I’ve long pooh-poohed the Near Field Communications, or NFC, style of mobile payments. There aren’t enough smartphones with NFC chips on the market, no less in consumers’ hands. Merchants have to make significant investments in upgrading their point-of-sale terminals with ones that can read NFC chips. And the mobile wallet market is severely fragmented—you can’t swing a dead cat without hitting a mobile wallet. One payments expert tells me he follows 50. There are too many players craving a piece of a pie that has yet to be baked.
The Android-only Isis finally launched last October in Salt Lake City and Austin, Texas. Consumers can use NFC-enabled smartphones from AT&T Mobility, T-Mobile USA or Verizon Wireless to make tap-and-go transactions at participating merchants in those two cities. This has been the highest-profile NFC test in the U.S., and it hasn’t been fostering any NFC momentum.
But two powerful companies just announced a new development that could really push NFC-based mobile payments forward. Samsung, the No. 1 smartphone maker, has partnered with Visa, the card king, to promote mobile payments. Beginning this Thursday, March 14, all newly manufactured Samsung smartphones equipped with NFC chips will come with the Visa payWave app embedded on the device. On Thursday, Samsung is expected to debut the latest in its Galaxy line of smartphones.
Samsung sold 385 million smartphones worldwide in 2012, research firm Gartner says, which positions it nicely to sell a heck of a lot of NFC-equipped phones with payWave in 2013. Visa PayWave can be accepted at 250,000 merchant locations across the U.S., Visa says, including select CVS, Walgreens and Whole Foods locations.
The agreement opens up Samsung smartphones to any financial institution prepared to offer brand of payment card for mobile payments, thanks to Visa making available its mobile provisioning service, that is, the way the consumer activates her account. With a conventional plastic credit or debit card, a bank sends a consumer her new card through the mail, and the consumer is required to phone the bank and answer some challenge questions to authenticate herself and activate the card.
Through Visa’s mobile provisioning service, a financial institution can securely download onto the smartphone’s NFC chip a consumer’s payment account information required to make a transaction. The consumer will face a few challenge questions to authenticate, and once cleared, the phone is ready for tap-and-pay purchasing. Visa holds the electronic “keys” to the chip. It is unclear if Visa will charge for access; Visa will only say that the business model has yet to be determined. Visa says financial arrangements for mobile payments are up to the financial institution, the wireless carrier and Samsung.
Visa gets a preferred status by having its app pre-loaded onto the Samsung smartphones, while other banks can add other cards of any brand. Visa describes itself as the technology enabler in the middle that’s removing obstacles to making mobile payments scalable.
“Both Samsung and Visa are committed to NFC and we would expect them to put effort and marketing muscle behind making consumers aware of the potential benefits that NFC payments can bring,” says Eden Zoller, consumer analyst at technology research and consulting firm Ovum. These benefits include mobile coupons and offers, not just mobile payments. “This is desperately needed as for most consumers, mobile payments—let alone NFC—is simply not on their radar.”
While wireless carriers, banks and technology vendors compete to get their mobile payments systems to become dominant, a move by the most popular smartphone maker and the most popular card brand to put an NFC-based mobile wallet right in the hands of millions of U.S. consumers could really make an impact. What I think will really push things forward is if the leader in mobile innovation, Apple Inc., includes an NFC chip in the iPhone. Apple is the trendsetter, and it’s been noticeably absent from the NFC market. Apple has a mobile wallet in Passbook, now all it needs is the NFC technology to make mobile purchases as easy as whipping out a credit card. Once merchants start seeing more NFC-enabled smartphones on the market, they will be more likely to upgrade their payment terminals to NFC technology.
You can bet a lot of mobile wallet players are crying over the Visa/Samsung deal, wishing they were the ones being embedded onto the popular smartphones. But maybe some of these players have deals brewing. I wouldn’t be surprised. Visa and Samsung show how to do NFC-based mobile payments right: Partner with a smartphone maker and make a mobile wallet a standard feature.
All of this, mind you, still leaves the biggest hurdle: consumer interest. It’s still so easy to just pull out a payment card and have it swiped. Why use a smartphone instead? But mobile payments players like Square and Starbucks are showing that when consumers are educated and provided with the right tools, many consumers will choose to pay with their smartphone. And many mobile wallet players will point to mobile coupons and offers as an incentive for consumers to use mobile payments.
I still think we’re many years away from NFC-based mobile payments gaining serious ground. But deals like the one between Visa and Samsung bring things a little bit closer.