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2012: the year of confusion for NFC payments Ryan Kim | Friday, November 18, 2011Near field communication (NFC) payments seem poised for takeoff next year in the U.S.,with the launch of Isis from the carriers and a wider deployment of Google Wallet. Butwhile 2012 will surely mark some big growth for NFC, it is also likely to be a year full ofconfusion as the technology and the business relationships around it work through anumber of challenges. Those include consumer adoption, standardization andinteroperability, merchant uptake and evolving business models, and the players workingwith, not against, one another.Progress ? but with moving partsAfter years of trial and preparation, 2011 has been a pivotal year in helping prepare NFCfor mass adoption. We have seen the launch of Google Wallet, the commitment ofhandset manufacturers and credit card companies behind Isis and the cooperation of NFCreader manufacturers like VeriFone, which is building NFC into all of its new paymentterminals. Payment networks like Visa are getting involved with carrot-and-stickapproaches to convince merchants to adopt NFC. And though NFC phone shipments aremodest right now, perhaps less than 40 million this year, there is potential for about 100million units to be sold next year. But NFC chip shipments are expected to ramp upquickly, hitting 1.2 billion by 2015, according to In-Stat.As with any new big technology, many moving parts exist, and those will cause a numberof growing pains that we will see on full display next year. The technology itself won?t beas much of an issue. Rather, much will come down to how the different players in themarkets work together and how each party finds value in its piece of the NFC ecosystem.?There?s so much value and eventual consumer desire in NFC that it?s inevitable,?VeriFone CEO Douglas Bergeron said. ?But we won?t get there without some first toughsteps. I don?t think the next year will be the year of the mobile wallet. It?s more a yearwhere we get things resolved, we see where things are going and we have morecapabilities on the phones and then the subtle appreciation by retailers that this is reallycoming.?Plenty of challenges for 2012Here is a look at some of the issues facing NFC next year.Consumer comfort. Consumers will need to first become more familiar ? and
comfortable ? with the idea of NFC payments. There are still lingering concerns about thesafety and security of contactless payments, and those will come to a head next year whenGoogle Wallet rolls out on more devices and is accepted at more retail locations and whenIsis finally has its formal launch. Consumers will need to be sold on the value of NFCoverall and its benefits over a card swipe, which is pretty convenient for most people.Users will also have to choose among types of digital wallets, which will likely not workon all devices initially and all networks and won?t be supported by different retailers andmerchants to the same degree. Visa is also coming out with its own digital wallet calledV.me that will incorporate NFC. Users may find the confusion a little off-putting and maywait for more clarity.Coexisting players. The two main NFC wallets, Google Wallet and Isis, will also need tofigure out how to coexist. Right now, Google Wallet is ahead in the game, but it?s limitedto just one device: the Samsung Galaxy S from carrier partner Sprint. Google Wallet hasnot been able to be activated by other devices from AT&T, Verizon and T-Mobile, whoare collaborating together on their NFC joint venture, Isis.The two wallets are similar in many technical ways, but Isis will charge fees to banks andother financial institutions to host them on the secure elements of their NFC-enabledphones. Isis has also won support from HTC, LG, Motorola Mobility, RIM, SamsungMobile and Sony Ericsson, so it?s looking like Google may have trouble getting its walleton more devices.There?s no reason why both wallets can?t work on the same device, but the Isis carriersneed to be convinced to let that happen. Having the two wallets interoperate well couldhelp bring more value and clarity to merchants and consumers, but it?s not clear that thesetwo are interested in moving quickly toward some kind of deal.Investment. Merchants will first have to decide when to make the investment to supportNFC. Without many NFC handsets in the market, there may not be much incentive earlyon. But with NFC phones expected to proliferate starting in 2012, they might start thenecessary upgrades next year.Still, merchants will face a lot of questions about which wallet to support. Some earlyadopters will have no problem integrating with both, but many merchants may wait forsome type of cooperation between the wallets so they can better optimize their efforts andensure that both platforms and their coupon and loyalty offerings work with their point-of-sale systems. Some will also need to work out who owns the customer data in thesetransactions. Google is forgoing payments;it wants data on users so it can provide targetedoffers. Some retailers will want that as well, which could also be an issue. These are
concerns that need resolving, said Charles Walton, the COO of NFC chip maker InsideSecure, but it could be resolved quickly if some of the major players like Google and Isiscome together. ?We think at some point in the year, the business factors will settlethemselves out,? said Walton. ?It?s like the browser wars. The functionality is not thatdifferent one to another, it just took a while to sort it all out.?Finding the profit. A lot of the players are still working out their positions in this newecosystem and where they stand to make money off NFC payments. Outside Citi, thebanks haven?t jumped on board with Google Wallet, and some appear to be questioningthe business arrangement set up by Isis, which will charge banks to host their cards, saidBergeron, the CEO of VeriFone. That?s going to be an issue in sorting out how much thebanks pay and how much Isis hopes to make from its NFC wallet. Dickson Chu, Citi?shead of global enterprise payments for digital networks and mobile, complained lastmonth that Isis could be slowing the rollout of NFC by trying to extract too much of a tollon banks. Isis has said it will launch next year with three banks. Getting acquiring bankson board is going to be key, because that?s a relationship that many customers trust.Getting their direct integration into the wallets will encourage more transactions andshould be easier than using prepaid accounts on the wallets.Collaboration holds the keyMick Mullagh, the CEO of ViVOtech, a provider of NFC hardware and software, said theplayers in NFC payments need to consider how the overall mobile market and Internethave come together through openness and collaboration. He said 2012 will be more of asettling year as the relationships work themselves out, a process that could extend into2013. But ultimately, the ecosystem will realize there is more money to be made byworking together than apart.?We?ll eventually see more open collaboration models and more value propositions formerchants,? said Mullagh. ?I think the major wallet providers will recognize that andonce they?re up and running, the natural evolution is to see how can they grow faster.?The idea of collaboration is going to be key in NFC?s success. If the major players worktogether and establish an even playing field, there?s a better chance that consumers andmerchants will get a more coherent look at the value of NFC payments that is notfragmented by different business agreements.We keep writing about the future of NFC payments, and every year seems like abreakthrough. And in many ways, 2011 has been an extremely critical year in working