2011.04 | NFC Mobile Payments

Image Source - Cult of Mac

The previous blog post on Starbucks 2D Barcode Mobile Payments drew questions from readers and colleagues around Near Field Communication (NFC) payments, specifically, why would Starbucks have implemented a 2d Mobile Payment solution when NFC is just around the corner?

The Starbucks solution with 2D payments is a perfect fit for the unique Starbucks situation and does not preclude them from accepting mobile NFC payments.  However, the 2d barcode payment is not one I would recommend for any other retailer unless they were have the same characteristics as Starbucks and their solution outlined in the previous post, and there are few if any retailers or consumer facing organizations in that position.

In order to provide NFC mobile payments, it is necessary to have the following elements: NFC at Point of Service, NFC enabled mobile devices, and most difficult of all, Credit Card Company and Credit Processor cooperation.

Point of Service Interface – Retailers that wish to accept mobile NFC payments require NFC enabled pinpads that already work with NFC credit cards.  The most common units in place so far in Canada are the Verifone vx810 and Ingenico i3070c.  These pinpads would provide the interface in stores for NFC ready mobile devices, and are, in fact, already widely installed by many tier 1 Canadian retailers as part of recent EMV efforts.

NFC Mobile Devices – According to rumour, both RIM (Dakota) and Apple (iPhone 5, iPad 2) have NFC ready devices coming out in 2011.  If that is the case, then we may indeed finally be looking at the long awaited electronic wallet, as we now have an encrypted and relatively secure electronic interface from mobile device to point of service device.   Apple and RIM’s massive base and marketing power, as well as their ongoing competition, certainly has the potential to drive massive traffic.  So the mobile devices might be coming, but this has been the expected for at least 4 years.  We’ll call mobile NFC devices a strong maybe.

Credit Card Company / Processor Cooperation – My thoughts on contactless payments are well documented on the blog under NFC if you want to pick it from the tag cloud. The problem isn’t the technology, it’s how the payments get processed and who gets paid to do it. See my posts here and here, as well as a recent article published on StoreFront Backtalk.  The credit card companies, and the various payment processors already get their slice of the payments pie, while all of the mobile carriers have been trying to figure a way to get theirs for years now. Both Canada (Enstream) and US (Isis) mobile carriers have established collective organizations to deliver on mobile payments.  It isn’t that all of these organizations don’t want mobile payments, it’s just very difficult to sort out, and there is really no extra potential revenue in it for them unless consumers or retailers will pay more for some reason.  Some may point to startups like Square and Twitpay, and they may take a bite out of mobile payment in the future, but it doesn’t look like it will happen in the immediate future.  Getting these organizations on board, extending a very successful and secure closed network to the uncertain security of millions of devices is a long short in the near future.

NFC mobile wallets can and should happen (you can already stick an NFC tag on your phone if you like), but sorting out who gets paid how, and how funds will stream through a secure system will take some time.  Nobody knows when that will be.

Why did Starbucks implement a 2d Barcode Payment System instead of NFC?  Only they can answer that, and much of it may be marketing, but in the end, they can drive an ROI.  With a 2D system implemented TODAY, Starbucks potentially gets more consumer card usage, drive more ‘deposits’ on their stored value card, and a quick tender.  Consumers get the convenience of paying with their phone, and the kind of bleeding edge fun many Starbucks customers enjoy.

Starbucks avoids the complex mess of processors, EMV, PCI, and dealing with the processors and credit card companies altogether by taking no the risk themselves.  They have made a good gamble on the fact that they can attract early adopters with relatively very little investment, and by the time mobile payments are mainstream, their system will have already provided a good ROI.

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Trackbacks

  1. […] very different from attaching a tag to a mobile device and calling it mobile payment.  The keys to getting a solution of this kind in place have been covered many times in this blog, but the fundamentals in Canada are […]

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