By Álvaro J. Soltero, Content & Social Media Strategist, Leaf
One question has been in the back of all payments industry experts’ minds for the last 15 years or so: “What is coming after credit cards?” In the search to answer this question, all eyes were set on another industry: technology. In 2004, Nokia, Philips, and Sony established the NFC Forum and began shedding some light on the matter. Near Field Communication was not only new but also promising; many thought it to be the future of payments. Now, fast forward 10 years — plus all the innovations in other alternate forms of payments — and you’ll see we’re still asking ourselves the same question. NFC didn’t provide the answer. So, is it time to give up on it? To figure that out, we must first dive in a little deeper.
Other than transferring currency, in-person payment methods need to fill two general requirements: authentication of person and authentication of identity. The first refers to the presence of the person paying and his/her agreement to purchase a good. The second refers to making sure that the person purchasing the good is also the one actually making the payment. Credit cards fulfill these easily; they are handed to cashiers (authenticating the person) and have the individual’s name on them (authenticating identity). NFC and QR-code based LevelUp, for example, fulfill these requirements in a similar way to credit cards. Then there are other methods like PayPal’s check-in, which shows the cashier a picture and the name of the individual once the user has checked in on the device. What is the difference? Implementation.
The tech industry is known to move very quickly, yet in the 10 years that NFC has existed, we have seen limited NFC-enabled devices, few NFC-accepting terminals, and absolutely no mass deployments of the technology. Alternate payment technologies like the ones used by PayPal and LevelUp are simply easier to implement than NFC. What’s more, they do so without sacrificing PCI compliance. Mobile technology has changed the game — not due to the fact that they are mobile (NFC-enabled phones predate PayPal and LevelUp), but rather the openness and ability of new mobile operating systems. NFC was born by physically hitching a ride on credit cards, thus requiring access to hardware and technology that just isn’t open to startups (or anyone other than the card companies, for that matter). And even now that NFC is much more advanced, we’re still talking about NFC as something that must be built into the device! By contrast, anyone can develop on iOS and Android without any hardware prerequisites. This is what has allowed the startup community to catch up and outrun NFC not just in function, but also in innovation.
NFC really just replaces previous technology by doing the same thing and without adding any new features. This is critical; new players in the market knew they had to bring something new to the table in order to compete. LevelUp built its service around a loyalty program. PayPal Check-in runs on your PayPal account (with no need to establish a line of credit) and it works in addition to the already long list of features on PayPal’s app. Even startups like Coin, that really just consolidate all your cards into one, have more features and provide more convenience than NFC. To this list you can add other mobile wallets from Google, Lemon Wallet, and the mysterious Clinkle. The time when NFC was considered innovative has long passed.
That being said, NFC isn’t worthless. Yes, it has been much more of a means to an end than the end itself, but we must all admit that NFC was the catalyst that paved the way for innovation in payments. Regardless, NFC will stick around for a bit, mostly because big credit card companies are championing it. This is fine. I say let them mass-deploy NFC and allow it to really compete with all other mobile wallets in the field. Eventually, however, the consumers are the ones who will decide. And consumers will go for the most convenient option with the best added value (say, loyalty or a unique consumer-merchant connection, for example), a competition that NFC — as it stands — cannot win. That’s why I’m giving up on NFC.
Álvaro J. Soltero is the content and social media strategist at Leaf, a mobile POS and cloud business management startup based in Cambridge, MA. Soltero writes weekly about small business management, payments, and technology for Leaf’s blog and contributes to various other publications. You can follow him on Twitter as @ajsoltero or check out Leaf’s blog here.