Carrington predicts these services actually may be more quickly introduced and adopted via "hardware agnostic" alternatives to NFC, at least in the next few years. "These solutions range from full terminal integration to utilizing barcodes and cloud-based payments," she writes. "In most cases, they present fewer hurdles for merchants and consumers than NFC-based solutions, and as a result, we will see many of them launch with faster adoption rates in the marketplace."
There are three main NFC rivals in this class. One is PayPal, which is aggressively extending its reach from online purchases to offline purchases via POS integration at chains like Home Depot. Meanwhile, MasterCard and Visa are taking aim at online payments: "Both are rolling out PayPal-like digital payment solutions. Both networks aim first to establish their digital wallets online and then extend them for use in person at POS."
A second alternative is created by new entrants with new business models, such as LevelUp and Pay with Square. Both enable "consumers to access a digital wallet via their mobile phones at POS -- LevelUp uses a barcode to access data in the cloud, and Pay with Square uses location and visual confirmation of identify to facilitate payment. But, unlike other digital wallets, LevelUp and Square's Register application also deliver clear value to the merchant through embedded loyalty programs and back-end analytics, and merchants who don't have either should find these features appealing,"Carrington writes.
Third, branded wallets -- such as the one introduced in 2012 by Starbucks -- leverage customers' existing affinity with a retailers "to deliver a pleasing mobile payment experience linked to [the vendor's] loyalty program." Service providers like mFoundry and Paydiant offer these capabilities to retailers who can then brand them as their own.
But a variety of market forces finally are converging in the U.S. to create a foundation for larger-scale adoption of NFC-based mobile wallets and their attendant services, Carrington says. By 2016, more than 25% of U.S. consumers will have an NFC-equipped phone, she says. There is wide and intense speculation for example that Apple's iPhone 5, which may be announced in September, will have NFC.
The move to adopt the industry EMV payment standard -- which governs the interaction between a chip-based smartcard and a corresponding point-of-sale terminal -- "will spur point-of-sale terminal upgrades that can be configured to support NFC as well," Carrington says. But even so, she adds, merchants are likely to wait for more evidence of a "clear business case" for NFC before taking the plunge on a large-scale.