When Should You Invest in the Smartphone Replacing the Credit Card? © 2011 Tina Whitfield

In this post we provide several recommendations to enable the opportunity available from the action of combining NFC intelligence with that of  smartphone LBS sales apps.  We provide historical context, analysis of present challenges, and our recommendations.

Action:                 NFC combines with mobile devices and location-served ads

Opportunity:        Mobile devices  become practical vehicle for paying  for purchases

Synopsis:   The combination of NFC for contactless payments, mobile devices, and location apps serving retail coupons is trending upwards with the B2B financial supply chain. ISIS – an AT&T, T-Mobile and Verizon joint venture is a new competitor.  VISA, KPN, American Express, Qualcomm, and Sony Ericsson have been exploring solutions for years.

Historical Context:   The protection of intellectual property is the greatest obstacle hindering development of a practical solution.  Wireless OEMs including Qualcomm, Intel, and Nokia continue to pursue mobile payment solutions, however, these companies have not shared their intellectual property with the consortium of banks asking for freely shared contributions of knowledge for exploratory committees to leverage.

Additionally, mobile operators fronted by their retail divisions and backed up by their credit authorization and loan divisions can be considered an a-typical financial institution in a closed market because they sell the product and finance its purchase.  Further, mobile operators are determined to capture the lion’s share of revenue from the mobile payments market and to do this they are reducing the control of banks and OEMs.

Analytical Summary:  Solutions pushed to consumers will not guarantee adoption no matter how abundant the rhetoric is for educating consumers.  If a consumer wants to use a solution, they will learn how to do so.

While the present combination of payments, devices, and ads provides a useful solution, until there is a breakthrough moment to capture the When Tools are Not Market Readyimagination of consumers, mobile payments will continue to stall.  NFC contactless payments + handheld mobile devices + location served ads + breakthrough moment = the launch of the critical consumption era.  Recent breakthrough moments: Target is repositioning itself as a competitor to Nordstrom and Macy’s.  Target offered an online sale of apparel and goods by designer Missoni for a single day at hundreds and thousands of dollars less than the customary retail pricing for these items at Nordstrom.  Two hours after the sale launched, consumers crashed Target.com.  All 400 pieces were soldout soon afterwards.  This sale enhanced the quality of its own brand.  Other breakthroughs come to mind – Egypt and the rise of Twitter; iPhone  touch screen + TV ads = the rise of mobile apps; music videos and the rise of Madonna; and Netscape and the rise of Internet access.

While device support and supplier interoperability will improve, it will be at least two years before the industry obtains the necessary alignment for mass adoption.  Further, a universal business model cannot be established without the buy-in of major retailers.  Retailers as an industry need to adopt a common approach to accepting payment through the mobile device.   Finally, security fears are the greatest deterrent to consumer adoption of mobile devices as payment vehicles.  Present security fears include hacking personal information that is local and in the cloud, loss of device leaving a person stranded without access to cash and the ability to purchase, mobile broadband connection drops/disconnects, and  infrastructure breaks at both the retailer and the bank.

Recommendation: Proceed with caution and evaluate  the return on investment thoroughly before pursuing any course of action  in favor of supporting a mobile payment solution until interoperability with retailers is set and mass marketing of a singular ‘brand message on security’ is adopted by all stakeholders.  The messaging I advise for those stakeholders  is along the lines of “Select any of these services [x, y, z] because the NFC Payment Interoperability Commission ensures transaction safety.”  But first, such a commission needs to be established.

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