Near Field Communication technology has many detractors, yet it continues to advance as a mobile payments instrument. Banks should thus view NFC as an opportunity to ensure they stay relevant to customers' payments, according to a new Celent report.
Many banks remain uncertain about mobile technology, and are thus reluctant to invest heavily in NFC and risk "being relegated to the role of funding pipes," the report says.
Celent studied NFC implementations around the world for the past three years and conducted interviews with company executives and users of the technology in writing its report.
NFC chips and antennae provide a contactless, two-way communication payment system in card-emulation mode at the point of sale, and are a central component of some mobile wallets.
Criticisms of NFC range from the need for merchants to upgrade their hardware to lack of NFC phones available to consumers. In addition, NFC's complexity calls for partnerships between companies that have little history of working together successfully, the report states.
Too many NFC projects have been marred by delays and some have not advanced beyond pilot testing, the report adds. Further, Apple has yet to support NFC in any of its iPhone models.
Still, banks should at least include NFC in plans for mobile payment development that they can act on quickly as technology develops, says report author Zil Bareisis, a London-based senior analyst for Celent.
If banks are prepared to support NFC, they can talk up the technology's benefits to consumers.
"[Banks] would focus on the benefits of speed, payments guarantee, security, and the fact that customers always have their phone with them," Bareisis says. "At least in some markets, they can emphasize cost. In the U.K., contactless transactions are cheaper today than chip-and-PIN."
If banks remain a spectator in mobile payments, the mobile network operators will be the dominant players, the report states. The mobile carriers' Isis wallet serves as a key example in the U.S., with active tests taking place in Salt Lake City and Austin, Texas.
Celent's report doesn't vindicate the Isis or Google Wallet approaches, Bareisis says. Rather, it alerts banks and retailers that Google and Isis are "examples of early NFC implementations from which others can learn many relevant lessons."
For one, NFC tends to work faster than some other mobile payment methods such as QR codes, which are two-dimensional bar codes displayed on phones' screens, Bareisis says. "Also, for secure element-based implementations, you have hardware-based security with NFC," he adds.
Even though card networks in the U.S. seek NFC capabilities at the point of sale as part of ongoing migration to EMV-chip cards, vendors often encourage retailers to research cloud-based payments as an option.
"NFC technology and cloud can certainly co-exist, and NFC might well be used to trigger various services in the cloud," Bareisis says.
Digital wallets provided by SCVNGR's LevelUp and FIS/Paydiant are already equipped to work with different communication technologies, such as QR codes and NFC, the report says.
"But I agree that too many different options available to the merchant today is making it difficult for them to make decisions on how to move forward," Bareisis says.
NFC mobile payments can continue to gain steam if banks and technology companies introduce the technology in specific cities at restaurants and hotels, as well as within transportation systems, the report states.