The term mobile payments refers to several types of transactions that originate from mobile devices such as smart phones or tablets. However, making headlines as the next possible "big" trend in payment processing in the US - is mobile payments using NFC or near-field communications (contactless).
Michael Koploy an ERP Analyst for Software Advice gives a comprehensive overview in his recent article (January 2012) of the components required to pull off utilizing contactless technology at the point of sale -
- A consumer/buyer with a smartphone outfitted with NFC technology or radio-frequency identification (RFID) chips.
- The smartphone requires an application such as Google Wallet, a "virtual" wallet that stores the credit card information (only works for Sprint Nexus S users who also have a Citibank Mastercard or a Google prepaid card - limited to date, but a competitive program is in the works in ISIS)
- A merchant with an NFC enabled credit card processing terminal or a stand alone NFC reader (MasterCard PayPass)
At the point of sale, the consumer uses a pin to access the information in the virtual wallet, waves the smart phone in front of the terminal (close proximity, 2-4 inches) and voila! a mobile payment transaction occurs.
Many of us in the industry are keeping our eyes on this technology, but few believe 2012 will be the year it takes off - there are a number of things impeding quick adoption in the US.
- We sorely lack the payments infrastructure. Most merchants do not have a reader or an integrated NFC terminal and so far consumers are not pounding on the sales counter insisting on using their virtual wallet and smartphone for payment.
- Liability and cost (ah ha!) - Angela West of PC World points out that NFC transactions are CNP (card not present), similar to e-commerce, as vs. CP (card present) which is typical of retail merchants. CNP transactions, where mag stripe data on the back of the card is not read/swiped at the point of sale, are processed at a higher interchange rate (i.e. cost the merchant MORE) and transfer the liability for fraud, from the card issuer, to the merchant.
- Does contactless payment increase sales? In Amy Gahran's cnn.com article (Nov. 2011) she quotes Google's VP of Payments, Osama Bedier "Merchants adopt new payment systems because they increase sales." Will customers buy more? Will ticket averages grow? Merchants will want answers to these questions before adopting new contactless technology.
- Are applications like Google Wallet secure? See Keith Wagstaff's Feb. 10th online article for TIME... hardly.
We can all agree,the current system of presenting credit and debit cards for payment at the point of sale is already quick and efficient - so do we really need NFC? We also know that merchants are resistant to change and in a payments world where most ISO's were giving equipment away - hesitant to invest in new hardware.
Koploy believes value added services that can be activated through NFC technology will drive consumer and merchant adoption of the new payments technology. Think daily deals, rewards and discounts. Payment industry professionals echo the belief that marketing will pave the path to acceptance, but discounts are not enough.
Grahn's article summarizing our sluggish trek towards NFC in the US, cites principal payment professionals who take Koploy's thoughts about merchant opportunity even further. Consider Dickson Chu, managing director of digital networks for Citi's Global Enterprise Payments unit -the NFC merchant opportunity is to "deepen the customer relationship" and David Marcus, PayPal's VP for mobile - "Today, retailers learn about customers at the least effective time -- just when they're leaving the store. They'd like to know about you when you arrive at the store, so they can customize your shopping experience and treat you properly."
Whatever happens - and we'll keep you posted, the indisputable march towards a cashless society moves forward, now inexplicably entangled with a rapidly declining privacy in the personal preferences, interests and wants that dictate our buying habits. Weird.