NFC Adoption in Retail

What is NFC all about?

Near Field Communications (NFC) is a short-range low power wireless technology, which allows the interactions between two devices, one of which is typically a smartphone, across a 4cm distance. NFC has many similarities to Bluetooth but several features such as greater reliability make it more appropriate for mobile payments usage. NFC has suffered from years of being over hyped but now it appears to be the time for retailers to seriously evaluate its potential.

NFC can be used in three formats

Card Emulation mode - where it represents a credit or debit card

Read/Write mode - to read tags embedded in posters or displays

Peer to peer - two NFC phones working together

Market readiness for NFC?

All the leading smartphone manufacturers, with over 275 models available, are supporting NFC and one billion handsets have so far been shipped worldwide. Two out of every five POS terminals shipped worldwide in 2014 included NFC support and 70% of global POS terminals are forecast to be NFC ready by 2019. As a result of the wide scale market support for contactless bankcards, the UK is expected to be one of the earliest adopters of NFC within retail.

Why are retailers adopting NFC?

Mobile payment is a key use case for NFC technology but this is not the only reason why retailers should consider adoption. Merchants can use NFC to offer a range of in-store services, loyalty programs, digital coupons, extended product info, marketing campaigns and to perform customer authentication. It is particularly suited to allowing consumer access to additional product details, add-on consumables, product videos and to check inventory levels. Consumers appear to like the simplicity and fast times available from NFC transactions.

NFC and mobile payments

UK consumers are starting to fall in love with their contactless bank cards making 319 million transactions in 2014, that is 10 transactions every second. These UK contactless transactions are worth £2.32 billion. NFC allows customers to pay by simply touching their smartphone to a contactless POS reader. No need for them to have their physical card with them, or take a card out of a purse/wallet.

ApplePay which launched in the US in 2014, with an amazing 1 million cards being added within the first 72 hours, and expected to come to Europe in 2015 uses NFC for its payments processing experience. Additionally, NFC technology has been selected by Zapp to power their new national UK payments system. UK retailer support for NFC will allow them to accept Zapp and ApplePay transactions.  The planned UK increase in contactless transaction limit to £30 in September 2015 will further fuel transaction volumes. Plus, Visa payWave and MasterCard Mobile PayPass standards now allow High Value contactless transactions to be performed using an NFC phone to provide additional authentication.

Two recent surveys revealed that 92% of UK mobile users expected to make a mobile payment in 2015 and that mobile proximity payments at a physical POS using a mobile device will total $54 billion by 2019.

Our NFC Strategy

Here at STS we are excited by the potential of NFC technology for retailers. We see it as having wide scale use for mobile payments as well as for other in-store marketing services. As a long-term advocate of contactless payments, with our products powering the UK’s first national contactless rollout, we are ready for NFC. Our G8 products and plug-ins already support NFC payments using the card emulation mode. We have also invested in extending Touchlink to support High Value contactless transactions. These allow an NFC phone to provide additional consumer authentication.

Indeed many of our retail customers are performing significant NFC transaction volumes without any official launch. We think that NFC will help accelerate the installation of contactless/NFC readers by retailers at the POS.  In conclusion we believe that the timing is right for retailers to introduce NFC services. We look forward to working closely with our partners and customers on NFC projects.

Sources include: Berg Insights, Javelin Strategy and Research, Oxygen8 and UK Cards Association.

Wednesday, May 27, 2015