Why NFC payments aren’t taking off

Obstacles to overcome

Mobile payments service Isis will be available all over the US by the end of the year, but bar the mobile operators backing the service, nobody seems that excited about the news. The NFC-based service, launched to funnel revenue from mobile payments back to the carriers, has seen incredibly lukewarm uptake and is barely making a dent in the market, so it’s hard to imagine this will change when it’s available nationwide. On the other hand, Isis will bring NFC payments to the iPhone and its typically tech-savvy users for the first time. Many have seen Apple’s decision to shun NFC as a major barrier to adoption, so Isis’ attempts to enable it should spur adoption of the technology. But first there are a number of hurdles that need to be overcome:

What is ISIS?

This is precisely the problem. Most consumers have no idea what Isis is in a market where even the biggest players, like Square and PayPal, are still small fish in the wider payments space and their names are only just becoming mainstream. Isis is a joint venture between AT&T, T-Mobile US and Verizon announced nearly three years ago and finally launched last year after a number of delays. Even then it was only available on a handful of Android devices in a few test markets like Salt Lake City. Isis uses NFC technology, which lets users make a payment or redeem a voucher by tapping the device to a point of sale device. And here is the stumbling block not just for Isis, but for services like Google Wallet that use the technology: the NFC infrastructure doesn’t really exist yet.  

NFC Holdups

The number of handsets shipped featuring NFC grew 300% in 2012 to hit 140m units globally, with the top 10 mobile vendors releasing almost 100 models between them last year. But barely anyone knows how or where to use it. Isis claims that Android device owners are making an average of 10 payments using Isis per month in markets where the service is available, but generally uptake remains slow. In fact its failure to catch on as a means of payment resulted in Gartner lowering its NFC forecast by 40% earlier this month, expecting NFC to account for just 2% of all mobile payments made this year and only growing to 5% by 2017.

Google is struggling too, with the firm forking out USD300m to acquire startups to help develop Google Wallet, but reportedly seeing just 10m downloads two years after launch. Meanwhile dedicated mobile payment services that avoided NFC, like iZettle in Europe are faring much better.

Merchants Hold The Key

Isis is sensibly taking a leaf out of Square’s book and partnering with a number of big-name brands to boost visibility in the hope that smaller retailers will follow their lead. The JV has signed up Coca Cola vending machines, as well as Foot Locker and Macy’s, recently citing a report that there will be NFC payment acceptance in 1.3m locations by the end of the year in the US alone.

Starbucks appears to be leading the field in mobile payments, with the firm saying smartphone-based payments made through its app now account for more than 10% of in-store purchases. The firm started out with a small trial to test that the service worked and that consumers would use it. Then in 2011 it pushed it across the US and now processes more than 3m mobile transactions every week.

Perhaps the iPhone will help unlock the potential of NFC and in the long term maybe the carriers will win out, but for now Isis is attmpting to gain ground in an already crowded market and the incentive for consumers to use yet another method of paying for goods remains small.



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