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Commentary: Merchants must be involved to make mobile payments a reality

For mobile payments to work, millions of payment devices in the field need to either be retrofitted or replaced with NFC capabilities.

June 1, 2011

This commentary is a guest post by David Talach, vice president of global product management at VeriFone Systems.

Nothing is ever as simple as it seems at first blush, especially when it comes to technology solutions, and NFC is a perfect case that proves the point.

NFC undoubtedly has the potential to create a world of mobile electronic wallet applications that encompass credit/debit card accounts, loyalty programs, electronic couponing and other value-added applications. Who wouldn't want to leave the stack of plastic cards at home in favor of a wallet app that resides on the mobile phone and can be easily accessed to make payment, while also tapping into a wealth of other features such as electronic coupon redemption and presence-awareness that can connect location-based social media online services and capabilities to the store, the lane, and the checkout?

But despite the seeming gold rush by companies converging on mobile payments enabled by NFC, it can't happen without active participation by the merchant population. Often lost amid the NFC discussion and speculation is the role of that ubiquitous device that is needed to make it all possible – the payment acceptance device sitting on a merchant's counter. Enabling the world of NFC payments takes more than simply adding an NFC reader to the countertop.

In March 2011, the Federal Reserve Banks of Boston and Atlanta released a report, Mobile Payments in the United States: Mapping Out the Road Ahead, that sets out a vision for mobile payments. However, the report notes that this vision requires that "consumers see a homogenous solution as they do today in other payment channels such as checks, ACH, and cards."

To create that homogenous solution, the Fed report says, requires "agreed upon standards, rules, and practices that ensure seamless interoperability regardless of the handset, mobile carrier, financial institution, payment network, or merchant location involved in any individual's desired transaction."

Getting card brands, issuing banks, wireless operators and handset manufacturers all to agree is no easy task. Nonetheless, during 2010 and 2011, companies such as AT&T and Verizon Wireless, MasterCard, Apple, Google, and other substantive firms announced or were rumored to be working on collaborative efforts aimed at making NFC payment applications a reality.

But the point of sale is far from ready: In the U.S. today, most estimates peg the number of installed contactless readers at less than 200,000, which is just a smidgen of the total number of payment-acceptance devices that merchants and consumers rely on for credit/debit transactions.

That means that millions of payment devices in the field need to either be retrofitted or replaced with NFC capabilities. Merchants will need payment acceptance devices for a wide variety of environments, a secure gateway service that provides integration of payment with value added online services, and assurance that merchants—from the largest to the smallest—can easily migrate to this new era with the confidence that their investments today will be viable as new capabilities and payment services come on-stream.

We see six key requirements to make NFC payments a reality:

• Deployment and management of complex NFC technologies will require significant ongoing services from the retailer's payment systems provider. Until retailers are assured of receiving real value from mobile commerce, service providers who stand to gain from either carrier fees, advertising revenue or transaction charges must be willing to bear the costs of this highly disruptive paradigm shift.
• Mobile commerce must add value to the consumer. Simply replacing the function of a credit or debit card with the tap of a phone isn't sufficient. Service providers and retailers need to provide real additional value –- such as coupons, loyalty rewards and discounts – to convince consumers to leave their wallets at home.
• NFC commerce applications must be streamlined with existing POS services and managed well for the retailer. Retailers won't tolerate the need for multiple methods of acceptance to accommodate what will become a wide array of mobile commerce schemes.
• Consumers will not embrace mobile commerce without the confidence that it is being widely accepted. If it only works at a few select retailers, it won't stick. Service providers can't expect that it's sufficient to subsidize a select group of national retailers—the card issuers tried that with smartcards and it didn't work.
• Mobile commerce won't lead to the quick death of plastic cards and must work with existing payment systems that are certified by all major processors and installed in the vast majority of large and small retailers.
• Security must be ironclad. Even minor setbacks in security could compromise consumer adoption and stop the movement in its tracks.

Some proponents of contactless payment believe that the reason that earlier forms of contactless payment technology failed to match expectations was that the promise of speedier checkout was not a sufficient incentive for either merchant or consumer. The difference between a contactless and a swipe payment are marginal to the average consumer and not sufficient to convince a merchant to upgrade his or her acceptance devices.

To move beyond simple replacement of plastic cards at the point of sale, we need the richness of value-added applications that enhance the payment transaction. That requires deep software richness at the point-of-sale to interact with the smartphone and manage a services-based model encompassing new applications and deployments without disrupting operation of existing card systems.

We firmly support the goals of NFC-enabled payment at the point of sale and have invested millions of dollars to ensure our products are NFC capable. But would-be NFC applications and service providers need to invest in the merchant population to make this a reality.

(Photo courtesy of Orange UK)