In June of 2011 I walked into a Best Buy in Omaha, Nebraska. I headed toward the video game section, found what I was looking for and walked up to the register where I was greeted by a teenage kid working the checkout line. He scanned my item, told me my total and I pulled my phone out of my pocket to pay. I tapped the device against the Near Field Communication (NFC) enabled terminal; it let out a beep, my phone chimed and the receipt kicked out of the printer.
I glanced up to see the look of pure shock as he yelled out “DID YOU JUST PAY WITH YOUR PHONE?” I replied “yes, I’m testing a….” in a quiet voice to try and calm him down….It didn’t work. He shouted out to all of his co-workers at the other terminals: “HEY GUYS….THIS DUDE JUST PAID WITH HIS PHONE!!” I had an early version of Google Wallet on my Sprint Nexus S and we were discreetly testing the application in locations where there were capable payment terminals.
The NFC Payment Eco-System
Since that time, I’ve used the Google Wallet application a number of times and the novelty still hasn’t worn off. People always look twice when I tap my phone and their register tells them that the transaction is complete. Unfortunately, that reaction is also a sign of the current success of the NFC Payment eco-system in the US….it’s still a work in progress.
There are really four components and one big rock that will determine the success or failure of NFC as a payment vehicle:
- Device Distribution – NFC technology is starting to find its way to devices in the US. While it’s not a standard feature quite yet, it’s definitely becoming one (at no small expense of the carriers’ subsidy budgets). Sprint has launched a handful of devices this year, all of which are Google Wallet Enabled….Verizon and AT&T have followed suit, but have blocked the app from running in favor of their joint venture (ISIS) which is still in market trial.
- Banks/Credit Companies – Cool….so your phone has an NFC chip in it and a fancy app capable of holding credit cards. You won’t see value in that unless the cards in YOUR wallet can be loaded into the app. Until last week, Google only had an agreement with Citibank & MasterCard to use their credit cards….but they made an update to the way Google Wallet works and now ANY card running on AmEx, Visa, MasterCard or Discover will work with the app!
- Merchants – Having a device that is NFC enabled and capable of making a payment is great, but only if you can do that somewhere. Google again has been driving this eco-system, helping large-scale merchants all over the US install terminals. Retailers like Macy’s, Peet’s Coffee, The Container Store, Radio Shack, McDonald’s, CVS and more have installed these terminals…with the major credit rail providers committing to move to NFC as they transition away from the magnetic strip currently found on all credit cards and point of sale systems.
- Offers – Arguably the most important part of the NFC payment eco-system. By going digital, your wallet is now internet enabled…. That should bring real customized, location aware offers and services tailored to your exact needs. Today, there are very few offers and they’re not targeted…customers still haven’t jumped into mobile couponing and companies like Groupon have started to show signs of jumping the shark.
Do we really have a payment problem?
All that being said….the industry is starting to ask the question: “Do we really have a payment problem?”
When you consider what NFC brings to the table…it’s not really overcoming a real customer challenge. In fact, the act of tapping your phone, typing in your security pin and selecting your payment card adds a lot more to the process than grabbing your wallet, pulling out your card and swiping. Paying may not be the problem at all….
In a new partnership formed last week, Starbucks announced that they will be rolling out the Square payment system in their retail stores and in turn, invested $25M in the start-up. Square got their start by giving away a little dongle that plugs into the headset jack of your smartphone…turning it into a magnetic card reader. Their vision for the future dumps the physical card all together, keeping your payment cards in the cloud and using your face as your identity.
They “get it.” Rather than just changing the way you pay with your card, they’re figuring out how to improve upon the entire shopping experience. Small, local merchants are already leading the charge by opting to turn a $500 iPad into a point of sale and encouraging customers to download the “Pay with Square” app on their smartphone (saving thousands on a similar capability in the traditional POS). Customers make their selections, and the merchant finds a picture of the customer standing in front of them to complete the transaction. No cash or cards are physically exchanged…the customer instantly has a digital copy of the transaction.
The Mobile Shopping Experience, Re-Imagined
Imagine your future Starbucks experience with this technology….. You pull into the parking lot of Starbucks and your smartphone instantly places an order for your favorite drink. You walk in the door, bypass the line and the friendly barista hands you your drink and says “thanks Erik, hope you have a great day.” No cash, no credit card and maybe Starbucks saves the 2% interchange fee by encouraging you to pull funds right out of your bank account rather than paying Visa.
You head over to Target and slide your phone into the holster on the shopping cart. Every item you grab produces an audible beep as you place it in your cart (your phone and every item in target has a small RFID chip in it). You look over at your phone and the Target app is keeping a running total of the items you’re “purchasing” and applying the coupons you “clipped” from the circular on your iPad at home. After finding what you need, you head straight to the door, bypassing the cash register while your phone charges your Target card (they’re a bank now by the way….)
You’re headed home and your phone buzzes at you….you’ve passed 3 grocery stores and the last one on the way home is at the next exit. Your wife told you to stop and get milk but you forgot again (some things don’t change…). She finally loaded the alert into your wallet with a coupon and your phone is going to go nuts if you pass the store (but not as crazy as your wife will be if you forget the milk again!).
NFC? Could be an element, but I expect Google and others to start thinking a lot bigger than that.