Nalini Muppala

Analysis, observations, perspectives on mobile space

Near Field Communication: Outlook (Part 6)

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NFC: Outlook

For a new technology to gain a foothold, it needs to be mature and enable scenarios that improve the user’s work flow, lifestyle, or both. Consistency, ease of use and reliability are essential for a new technology to take off. Winning trust is essential when money is involved. NFC, by its nature, is set to deliver on the ease-of-use aspect. Trust will be addressed by the security elements in hardware. Consistency and reliability are where there tend to be issues. NFC forum plans to address such issues by establishing core specifications that devices should adhere to. However, the compliance/certification program promised for Q3 2010 covers just the basics, and much is left to be done in 2011 – this could mean NFC could be waiting in the wings a little longer.

Unlike with cameras, Web on mobile, WLAN, and Bluetooth, it is not enough to start NFC deployment at the high end (think smartphones) and have it trickle down to the rest of the lineup. Smartphones comprise just 15% of all phones sold. The increased utility of a NFC-enabled phone is proportional to the diversity of the ecosystem. The ecosystem will evolve faster if more users can participate. For the NFC trend to have the maximum impact, deployment of NFC has to happen concurrently across the device lineup. It would be in the best interests of everyone to add NFC for mid-range and feature phones, if not for low-cost phones, immediately. The success of NFC hinges on a wider availability of such devices.

Most users carry multiple payment cards and prefer use different cards for different purposes and situations. A phone with NFC could replace multiple cards. For the first time, payment options from competing financial institutions would need to work out a way to coexist in a single device.

It is clear that for NFC in phones to succeed, it should enable use cases other than payment and ticketing. It is easiest for mobile phone vendors to justify adding NFC to phones as a small increase to production cost than it is for MNOs or financial institutions to invest in the infrastructure. Phone manufacturers can wait for a model year before they see the benefits of NFC; for MNOs and financial institutions, NFC investment is a discrete expense and needs to be accountable.

Just as MNOs are looking at NFC as a means to add value, vendors of standalone devices such as digital cameras should add NFC to keep their wares attractive and to stay competitive.

NFC will add to convenience in high-income countries. It will empower users in low-income countries without a formal credit system, especially the unbanked and under-banked population. Phone banking has been successful in such communities, and NFC will make transactions easier.

Mobile network operators (MNO) are still the gatekeepers of devices. Handset vendors’ attempts to reach consumers directly have met with little success. Case in point: Google sold Nexus One directly and withdrew completely within few months. Nokia has been trying to sell directly in the U.S. market and has very low penetration compared to its worldwide share. Prior to the current renewed interest, NFC phones received lukewarm reception at MNOs, partly because MNOs did not see a clear business case. MNOs now want a share of interchange revenue (payment processing fees) that Visa, MasterCard and their ilk have been making billions on. MNOs also see revenue potential in services like advertising, marketing, and coupon delivery. Such strong interest of MNOs is a considerable tailwind for NFC.

As contactless payment gathers steam, it has attracted increased scrutiny from regulators and consumer rights advocates, adding to troubles for NFC.

If and when it takes off, NFC would lead to people being even more engrossed with their phones – more staring at the phone for information about the next train or bus than asking a fellow passenger and starting a conversation. This is not necessarily a good thing.

Pilots programs underway to get consumers used to the idea of paying with a mobile phone use bridge technologies such as contactless stickers, add-on sleeves, and microSD cards. These could prevail longer than intended if use cases beyond payment are not realized. Such bridge technologies could become bridges to nowhere for NFC.

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Written by Nalini Kumar Muppala

October 14, 2010 at 4:00 am

Posted in NFC, Strategy

Tagged with ,

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