When I saw last week’s latest NFC payments trial announcement by the GSMA, I have to confess my immediate thought was - So what? Another day, another contactless payment trial.
In 2006 I estimated that by 2011 mobile would facilitate $35 billion worth of contactless transactions, which has clearly been wildly off the mark! I hold my hand up and admit that I underestimated how slowly it would take to roll out mobile contactless payments. Despite this, it remains my opinion that handset based contactless payments will eventually support billions of transactions, driven mainly by strong convenience motives. Ever decided not to bother buying a snack or a magazine at a newsagent after seeing the length of the queue? Well, contactless payments should mean faster movement of queues; less waiting and greater likelihood you will complete your transaction. Importantly for businesses it will scale down cash handling costs. Yes, there are some competing contactless instruments, like contactless cards, but why bother thumbing through several cards in your wallet when you can just whip out your phone and be on your way?
The technology implementation of contactless payments on handsets has been agreed on by operators and device vendors through the GSMA Paybuy initiative. Furthermore, facilitating contactless payment is part of the strategy of leading payment companies (banks and credit cards) like MasterCard, and Barclays. So what’s preventing full deployments? Operators are waiting for the handsets from vendors. The handset vendors are waiting to see when retailers upgrade their terminals to accommodate contactless payments. Meanwhile, merchants won’t invest in contactless technology until they see evidence of wider deployments of contactless payment instruments, so we're in a deadlock situation. To their credit (pardon the pun) banks and major credit card companies are taking the lead by distributing and marketing contactless payment cards. Over time this will lead to growing adoption of contactless infrastructure among merchants and remove one of the barriers to take off.
However, critical business model issues still need to be resolved. Operators want compensation for subsidising these new payment instruments into the market and they are in a position of control because payment applications will reside on SIM cards issued by them. Within an established ecosystem for payment accommodating an extra few mouths to feed will remain a key challenge, and an area which we intend to investigate further in up coming reports on contactless payments later this year.
Nitesh Patel