The Mysterious Case Of The Missing Mobile Wallet

Near-field communications (NFC) is one of the world’s most useful wireless technologies and is extremely well suited for mobile payment processing, yet it remains woefully under used. NFC has all the ingredients for success:

• It is very secure because the maximum distance between NFC tag and reader is only about 4in.
• All current smartphones are NFC-enabled, so a dedicated reader is always required.
• Tags can cost as little as 30 cents in bulk.
• Simple functions can be programmed in a few minutes using one of apps for many Android and soon iOS devices
• NFC standards are maintained by the NFC Forum whose member companies read like the Who’s Who of high tech.

With all this going for it, NFC’s slow growth is rather odd, but “mobile wallets,” where NFC is most widely used, provide some clues. Apple Pay and Android Pay are NFC-based contactless mobile payment services that eliminate the need for physical credit and debit cards as well as loyalty cards, ticketing information, and other user data. When Apple launched Apple Pay in 2014, it made sure it was compatible with the primary standard for NFC-based transactions and it was an immediate success: Visa, Mastercard, American Express, and Bank of America, along with more than 200,000 retailers came on board, and one million credit cards were registered in the first three days after launch.

It would be reasonable to assume that in the three years since, Apple Pay and Android Pay would be usable at almost every retailer and that most people would use them, but that’s not the case. NFC technology isn’t the problem; when properly enabled at point-of-sale locations, it’s almost effortless to use and takes about five seconds to complete a transaction. More likely, it’s because credit card issuers cover costs related to fraud, so users don’t need to care about security, and trying something new for the sake of convenience isn’t worth the effort. Only about 5 percent of all retail transactions in the U.S. are made using Apple Pay, Android Pay, or other similar services.

The greatest impediment to the growth of NFC-based transaction processing is the retail marketplace itself. For example, CVS and Walmart were big supporters of contactless payment from the beginning, and CVS offered Apple Pay for a while only to abandon it later. Walmart, CVS, and other companies don’t want to add transaction fees to those they currently pay for transaction processing. They also want control of the system, so they can mine the data it provides and link the customer to their other services. So now we have CVS Pay and Walmart Pay, with the likelihood of more to come.

In a free market, companies can use any third-party service they want, or none. In the case of contactless transaction processing, even though there are only two mobile operating systems, there will never be just one NF app for Android and one for Apple. There will be at least several and probably more, and if consumers need multiple retailer-specific apps in addition to Apple Pay or Android Pay, one of the key benefits of NFC will be negated: Simplicity.

As a technology, though, NFC can provide useful solutions, ranging from enabling simple functions to commissioning IoT devices. Stay tuned for this upcoming—and more optimistic—blog.