IDC Retail Insights Community –
You gotta love blogs - I don't usually write much about payments, but I have had so many inquiries on the topic lately, that it made sense to share my thoughts with a broader audience.
[ See also: Mobile payments: Beyond Google and Apple ]
A growing number of small businesses are benefiting from smartphone based mobile payments capabilities. A growing number of companies including Square, Swipe It, Innerfence, Intuit and VeriFone have introduced mobile payments capabilities targeting small to mid-sized businesses. Not only do these companies enable physical store fronts to streamline and modernize how they ask customers to pay for goods, but it also extends capabilities to self-employed service providers, like plumbers and carpenters and to part-time retailers like flea market sellers. Some of these merchants may accept credit for the first time, others will find they reduce their costs and improve payments processing manageability by implementing new mobile payments.
For any small retailer who previously had to pay premium payments transaction fees including "card not present" transactions fees may be reduced with these services as well. Most of these services charge a fee for the hardware involved, a monthly fee for the service, and then transactional fees for processing credit card authorizations. Intuit is offering promotional pricing for its GoPayment service, that provides the reader and foregoes monthly fixed service fees, charging a flat 2.75% for transactions (other schemes are available); and VeriFone uses a two-tier rate scheme for PayWare - merchants with fewer than 1,500 monthly transactions pay a suggested retail rate of 2.75% of the sale, plus 15 cents, but no monthly fee; higher-volume merchants pay 1.65%, plus 20 cents, and a $19.99 monthly fee - the card reader is free with a two-year commitment, but there is a $29 activation fee. Every retailer may be able to negotiate specific terms, but this provides a good reference for those small to medium sized retailers considering new payments options, given the desire to introduce mobile, reasonably priced payments services.
Retailers that operate in multiple countries or currencies should choose their providers carefully, since not all of these providers can provide these capabilities today, but many have planned to introduce these capabilities soon. Most of these vendors claim full tier 1 PCI compliance, so payments security should not be a concern. None of these vendors store credit card information on the device. VeriFone offers the most robust and flexible set of capabilities including a payment card industry PIN-transaction security-certified PIN pad and both a contactless and magnetic stripe card reader.
We know now, after Apple's iPad 2 announcements last week, that the next iPad will not have NFC embedded, but there is still speculation that the next iPhone will (see Computerworld's article, iPhone and iPad could include Near Field Communication (NFC) technology). This prospect is truly disruptive for consumer payments as Computerworld's article, Analysts: Apple could disrupt mobile payment industry describes, by enabling payments for just about anything through the iTunes service. Remember Apple iTunes already providing services to 160 million users, and this could take a bite out of some of the current payments services' business.
Turning on NFC payments requires much more than just adding NFC "wallet" capability to a phone. Merchants need to be able to read the NFC chip, and while vendors including VeriFone and Ingenico are committed to adding NFC capabilities to payment terminals, even if all payment terminals sold going forward have NFC capabilities, they will not necessarily appear at your local merchant for some time. A coordinated effort is necessary or simply a lot of patience will be required before wide-scale adoption is achieved in the U.S. The technology is much more widely deployed in Japan and Korea and in several European cities.
What do consumers want?
I frequently read that consumers are not enamored by NFC capabilities because they don't see a tangible advantage to using these capabilities. I would argue that consumers will adopt whatever technology they are provided that makes the transaction process more efficient and secure. I am not aware of too many instances where consumers were actually given the option. I know one of my own credit card providers issued a card to me with NFC built-in, but then replaced it 90 days later with one that did not have NFC. They never asked me if I wanted to use MasterCard's PayPass or any other mechanism, for that matter.
During that period of time when I had the capability, only one retailer that I frequented had a terminal that could read the card. And never once did anyone in that store ask me if I would prefer to use the MasterCard PayPass option, nor was there any signage informing me about how to use it. Further when I, the tech savvy consumer, asked cashiers if a lot of people took advantage of that capability, they generally had not noticed nor did they even understand the difference. So I ask you, does this sound like a good pilot to you, something to base business decisions on, or does it sound a little bit like the low commitment to succeeding big auto displayed when they tested the viability of electric cars in the mid-1990s?
When was the last time your credit card issuers asked you if you cared how your credit account information was communicated to the merchants you do business with? The barrier is getting commitment from merchants, banks, issuers, carriers, and phone manufacturers, not in getting an educated consumer to leverage new technology if really given a choice and a fare chance to try it out.
Moving Consumers to Contactless or Credit Card-less Payments
Moving consumers away from having a stack of credit cards in their wallet to a contactless wallet in their phone will be a task similar to moving consumers from face to face bank transactions with tellers to ATM's. For many consumers, it wasn't soon enough, and for others, albeit a small number of consumers, even 30+ years later, there is still distrust of the machine and the automation behind it.
Other significant indicators that NFC is on its way to consumer handsets includes the announcement last November regarding ISIS, a joint project involving AT&T Mobility, Verizon Wireless and T-Mobile, Discover Financial Services and Barclays. These companies announced plans to introduce an NFC-based mobile payment system in the U.S. Google also added NFC capabilities with its Nexus S Android smartphone made by Samsung and PayPal began partnering with retailers in an attempt to let consumers use their PayPal accounts when making mobile payments at physical locations.
I think we need to grapple with the fact that NFC offers many advantages to consumers and card issuers when smartphone adoption (potentially with NFC capabilities) enables consumers to leapfrog the NFC enabled credit card step, jumping straight to a contactless wallet. Full consumer adoption will take time - there is no way around this. The value of mobile payments is unquestionable, although it doesn't replace traditional payments processes. VeriFone's approach makes sense - offer the myriad of capabilities in one device all of the time and expect to interact with customers in a variety of ways.
Support and collaboration between the issuers, carriers, processors and banks is necessary. The industry expects commitment and expects that progress will not be stalled, because if the traditional payments processes are no longer tenable, merchants and consumers will find another way to do business - PayPal has blazed the way, but iTunes and others may emerge as the transaction processors of the future. Of course, in most cases, credit transactions occur behind the scenes in each of these cases, but will they always have to?