Bribes Make Citibank India's NFC Trial Work Well

In a major near-field-communications (NFC) trial in India—one lasting six months (ending last month) and involving more than 3,100 consumers, 44,000 transactions and more than 26 million India Rupees (about $573,000 U.S.)—Citibank saw how extremely willing consumers in Bengaluru were to use NFC to make purchases. That is true, of course, as long as the bribes are substantial.

Not only is this the most extensive NFC trial we're aware of, but Citibank and some key technology partners have issued a 37-page report detailing the study's results, warts and all. One key partner, for example, was Nokia. It provided the phones that consumers, according to the report, found to be "well below their expectations." Other partners included Vodafone, MasterCard, Vivotech and the company that prepared the report, Edgar, Dunn & Company.

The sections describing the bribes and how consumers reacted to those incentives were the most interesting. In India, it's typical for consumers to purchase their phones, as opposed to having them bundled in with their wireless carrier's services.

The Nokia 6212 used in the trial has a list price of $240; trial participants paid $110. But if the consumers made 12 purchases, they got to keep the phone for free. With six purchases, the phone's cost dropped to $55. Some retail participants—including QSR Subway, supermarket Nilgiri’s, food and grocery outlets M.K. Retail and Reliance Fresh, Landmark book shops and fashion accessory retailer Shopper’s—offered special discounts, as well.

Some 86 percent of participants made more than 12 purchases and, therefore, got the phones for free. The report dubbed the 18 percent who made exactly 12 transactions "gamers, customers who want to participate at exactly no cost to themselves." The report even allowed for a modified gamer category, perhaps one that might be called the Wants-To-Be-Really-Certain-Gamer: "It is possible that those with 13-transactions-only were also gamers and made just one more transaction to ensure that they definitely qualify for the full incentive."

Gamers or not, the change in purchase behaviors noted in the report were swipingly eye-opening. The study used some 32,620 consumers who opted to not participate in the NFC trial (dubbed, logically enough, non-adopters) as the control group, to see if those consumers would have—in that economy during those months—made more purchases anyway. It compared them with consumers who were lobbied to join the trial (solicited-adopters) versus those who simply walked into the store and purchased the phones on their own (self-adopters).

While the non-adopter control group made 7.1 percent in additional purchases (compared with earlier months) during the trial's six month duration, the number of purchases by solicited-adopters almost doubled (a 96.3 percent increase) and the number of purchases by self-adopters grew a staggering 329.1 percent. When looking at ticket size, the details show an almost identical pattern, albeit not as dramatic. Non-adopters grew their purchase value 11.9 percent, with solicited-adopters growing 55.5 percent and self-adopters increasing their receipt value 231.6 percent.The report also showed similar increase patterns in the number of retailers where those purchases were made, in addition to an increase in the number of merchant categories frequented.

Some of those over-the-top percentages can be explained by the unusual dynamics of the trial, where consumers were incentivized to make as many purchases possible in a short period of time. Also, the relatively small number of participating retailers forced consumers to hunt out new locations that accepted the payment device.

For some participants, the fact that it was a trial explicitly discouraged them from making purchases beyond the qualifying 12. "This discouraged them from becoming too familiar with the process and, to some extent, dependent on it only to find that they have to go back to the old ways of doing things," the report said, adding this quote from a consumer participant: “My friend told me about the limited time period, hence, I don’t want to get used to it and then get to know that I have to again move back. It’s too painful a procedure."

In short, it's not clear that these numbers would translate to real-world experiences during a full-fledged deployment.

For security, the trial asked the consumer to choose a PIN and was also given three challenge questions: date of birth, postal code and a trial-issued one-time password that was sent—during activation—through SMS.

Among the complaints from participants were the need to have to carry two—or more—phones because most of the higher end consumer devices simply don't directly support NFC. The report reluctantly embraces temporary placeholder options.

"Handset manufacturers have been slow in manufacturing NFC capable handsets," the Citibank report said. "Payments providers should consider and invest in alternatives such as NFC stickers, tags, external sleeves/jackets and especially the NFC-enabled micro SD cards that offer the promise of operating with most phone types, empowering the customer with their choice of the handset and cementing the relationship between the customer and the payment provider."

The study also looked at the kinds of consumers who agreed to participate in the trial and which ones participated the most. The profile included no surprises, especially the fact that many were classified as men between 26 and 35 years old."Bengaluru is a technology hot spot where a large number of ambitious technology-savvy young Indians live and work. The innovative idea of using a mobile phone to make mobile proximity payments caught the imagination of many such customers who signed-up to try it," the report said. "Young, educated urbanites with a natural affinity for advanced gadgetry are natural first adherents to any new technological innovation."

Other than not wanting to carry two phones, the key complaints of participants were that far too few retailers participated and the quality of the phone itself.

As for the shortage of retailers, that's a result of both the limits of any trial and the limits of any new technology. Catch-22: It's hard to get a lot of retailers to sign up when there are very few consumers with NFC devices, and it's hard to get consumers to sign up when there are very few places where they can make NFC purchases.

The most likely breakthrough will be some interested party—Citi and Chase, on the banking front, or perhaps some major carriers or handset manufacturers—funding both sides to artificially increase the numbers until natural momentum (hopefully) kicks in and it can grow organically.

The phone complaints may also be limited to the trial, as it made sense to partner with one particular phone. In a full deployment, there would presumably be quite a range of phone options.

The Nokia unit used in the Bengaluru trial proved, though, to be especially unpopular. "Those who did try to use the Nokia NFC phone to substitute for their regular handset or use it as a replacement handset expressed dissatisfaction with the device," the report said. "Strong negative feedback was received on a variety of phone-related problems."

Among the problems cited: "The Nokia NFC phone hangs up and then suddenly reboots itself, causing disruption and leading customers not to rely on the device for their regular communication needs" and "customers indicated that there were some basic problems with the Nokia NFC handset such as defects with the volume control or the speakerphone."

"All this contributed to the image of forcefully overlaying old furniture with new varnish, of installing new features on an old machine," the report said. "This inhibits the take-up and use of a new product, no matter how useful it may be, as the overall package is perceived to have basic problems that customers no longer have any tolerance for."