Monday, August 16, 2010

NFC needs EZ-Pass Moments

EZ-Pass is a service offered by Department of Transportation’s across the northeast United States. It is essentially a small white box which via wireless communications can read when a car passes a toll area and charges the driver accordingly. It is offered by other DOT’s across the US under different names. This allows drivers to essentially move past toll areas very quickly without typically waiting in long lines. The EZ-Pass moment is when a driver is waiting in line for a toll watches other cars whiz by without stopping. At that moment the driver says to himself, “I need to do what those people are doing because I do not want to wait in line for a half hour”. This EZ-Pass moment was allowed to happen because people do not want to wait in lines and the DOT saves and makes money using this technology.

NFC (Near Field Communication) is a technology which allows cell phone users to make contactless payments via their cell phone. So far this technology has not taken off because there are not NFC transmitters in cell phones with the exception of a very few models and there are almost no NFC readers to make purchases with a cell phone. The reason for this lack of adoption is that the major players in the value chain (wireless carriers, banks, and credit card companies) cannot agree on payouts or implementations of the system. There is also some disagreement whether this is enough advancement to warrant the overall investment in this strategy. This situation has changed somewhat by the announcement by Verizon Wireless, AT&T, Barclays Bank, and Discover Card to create a joint venture and do trials with NFC. Three of largest and most well know credit card companies Visa, Master Card, and American Express did not participate. Still there is enough capability in the current JV to create an opportunity for NFC. Success in the opportunity depends on customers, merchants, credit card companies, and banks to have what amounts to NFC moments. Moments like when the cell phone user says to himself or herself, “I really need to use the cell phone to buy this because it makes life so much easier or it saves me money”.

Here are some NFC Moments:

1. “I do not have to carry this big purse around when I want to run to the store, go out on the town, or go to a business meeting” NFC essentially frees women from carrying around a purse or wallet.

2. “I do not have to run back to my car to fill up the parking meter so I do not get a huge parking fine” NFC allows the user to make contactless payment at a parking kiosk and by inputting their phone number can allow the parking authority to send them a text to extend their parking time or warn them that their time is up. This can be done via SMS as well, but many municipalities use kiosk in their parking areas and using kiosks allows people to be billed via their credit or debit accounts rather than their wireless carrier via premium SMS.

3. “I can get more people into my store via discounts and deals, tell them how much they have saved and say thank you” NFC when used with SMS, or applications can allow people to store coupons and discounts on their phone and in the store’s back end systems. These coupons can be redeemed via NFC in a unified experience over the phone. When customers make their purchase the store can tell them how much they saved and thank them with a message on the phone. Redemption of coupons originated from cell phone has been tried via loyalty cards at point of sale but this method has not gained mass appeal.

4. “I can set up my own loyalty and discount programs associated with my branded charge account or my customer's debit account” Department stores who want to cater to younger people who live by their cell phones can allow them to use their bank accounts via PayPal or other intermediaries to pay for items. Or the NFC payment can debit the customer's charge account with the store.

5. “I don’t have pay 3% to a check cashing agency, I can have a bank account like everyone else, someone can help me keep a budget, and maybe make some interest.” There is a good percentage of the population that is unbanked in the US. They do not have access to the benefits of banking services. These services are offered in 3rd world countries and can be offered in the US via NFC. The added benefit to merchants with NFC terminals that cater to this group is that they will attract more customers. People used to cash their paycheck at bars, and typically they would stay around a buy a few drinks. The same principal applies to convenience stores, supermarkets and drug stores.

6. “My company does not have worry about the fraud issues associated with magnetic stripes” For credit card companies fraud can happen when criminals handle cards as well as put false magnetic strips in terminals. Contactless payment avoids this.

7. “I do not have to miss the train waiting in line for a ticket or token” With NFC the phone becomes an automatic contactless swipe card. A user can automatically pay for train or bus service when they use them. For the transportation authority they can issue less magnetic strip cards, or tokens.

8. “I do not have to wait in long lines at the store” Bar scanning lines can be set up for items and NFC can be the payment method. It will be quicker than inserting cash into the automatic register and safer and quicker than swiping a card. Bar scanning lines are currently being done by Home Depot and some grocery stores with credit cards, debit cards and cash payments.

9. “I do have to pay credit card fees as a small business owner” Small merchants and their customer can exchange funds via their cell phones and receive confirmation via NFC without using a credit card. This is similar to the bump service offered by PayPal.

From my list there are a number of payment systems already in existence that offer contactless transfer of money. What NFC can offer is a standardized method of doing these various payments so they can be used by most phone operating systems, and understood by most people. Interoperability and usability are often the key to mass market adoption.

For NFC to evolve the wireless carriers need to be the first on-board as they typically decide what technology is on a phone. They get the benefit of having the phone as a doubly important item in people’s lives, as a communications device and as a payments device. But they should also expect some type of transactional benefit for investing in the NFC technology and subsidizing the phone.

There are a number of parties who can benefit from NFC: consumers who get a better shopping experience and save money, merchants who want to create more loyalty with customers and want to provide a better shopping experience, transportation authorities who want to save on costs, credit card companies who want to avoid fraud, and the unbanked who want the benefit of banking services. The crucial point is the merchant, customer shopping relationship. If merchants believe they can get more people into their stores and get them to spend more using NFC, and if the consumer values the benefits in cost and time savings of NFC, then it can be a successful service. What moves the process along are the NFC moments.

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