Why NFC is Irrelevant To the Mass Market

on September 13, 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.