Why NFC is Irrelevant To the Mass Market

by Ben Bajarin   |   September 13th, 2012

NFC technologies have been around for quite some time. Many years back my firm did some market analysis on NFC for Philips Semiconductor about the time it was spun off to become NXP. In doing this we spoke with retailers, merchants, payment gateways, etc., in order to better understand the infrastructure change necessary to fully deploy NFC. Without going into that in depth analysis, I will tell you that it is difficult and costly.

What Problem Does it Solve?

Due to the fairly extensive new infrastructure that would need to be deployed in order to broadly deploy NFC, retailers would need to be convinced that it would lead to more transactions in their stores AND not be something that goes by the wayside to some new technology in just a few years. Many retailers are already struggling and faced with significant challenges that need to be solved. They recognize that the mass majority of consumers are not out there clamoring for NFC nor even recognize the need or have the desire for a new payment process.

But the key to addressing NFC is to look at what problem it solves. Perhaps even better stated, does it solve a pain point in the payment process today. I would suggest that it does not.

Humans are creatures of habit. Keeping a number of credit cards in a wallet or purse and pulling out the correct one to make a purchase is not a massive inconvenience for many. The challenge with NFC is that its value proposition is only to replace credit cards in a commerce market. That is the only process it is addressing in a retail environment. Retailers have much more pressing problems to worry about. Like consumers using their stores to showroom and then go and buy online. Or other retailers rigorously competing to steal loyal customers, etc.

I am more interesting in technologies or opportunities to completely revolutionize the shopping experience. This is something NFC does not address.

Let’s Change the Shopping Experience

When thinking about how the future of shopping may be shaped, I like to use Apple stores as an example. It is possible with the Apple Store application to explore, learn, get help, and more, all from an application. This application is designed to make the in store experience more helpful and more engaging. Apple has also integrated into the application an easy pay method that allows you to scan the product you want to buy, and pay for it right there using your iTunes account. So without NFC, and no new infrastructure, Apple has integrated a simple and engaging experience as well as an opportunity to complete a transaction all without NFC. Apple is deploying more of a “closed-loop” payment system using their trusted relationship with the consumer and iTunes as a gateway. Exploring how apps and these “closed-loop” systems may benefit retailers is an interesting scenario to think though.

If I was a retailer would I rather invest in a massive amount of new infrastructure that only solves a payment gateway problem or invest in experiences like the one possible in Apple stores that keep my customers engaged with my store and the products I carry?

The reality is there is nothing that can be done with NFC that can not be done by an app and a connection to the Internet.

Changing the in-store shopping experience in a way that address the challenges retailers are having is not something NFC solves. I believe in mobile payments and I believe in machine to machine communication. I am just not sure NFC is the way forward when their may be better solutions readily available. NFC may have a role in that environment but it is not in the foreseeable future.

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Ben Bajarin

Ben Bajarin is a Principal Analyst at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research. He is a husband, father, gadget enthusiast, trend spotter, early adopter and hobby farmer. Full Bio
  • http://twitter.com/Cleonex Juan Serrano

    why you see NFC only to make payments, NFC can help to do alot of more things like identifications, publicity,stock control and more

    • benbajarin

      Can’t all that be done over the Internet and ann app?

      • http://www.nfc-phones.org/nfc-tags/ Joao Rostli

        “does it solve a pain point in the payment process today”
        Yes, in public transport!
        NFC is used in many metro-subway-buses worldwide already. Fast, easy, cashless and secure, internet and an app are better and can replace this?
        Important to think worldwide. Not everybody walks around with a creditcard, many don’t have a bank-account, but they do have a mobile phone.

        • benbajarin

          NFC biggest short term opportunity is world wide. Things are happening in Europe and other countries I agree. But again most of what NFC does can be done using an app and an internet connection.

        • AdamChew

          There are many modes of payment and NFC is just one of them and the one that wins is the one that a person need not worry when he loses that phone, er, thing.

        • steve_wildstrom

          In Washington, DC, public transit payment is by contactless SmartCard (mag stripe cards are being phased out.) Works much like NFC, but it’s a different infrastructure. Cards are stored value, but value can be added online or at kiosks in Metro stations.

  • Rob@Proxama

    Retailers are already deploying contactless terminals for cards that will work the same for NFC mobile phones so no extra infrastructure needed. Convenience! Not having to take you wallet to a gig, festival, night out – just take your phone to pay – now that is a REAL benefit.
    And then there is the interaction between brand and consumer by way of voucher distribution (and incentive) and loyalty cards and you have a channle that will engage and excite customers. Think NFC has a number of uses beyond just payments that will help embed the technology and make it relevant for the mass market.

  • anonome

    NFC would be a great boon to getting info without bias from the sales
    person. EG, NFC data from boxes of competing products to get the
    requirements / specifications sure beats asking Johnny Newhire for data
    he doesn’t possess. NFC at a restaurant could not only load the menu
    for review, but also the wait time. NFC is not solely about payment
    system alternatives.

    • benbajarin

      What can NFC do that can’t be done with an app and the Internet?

  • neutrino23

    Agreed. NFC is a solution in search of a problem. I don’t see it taking off.

  • mhikl

    “So without NFC, and no new infrastructure, Apple has integrated a simple and engaging experience as well as an opportunity to complete a transaction . . . deploying more of a “closed-loop” payment system using their trusted relationship with the consumer and iTunes as a gateway.”

    Crazy thought: If this works so painlessly for Apple, could this be some trojan horse to the future of fast transacting that Apple has in store for far and beyond its own roof? Is there intrigue afoot?

  • CJS

    First, as an engineer, when someone says “I can do it this way, I don’t need a new way” I know the person’s mind had already been made up. Why do you shut down – with a rhetorical question – two people below who are trying to engage your proposition?

    To answer your rhetorical question is easy – Internet access isn’t available everywhere. It’s actually a pretty long list of the places where one might not find access. Another possible answer is that maybe for the application in question, Internet access is overkill / not needed? Maybe it’s a local / private network / system / device use?

    Second, your opinion piece above – like so many that are anti-NFC – uses ONLY the example of payments to come to the conclusion that this technology is useless (or rather, too expensive / difficult to implement).

    But what I’d rather do is turn the question around this way: what does NFC offer? The most obvious feature is that it offers the “guarantee” (yes, there are no guarantees in life) that a specific device – with a specific identity – is in a certain place at a certain time. “Internet and an app” (or a QR code) can’t guarantee this. (Geo-fencing requires infrastructure too, and doesn’t guarantee the level of proximity NFC can. It is also involuntary – likely invisible to the device/identity – and passive. NFC *probably* would be applicable for an active/intended interaction).

    Now, what does this unique property enable?

    Discuss :^)

    • mhikl

      “First, as an engineer, when someone says “I can do it this way, I don’t need a new way” I know the person’s mind had already been made up.”

      I’m not an engineer but I often come to the same conclusion.

      Now, CJS, as an engineer, which side of the fence do you sit with regards to the 911 debate. 6 -:). But back to topic. Early adoption in financial affairs is not the easy road for most to take. Who knows, the whole idea might be beyond choice and usurped by implants.

    • benbajarin

      I have the Internet in my pocket everywhere I go. That plus an app in retail will be more useful than NFC any day in regards to the retailers agenda. Again, retailers are the customers for NFC not consumers. This is why as I stated that many retailers and more are just not interested because it does not solve a problem for them, and in fact it could make things worse for them.

  • Rich

    Ben, who is promoting NFC and what advantages do they claim for it?

    • steve_wildstrom

      The Near Field Communications Forum, http://www.nfc-forum.org/home/, is the standards and promotion body. Nokia has traditionally been the main driving force, though Google seems to be very much aboard.

  • jfutral

    There is only one issue with the “internet and app” philosophy. There are many stores that do no have clear internet access. I can think of four stores right now—my local grocery store, Target, Bed Bath and Beyond, Lowes—wireless with my cell phone is abysmal when it is even available. None of them have in store wifi.

    But I agree that NFC for the retailer is a solution looking for a problem. I think Mobile gas stations have had it for, what, over a decade with that little keychain wand? I think for the retailer the question has to be, will deploying such a solution mean more sales. I don’t think the answer is as resounding as the cheer leaders would like to think. Stew Leonard’s (a Connecticut grocery store), when holding focus groups with customers, when a customer used to make a suggestion, one of the first questions they would ask them is “If we did that, would you buy more?” That’s the ultimate point of anything in a store, separating the customer from their money.

    Personal contact is a serious point for consumer strategy. Even many grocery stores are ditching the self-serve check-outs. (Thankfully, not mine!). If a store is serious about sales, the amount of info an NFC point of contact will provide will be limited and probably direct you to a salesperson for more info.

    As wonderful as not carrying my wallet may sound, I don’t see that happening anytime soon. So, NFC is not really eliminating that.

    And in my area swiping cell phones from people at local cafes and restaurants and even _while they are using them_ walking down the street is too common for comfort to me to entrust my cell phone with purchasing power.

    Just some thoughts,
    Joe

    • steve_wildstrom

      For this to work, the store doesn’t have to provide it because the phone can reach the internet over WWAN. The store just has to have access for its point of sale terminals, and I think this describes most establishments.

      By the way, I think Mobil’s terminals and others like them used RFID technology rather than NFC.

      • jfutral

        If all we are talking about is using NFC for purchases (which is the predominant topic of conversation and articles). But since other uses have been brought up and I would imagine that “internet and an app” implies more uses than just purchase, someone has to supply that internet connection, whether via the carrier via 3g/LTE/WiMAX (which is what I was talking about being abysmal in many stores) or the store providing or hiring someone else to provide that service in order to work instore, right? Or am I missing what is meant by WWAN (wireless wide area network) which is entirely possible. I try to keep up but some things take me longer to catch up to than others.

        RFID, conceptually, is at least a form of NFC, though I am sure much more limited. But since a large part of the conversation IS about purchasing, it seems that would be an appropriate case study to see if “convenience” has paid off in an increase of sales.

        Someone else brought up credit cards. Wasn’t MasterCard trying to roll out some sort of NFC type “swipe” feature, wave the card in front of a small unit? Don’t most credit cards have some sort of NFC/RFID chip built in?Any news on how successful that/those has/have been? Is that part of the difficulty companies are having trying to coalesce around a common or central solution?

        Just seems if all we want out of NFC is purchasing power, then using one’s phone doesn’t seem to bring anything new and innovative to the table, not to mention the whole backend solution someone has to provide—Apple? the carriers, partner with a bank, a bank card?

        Joe