Near Field Communications (NFC) is the latest means by which the payments industry is attempting to force a new technology into an old role—that of payment card. Furthermore, the acronym is being used to rebrand existing payment initiatives that only scratch the surface of true NFC capabilities. The real danger here is that the larger NFC value proposition might be poisoned if NFC is pigeonholed as just another card replacement. If that happens, it would effectively kill retailer and consumer adoption.
The adage "if all you have is a hammer, everything looks like a nail" is an apt description of current payment industry thinking. What is the most obvious use of contactless technology? Payment card. What does everyone want their phone to be? Payment card. What is your favorite color? Payment card.
NFC is a short-range radio frequency technology due to be embedded in a mobile phone near you—all going well—sometime in the next couple of years. Three specific modalities define the technology.
- Card Emulation Mode: It can replicate the functional capabilities of payment cards, mass-transit ticketing cards, building entry cards and others.
- Reader Mode: It can grab information from NFC tags that can be used to run applications, visit Web sites, call folk, turn on your toaster oven or accomplish any other number of actionable events via a mobile phone.
- Peer-to-Peer (P2P) Mode: It can link to other NFC devices in much the same way as Bluetooth currently does but has greater security. Hence, more valuable information can be shared between communicating devices.
The real capabilities of NFC will come from the integrated trifecta of these modalities—card emulation, reader mode and P2P. With this integration comes an entirely new way of interfacing, with NFC essentially hyperlinking the physical world. It could also extend interactive data capabilities to the less tech savvy, who would no longer need to launch apps themselves but be able to tap the phone on a tag to get information on local weather, order a pizza or any number of otherwise underused data features.
Although payments will be a component, the broader value proposition is having a device that can easily facilitate a rich overlay of the world we live in—a truly augmented reality facilitated via mobile devices.And now back to Earth with a thud. Currently, a number of solutions in the market are based around RFID stickers, RFID SD cards and even 2D barcodes purporting to be NFC. If these options do not integrate with the phone, do not use radio frequency technology and have no means of providing any functionality beyond card emulation, then they are not NFC. Let's call them what they are—contactless. And a contactless sticker attached to a phone does not make it an NFC phone any more than a contactless sticker attached to my dog makes him an NFC dog.
We've been down this road before. A pure payment play for contactless cards and other form factors was introduced a few years ago and failed because of the weak value proposition for merchants and consumers. Tapping a card was, and still is, not materially faster for the consumer than swiping a card—particularly in a signature waiver environment. Contactless add-ons to the periphery of a mobile phone are no different. Same value proposition, different shape (again, if all you have is a hammer—you get the idea).
However, there is some light at the end of the tunnel. Orange France is going national with NFC handsets in 2011, and Nokia has announced that all new smartphones as of 2011 will have the technology embedded. It is a trickle, not a flood. But there is momentum at a level that is beyond card-esque science projects. And these vendors truly get the big picture—that the value proposition is greater than just credit or debit card substitution.
But if banks, card networks and even mobile operators continue to push just card emulating contactless as NFC, then the broader and ultimately more valuable proposition will be harder to reach. Consumers need much more than simple wallet substitution, which, incidentally, the mobile phone won't replace anytime soon. They will still need a receptacle for those plastic rectangles that allow them to pay in the majority of non-contactless retail locations for the foreseeable future.
NFC is Not Far, Clearly. And the value proposition could be immensely compelling if it's well executed. Let's just hope the acronym will still mean something beyond "payment card" by the time the true vision reaches mass market. Disagree? Please reach out to Nick and share your thoughts.