcements around NFC-enabled mobile payments last year from Google and Isis, there has been very little news on the NFC front so far this year while cloud-based payments such as is offered by PayPal appear to be picking up some steam.
Google’s NFC-enabled mobile wallet took a hit this week when the company said it would suspend new prepaid cards for Google Wallet after security flaws were detected in the app that make users’ information vulnerable. At the same, there is growing interest in cloud-based solutions that address some of the issues with NFC but have their own issues as well but, will it last?
“There is momentum behind cloud-based solutions,” said Lara Albert, senior director of global marketing at Globys, Seattle. “But I wouldn’t count NFC out yet – you have some of the biggest players in mobile behind these services,” she said.
“I think people are realizing that there are alternatives to waiting for NFC and Secure Element chips to be embedded in all of the mobile phones,” she said. “Solutions that do not require large infrastructure investments such as merchants having POS terminals capable of communicating with an NFC enabled mobile handset to carry out purchase transactions have their advantages.
“Then again, let’s face it, if or when Apple’s next iPhone contains an NFC chip in it, the whole game changes.”
Companies are beginning to take a closer look at cloud-based solutions because they want to hurry along the potential in mobile payments and NFC may be moving too slowly for their taste.
Google Wallet and Isis – a joint venture of Verizon Wireless, T-Mobile USA and AT&T – were both introduced with a lot of fanfare. However, nothing is likely to happen on the Isis front until April, when its two test markets in Austin, TX, and Salt Lake City, UT, go live.
Google is dealing with limited availability.
Currently, Google Wallet is only available on Samsung Galaxy Nexus phones from Sprint. However, once the Google deal to acquire Motorola goes through, new phones with Google Wallet could be out by the end of the year.
“Everybody is out there thinking about how to leverage mobile and most of it has ecosystem issues,” said Mark Beccue, senior analyst at ABI Research, New York.
“Making purchases on a smartphone through a Web site or an app – that is rolling along and growing pretty well,” he said.
“Proximity payments, whether software based or online – these are moving slowly. What we really need to see this year for the momentum to carry on is handsets that have the wallets loaded.
Part of the problem around NFC is the complexity associate with it as a payments option.
There are a lack of standards and a complex ecosystem of stakeholders, which makes NFC a more expensive proposition.
As a result, cloud-based solutions make look more appealing.
“I think that more companies are looking at cloud-based payment options,” Globys’ Ms. Albert said. “In a way they have been forced to look at alternative enablers that have the potential to accelerate adoption of mobile payment systems.
“The cloud-based payment solutions that require only downloadable applications for both consumers and retailers may make things easier,” she said. “I suspect there may be more openness toward security and payment card credentials being stored in the cloud rather than having to store and manage the credentials in the consumer’s mobile device.”
Still, Google is a formidable player and has built up a strong retail strategy.
Google Wallet is available at a number of retailers in five markets – including Subway, CVS and Walgreens. Together, these retailers have a significant number of retail outlets.
“Google knew they could not control too much of the handset stuff right now but they could be smart about getting the right retail partners, which they have done,” ABI’s Mr. Beccue said.
“They went out and got Subway, CVS and Walgreens,” he said. “Most consumers are going to run across a CVS, Walgreens or Subway as they go about their day – that was a good strategy.
While is also looking to create a strong retail strategy, it faces its own challenges as well.
“PayPal is totally dependent on the quality of the mobile network in those places,” Mr. Beccue said. “In a very busy cell, or somewhere rural, the speed of getting things done is going to be dependent on the network.
“PayPal has some momentum,” he said. “What will be interesting is if, over a 6 month period, to see what the market acceptance is. If it does not work fast, that will be the determining factor.
The challenge both solutions face is getting enough consumers to adopt them for a meaningful reach.
To reach scale, these experiences have to be convenient, easy, and worthwhile from the standpoint of having enough participating merchants.
The key will be delivering personalized, relevant communications based on knowing, for example, that a user has registered in the last 14 days but has yet to make a purchase.
“Enabling mobile wallet providers to identify the contexts associated with certain behaviors, access real-time contextual profiles of customers, take action when a customer enters a context, predict the likelihood a customer will enter a context, and recommend the right tip, information, alert, incentive, etc. given a customer’s context is what is needed to minimize the fall out and get more people using a mobile payment option,” Ms. Albert said.
Chantal Tode is associate editor on Mobile Commerce Daily, New York