Near-Field Communication (NFC) was one of the major themes of this year's Mobile World Congress in Barcelona, with a broad range of smartphone makers – including Nokia, Samsung, Blackberry and Huawei – announcing new products that take advantage of the technology.
But the promise of NFC has been around for some time, and anyone who has been following the progress of the technology over the past few years will be forgiven if their enthusiasm is beginning to wane. Retailers, banks, mobile operators and device manufacturers are all desperate to get NFC into the mainstream, but so far consumers just aren't biting.
Part of this could be down to the fact that so much of the focus of NFC is on mobile wallets. The idea of mobile wallets is that eventually we won't need to carry plastic cards and cash around with us, because we will have digital wallets on our phones, and we will be able to pay for items in shops simply by touching our devices to a point of sale (POS) terminal.
While this may seem like an attractive proposition, the reality is that mobile wallets are extremely difficult to get right. As Ovum analyst Eden Zoller pointed out in one of the sessions, most transaction sizes are small, revenues are often shared between several players, and margins can be further eroded through transaction processing fees.
To add to the confusion, mobile wallets can be implemented in a number of different ways, using a variety of enabling technologies. This makes them confusing for merchants, who are trying to work out which types of solution they should invest in, and also alienates consumers, who don't see why they should forego existing payment mechanisms.
Interestingly, when I visited the 'NFC Experience' at MWC, there wasn't a mobile wallet in sight. Instead, I walked around three stands, all of which were showing off completely different uses of NFC technology.
The first company, Israeli start-up Tag-a-Bag, was demonstrating an NFC-based travel service that uses luggage labels equipped with NFC tags to help travellers manage their journeys. The service allows users to track lost luggage, access travel plans, post news of their safe arrival to friends and family via social media, receive offers and create a log of their travels.
The second was UK-based firm Intercede, which has developed a solution that enables an NFC-equipped mobile device to act as a contactless smart card. Using SIM-based NFC and the secure element on the phone to store encrypted graphic credentials, enterprise employees can use their smartphones to gain physical access to buildings or as a flash badge for identity verification.
The third example showed how an NFC-enabled phone could be used as a boarding pass in an airport to access security, the lounge and the boarding gate. The boarding pass is sent to the phone as an SMS and stored on the SIM, so that even if the phone is switched off, the user can verify their identity and flight details by touching their phone to a terminal.
All of these seem like interesting and genuinely useful examples if mobile NFC that will not only appeal to consumers but also businesses users. They show how a technology that is already built in to most smartphone devices today can be used to improve the efficiency of everyday actions.
This got me thinking that maybe the whole obsession with using NFC for mobile wallets is misguided. There is still an awful lot of work to do before using phones to pay in shops becomes ubiquitous – not least because many people are quite content to continue using SMS or USSD for mobile transactions.
Meanwhile, using NFC to transmit small amounts of data between devices, such as sharing contacts or playlists, is genuinely capturing people's imagination. Once this functionality transfers itself the the enterprise, the potential uses of NFC become a lot more exciting.
Even the companies working in the NFC mobile wallets industry have been forced to acknowledge that it is a tricky market to conquer – primarily because there is very little friction in the payments system today. Most people are quite satisfied with their experience of making purchases using a plastic card.
Realising the mobile wallet vision therefore means creating 'added value' for customers, beyond the transaction itself. This means creating new and compelling applications that complement the payment process – whether by offering rewards or improving efficiency.
“As an industry, if all we're going to offer consumers is replacing a card swipe with a phone tap, we've failed. That's not saving you time, it's not giving you much convenience. We have to think more outside the box, we have to do things that give people unique value that they can't get from standing in line and swiping a card today,” said Hill Ferguson, VP of Global Products at PayPal.
“Fundamentally, it's got to be something that the users actually want to do, and to change their behaviour there's got to be something they get as a result,” added Peter Hazlehurst, Director of Product Management for Google Wallet
“One of the things they could get is automatic enrolment into a loyalty programme, so the next time they come to that store they get a benefit or a discount. Another thing they might get is an offer for a particular purchase.”
Ferguson made the point that focusing purely on the mobile phone as a vehicle for digital payments is potentially a risky strategy, as more and more devices are now becoming connected, and there is no telling how people will choose to access their money in a few years time.
One company that has rolled out a successful digital wallet strategy is Turkish mobile operator Turkcell, which offers solutions for both regular credit card users and 'unbanked' citizens. Transactions can be initiated through the SIM menu on all phones or with a native application on smartphones, and it supports contactless payment on NFC-enabled phones.
“Although you may have a comprehensive solution, to propagate it you need to focus on a few concepts that make a difference and matter to the consumer. You may have a great product but at the end of the day it's very new to the consumer, it's very confusing sometimes, and benefits sell a lot more than products and features,” said Emre Sayn, Chief Consumer Business Officer at Turkcell.
“From now on, if we develop new capabilities in this product, we will make sure that it develops habitual use. So enough frills, enough capabilities – unless it really changes the habits of people for using the wallet, such as a very easy payment method for transportation for example, we will not make it any more complicated. We will keep it simple.”
If NFC mobile payments are going to take off, they need to be part of a wider ecosystem of NFC applications that will compel users to start using the technology for their own interests. While a lot is resting on mobile wallets from an industry point of view, stakeholders are going to have to be patient and give consumers time to adjust to this new transaction method.
Wendy Reilly, NFC Project Leader at the GSMA, said that NFC may have different applications in different markets, and these applications may depend on the infrastructure that is already there. For example, some countries may choose to focus on transport first, while others will focus on loyalty points and couponing.
As a general rule, however, the industry needs to stop telling consumers and businesses that NFC is a good thing and start showing them what can be done with the technology. Only by putting the consumer first and allowing them to choose the applications they want will NFC mobile wallets ever stand a chance of entering the mainstream.
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