While it might feel like Manifest Destiny, progress towards a cash-less economy will be messy. For pay-with-your-phone to actually happen, it'll require cooperation between a bunch of powerful stakeholders, many of whom are eyeing the same pieces of the pie, and many of whom will have new technology to share this year at the SXSW Interactive conference in Austin. There will be bickering.
Sure, Visa is experimenting with contactless mobile phone payments in Europe; Google's Eric Schmidt recently championed near field communication, a key technology to m-commerce, at an industry trade show; and BMW is working on NFC car keys. Even Apple is allegedly planning NFC in future iPhones. According to Juniper Research, one in every six phone subscribers worldwide will be able to leave their cash and credit cards at home by 2014. Meanwhile Verifone, which owns arguably over 20% of world market share in handheld electronic credit card readers, just revealed it will be including NFC technology in all new reader units sent to merchants.
The wireless carriers are cooperating, too: late last year, AT&T and Verizon joined T-Mobile in creating a joint-venture company named Isis Mobile Commerce to standardize NFC payments across all three carriers. (They're huge Archer fans, obviously.)
But as a so-called B2B2C operation, Isis has limited interest in how the whole payments process works once it's in the hands of consumers. For example: Who decides whether your smartphone will demand a password before allowing an NFC purchase? Or two passwords? Or a fingerprint? "Everything's available, so that's all decided by consumer choice," says Isis CEO Michael Abbott. "We're not here to own the consumer experience."
So if Isis doesn't know what our wallet apps will look like, who does?
To get the lowdown on the players and their interests, FastCompany spoke to Abbott (who came to Isis from GE Capital, where he built the private-label gift cards into a multi-billion dollar business) and to Marty Beard, president of Sybase 365, a division of SAP that does backend mobile software including NFC for wireless carriers, banks and big companies.
Here are the stakeholders in NFC and what they want:
Consumers: Everyone agrees that the success of NFC is both presaged by, and judged by, consumer demand. "We've done various different trials," says Abbott, "and what we do know is that once someone is on [contactless payment system] and uses it, they never wanna give it up."
"The problem is, there's no new value," says Beard. "Swiping your card is already pretty easy." Beard's company did a survey of attendees at Mobile World Congress a few weeks ago about whether NFC payments would ever become popular—the subtitle on the study results reads "Industry Coordination Hinders Rapid Growth of Mobile Commerce." Abbott agrees that the biggest hurdle to NFC's popularity that "plastic still works."
When Abbott says that oversight of these apps goes to "consumer choice," he's saying the market will decide how the interaction should work. The problem, says Beard, is that disagreements in the market could prevent good NFC solutions from ever becoming broadly available. "There are a ton of companies involved in the privacy discussion," says Beard, "like the data centers, point-of-sale terminal companies, software makers and the funds-holders." All of them may have their own ideas about what makes a proper transaction. The industry standard for mobile commerce on a website, says Beard, is "two-factor" authentication, but perhaps NFC demands more security. Or perhaps it requires less. None of the parties involved have stepped up to express an opinion. Which brings us to the phone-makers.
Google and Apple: The biggest players in the smartphone business all show signs of adding NFC hardware and software to their phones, and Google has already done so. At the iPad 2 launch, Apple CEO Steve Jobs boasted that the iTunes store had 200 million accounts, making it the largest credit card hub on the Web. If NFC enters the picture, presumably Apple will feel entitled to a big piece of the mobile payments vertical.
But if device manufacturers like Apple are the ones to step up to set rules about NFC payments, those rules could be very different between iOS, Android, Blackberry, Windows and so on. "Yes, it's very likely they'll be different," says Beard, which would mean that some banks and merchants only work with some apps or some phones. "There has to be some common way that these transactions happen over time," says Beard, or things might be too messy for consumers to care.
Merchants: According to Abbott, this whole story starts with the merchants. "The merchants surprisingly pushed the carriers to get together and form Isis," he says. "They came to the carriers and said: We need a common standard, a common platform, something we know is going to scale. Sufficed to say, pretty much every [retailer] we talked to said it."
Why do merchants and retailers want NFC so badly? "Today, with plastic, their only means of communication with customer is direct mail and statement," says Abbott. "If you can digitally deliver card (payments) over the air, with a one-to-one communication, there's a whole host of new things you can do from a marketing perspective." (More on that later.)
Retail Employees: A huge obstacle to NFC is educating consumers and employees to use it. Paying with your phone isn't drastically different than with your credit card, but it's new enough that it's not exactly intuitive. If there are multiple standards or systems, say compatible with Android and one for Apple, that doubles the educational burden.
A writer at ComputerWorld had this to say after testing an NFC system from MasterCard:
Never once did anyone in that store ask me if I would prefer to use the MasterCard PayPass option, nor was there any signage informing me about how to use it. Further when I, the tech savvy consumer, asked cashiers if a lot of people took advantage of that capability, they generally had not noticed nor did they even understand the difference.
Banks and Payments Companies: Other vital players in NFC are banks, credit card networks and payments companies like PayPal. Abbott says Isis is using Discover's credit card system to process NFC payments for AT&T, Verizon and T-Mobile. As far as banks go, Barclay's is Isis's only partner bank at launch, which would leave a lot of consumers out of the loop, but Abbott says they've had avid interest from other commercial banks.
But many of these banks, such as JPMorgan Chase and Bank of America, are already doing battle in the mobile app arena, and may choose to add NFC payments to their own apps while shunning third parties. Visa and MasterCard already have open APIs for developers to use, and they've already joined up with EuroPay to form the "EMV Group," a consortium to set transaction standards. But the GSM wants that control, too. In possessive-sounding press release this week, the worldwide alliance of carriers said it wanted to control the protocols and standards in lieu of the companies that process payments. We'll see how that goes.
The App Developers: So where does the buck stop, and on whom does the future of our cash-less society rest? "The key is going to be in the applications," says Beard. App developers have the potential to make or break NFC, because they can look at all the various APIs, the conflicting standards, the banks and payments processors, the handset makers and the carriers, and they can decide which of them are being fair.
Why the app developers? It's not enough to replace cash or cards — they work just fine. If people are actually going to pay with NFC, it will take real value-added apps to get them there. As Eric Schmidt argued at Mobile World Congress, the key to making NFC work is offering people incentive to use it: targeted deals, coupons or rewards points, all of them stored in the phone.
So when are NFC payments coming? That's the for app stores to decide. You can watch for major developments by following FastCompany's SXSW coverage @FastCompany on Twitter.