The trials (and tribulations) of NFC

POSTED BY Windsor Holden
Isis has been talking trial results.

Isis, you may recall, is the MNO-led, NFC-focused, mobile wallet initiative which was initially scheduled to launch last summer, but which finally began a soft launch in Austin, Texas and Salt Lake City, Utah, in October.

Now the consortium’s Chief Sales Officer, Jim Stapleton, has been briefing the media on the activities of the Isisites/Isissians in Utah. The average Isissian (let’s go with that) apparently pays for goods and/or services five times a week; he or she follows five retailers via the loyalty card and couponing features and – if signed up for a loyalty programme – visits the store twice as often as a typical customer. Stapleton also added that the system is accepted at 10,000 locations in Salt Lake City alone.

Disappointingly, however, Isis did not reveal how many Isissians were using the service. As a rule of thumb in the mobile industry, when subscriber numbers are conspicuous by their absence, then so are large numbers of subscribers, so it would be reasonable to assume that adoption is at a low level at present.

In all fairness, (a) the service has only been active for a few months and (b) we are talking about a (relatively) small trial population (approximately 190,000, of whom only a minority will be in possession of NFC-enabled smartphones).

However, despite the encouraging response from the Isissians – however many of them there may be – we should at this point mention a few caveats. The first is education: it is far easier to educate a relatively small number of triallists – and merchants – about NFC than it is to educate a wider population of tens of millions (and in the US, hundreds of millions) about a payment mechanism which is intrinsically different to that which both consumers and merchants have been accustomed throughout their lives.

Then there’s, well, the POS infrastructure problem. Stapleton is reported as having said that merchants “were interested in embracing the technology provided that they could make an investment that could be implemented once, last seven years and support all types of these payments”. What is not mentioned in the article is whether Stapleton believed the merchants would be prepared to make that investment now, and thereby disrupt the existing POS infrastructure lifecycle at additional expense. Judging by the general response across the wider retail industry, one suspects their response would be lukewarm to say the least.

Finally, there’s the issue of the NFC chipset that isn’t there. Apple didn’t put one in the iPhone 5. As I’ve mentioned before, this has a negative impact on NFC not merely because there are a fair few smartphones out there without NFC capability, but because of the wider perceptions of Apple’s decision: Apple hasn’t gone for NFC, so why should we invest in NFC at POS? Why should we invest in NFC campaigns? And the net result is less NFC terminals, less NFC campaigns, less NFC visibility and lower levels of NFC adoption.

Indeed, Apple’s decision not to include an NFC chipset (and the later than planned launched of Isis) obliged us to revise our forecasts for NFC transactions Below we have isolated the North American and Western European transaction values in our revised NFC forecasts and compared them to the transaction values forecast in May last year, which were predicated on an NFC-enabled iPhone 5 (together with the wider positive impact such a launch would have on the NFC ecosystem) ,an earlier launch of Isis, and – particularly for the first year of the forecasts – a stronger consumer take-up of Google Wallet.

Together, these factors translate into markedly lower POS sales via NFC: in the case of both regions, this means that transaction values anticipated by 2015 are pushed back around 2 years, as retailers and brands scale back their activity to reflect what they perceive as a lack of confidence in the technology, and consumers consequently have less visibility of NFC and less opportunity to make NFC transactions.