Prepare for the NFC-Enabled Consumer Now

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Prepare for the NFC-Enabled Consumer Now

By Leslie Hand, IDC Retail Insights - 03/02/2012

Near Field Communication (NFC) is moving out of the realm of the hypothetical into the realm of reality for retailers. As a result, it is now necessary for retailers to prepare to capitalize on NFC-enabled technology. I am speaking specifically about the variety of new ways retailers will be able to interact with consumers, when the consumer has a mobile device at their disposal that can communicate with signs, devices and other objects because of the NFC capabilities embedded in the phones.

Don't panic. This is a call to prepare -- not to have a fully baked or fully implemented capability -- for NFC, although in some cases, the latter may be the right thing to do.

For now, I will just present evidence that should convince you it is time to embrace NFC. I will not get into a lot of depth around how to prepare, but I will say that the first step requires considering the opportunities to engage consumers with NFC-enabled capabilities including wallet, payments, coupons, product information, loyalty programs and offers.

Retailers need to assess the required technologies and integration points. A key question may be whether the next iteration of payment terminal acquisition should be NFC enabled, because let's face it, they don't get replaced often.

NFC Adoption Dependency Factors
The following are the factors that contribute to the availability and adoption patterns in the U.S. market for NFC-enabled capabilities:

Consumer adoption of NFC -- Questions regarding consumer interest in NFC are raised continually. My belief is the current pace of adoption of smartphones and smartphone applications is a great indicator that consumers will rapidly adopt the full spectrum of NFC-enabled capabilities. Swiping your phone to get offers or to pay for things will certainly be a very cool thing to do, for the so inclined. Other capabilities including mobile check-in, coupon management and product information/warranty look-up are shoo-ins for rapid adoption because of the customer benefits. While I have not performed a consumer-based survey regarding expected adoption rates, the studies I have read indicate, on average, more than 50 percent of consumers are now willing to use their mobile phone as a wallet. Most of the hesitation is due to privacy and security concerns.

  • • Retail readiness -- Investing in NFC-enabled payment terminals is very expensive and thus, we advise upgrades be made in the course of their regular replacement cycles. NFC-enabled terminals saw a surge in sales last year, and we expect this trend to continue. Forty thousand NFC enabled terminals have been deployed already.
  • NFC-enabled debit/credit cards -- These are somewhat mythical in my mind because bank issued cards have really only been issued in limited numbers. Banks are now making commitments to NFC. Citigroup announced the launch of EMV-compliant (Europay, MasterCard, Visa) smartcards earlier this year, and Visa announced incentives toward moving to EMV. At a recent conference, a colleague in our IDC Financial Insights group hosted panelists from Citigroup, US Bank, Bank of America and Wells Fargo, who all generally agreed that the past year had brought a sea-change in thinking on mobile payments.
  • Carrier support of NFC -- The cell phone carriers would love to capitalize on the plethora of service opportunities NFC-enabled phones present, but of course, any retailer will tell you they will not bear additional fees for this service. Thus the creation of Isis, a joint venture between Verizon Wireless, AT&T Inc. and T-Mobile USA, which have invested more than $100 million to establish a network by which consumers can securely make payments, store and present loyalty cards, and redeem offers at participating merchants with the tap of their phones.
  • Cell phone manufacturers -- The fact that a broad array of cell phone manufacturers has made announcements regarding their intent to make NFC-enabled phones is significant, because all of the hypothesizing about the future of NFC capabilities is meaningless without real devices that bring things like mobile wallet, check-in and offers to life. As of this writing, the only NFC-enabled phone widely available in the United States is the Samsung Nexus S, but reports from Research In Motion, HTC, Nokia, Motorola Mobility, LG, SamsungMobile and Sony Ericsson indicate we should expect others soon.
  • The role of alternative payment and wallet schemes, including Google and PayPal -- Google Inc. and PayPal are also playing very significant roles in driving NFC adoption, as both companies have developed wallet and payment capabilities. Google's NFC-enabled mobile wallet can be used to make payments, replace loyalty cards and as a coupon delivery, management and redemption tool. Google has lined up retail participants, banks and cell phone manufacturers, and the application is live. It has also lined up banks and cell phone manufacturers. In my opinion, the single most-important factor in why Google will drive NFC-enabled cell phone/capabilities adoption is: they have acquired Motorola mobility, a successful provider of Android- and Microsoft-powered smartphones.

When the consumer realizes the associated benefits of an electronic wallet, they will look for NFC-enabled capabilities. NFC-enabled payments are probably not the draw, but will be an inevitable capability in a consumer's digital wallet. NFC press isn't new, but real signs of technological progress and readiness are. The current state of this complex ecosystem is a strong indicator that we are at the cusp of significant adoption.

As research director, Leslie Hand provides fact-based research and analysis for IDC Retail Insights' Supply Chain, Merchandising and Demand Management service. She also provides thought leadership on Sustainability, IT for Green and RFID. In her 25-plus years in retail information technology, she has guided strategy, development and implementation efforts in supply chain, demand planning, merchandising, point-of-sale (POS), integration and retail back-office applications in a variety of segments, including grocery, drugstore and specialty retail.