NFC and Mobile Payments

The future of mobile payments and banking has become a hot topic of research and study.  This can be seen in the huge change in banking customer service to plastic credit cards being replaced with mobile applications.  However, I believe there are risks about near field communication (NFC) business services and the resulting customer behaviors.

NFC Adoption

Near Field Communication (NFC) is a key technology for the development of mobile banking. There are many mentions of it including rumors of the iPhone 5 with NFC capabilities or Google Wallet. However, is there really a business for card processors?

It is not hard to imagine how much money MasterCard or Visa makes for payments processing fees all over the world. With mobile payments this revenue model becomes more difficult, because technology providers become the new intermediaries adding an extra cost to the business plan.

Merchant adoptions is another weak point in this strategy.  Imagine tiny shops trying to operate sophisticated NFC readers, or low-tech users trying to deal with the applications in their phones. While any revolution in technology is disruptive, this can become more disruptive because of the number of players, regulations and behaviors in the market.  Thus it makes it very difficult to think there will be a massive adoption of this technology in the short time.

So what about Square, the mobile credit card payment system?

In my opinion Square is doing very well because of their product design: An easy mobile application for merchants or people to receive payments with credit cards. With Square, the only change is on the merchant side as opposed to other solutions (credit card holder + merchant). Also the technology they use to develop their service is easy (just plug in the credit card reader into the audio jacket of your iPhone).  This ease of use makes makes the product a viable solution for low income economies.

Future Next Steps

So far the models mentioned here base their business strategy and product design adding complexity to their solutions:

• More players sharing in the revenue stream

• Assuming the high-tech population will use their product

• Adding complexity by creating double behavior changes: merchants + credit card holders

• Solutions that do not converge into a single point of operation (e.g. Google Digital Wallet, Visa Digital Wallet Project)

• Technology lock-in

I think that the winning solution will reduce the number of touch points to make the digital wallet concept easily accessible.  Companies like Square and Kuapay are working on the right path to the success of this revenue model and I’m looking forward to see what the future holds.