CHICAGO — Venture capital or private equity investors on occasion are willing to roll the dice, but more often they invest in companies showcasing concepts that have potential for a powerful first step in the marketplace.
They do not place Near Field Communication technology — or the mobile payments companies using it — in either category.
“It’s a big stab in the dark to invest in NFC, and I’m extremely skeptical about it,” says Matthew Witheiler, principal at Flybridge Capital Partners.
NFC contactless payments technology is still viewed by some in the financial services industry as the eventual driver of consumer adoption for mobile pay. But from a venture capitalist’s viewpoint, NFC still hasn’t made a significant move to the forefront of payments technology and, instead, is in a “fragmented” state because of the lack of mobile phone handsets with NFC chips, Witheiler says.
Several venture capitalists spoke about NFC’s potential while discussing what they look for in mobile payments companies here during this week’s 5th Mobile Contactless Payment Innovations Summit.
NFC definitely represents a significant technology opportunity, but not yet for payments, Witheiler adds. “We have not invested in any NFC companies at this time,” he says.
The payments investors agreed they cringed when recently reading that a Walmart executive said the retail giant wasn’t leaning toward supporting NFC technology at its stores.
Still, the Isis mobile wallet joint venture of AT&T, Verizon Wireless and T-Mobile USA plans to deploy NFC as its technology foundation, while also promising to bring several more NFC-enabled handsets into play.
In addition, the card brands encourage merchants to add NFC readers to their terminals at the same time they make the conversion to EMV smart-card readers, making it appear as only a matter of time before NFC has much more stable footing in payments.
But that’s still not enough to sway those who raise millions of dollars to support companies and technologies that promise to deliver a significant return on that investment.
“I know Isis is trying to launch with NFC, but we always ask ourselves if the telcos are really cooperating with each other or are they just being nice to each other about this, while working on the side to establish their own initiatives,” says Greg Tarr, partner with CrossPacific Capital.
In past experiences with joint ventures, CrossPacific Capital has found that “coalitions have a tendency to not work real well together,” Tarr says.
Tarr's company has invested in smaller NFC technology companies in Canada and Japan because “it was much easier because the governments in those countries supported the technology,” he says.
“I love our free market system here in the U.S., but it is not conducive to getting government support [behind a business initiative],” Tarr says.
For investors, it is far better to find a new company developing a technology that is going to hit the market fast and have an impact, rather than invest in a slow mover like NFC for payments, he says.
Nicolas Lopez, associate for enterprise corporate development and Best Buy Capital, wonders if Apple Inc.’s omission of an NFC chip in the new iPhone 5 “tells a story about the trend in the market leading away from NFC.”
“A year ago, NFC was a hot topic of debate, now we are still wondering where it is really going to go,” Lopez says.
Scott Ford, managing director of Open Air Equity Partners, said his company invested in Vivotech five years ago because of the potential of its NFC terminals. “We were really excited about it five years ago, but it [NFC progress] is still in the same place, so we don’t get too excited about what we hear about NFC now.”
The investors said their firms are more likely to invest in mobile payments companies “on the peripheral” of payments, such as those developing data security hardware and software, or companies focused on wireless technology development or involved in Big Data analytics.
The investors pointed to American Express Co. as a card brand that has been willing to support startups and new technologies with capital investments.
Joanna Lambert, senior vice president of strategy for American Express, says her company wants to stay close to startups developing payments technology, viewing such progress as “very exciting and a big benefit to the market in many ways.”
While startups can produce new technologies, the legacy companies such as American Express attempt to distinguish themselves with security and customer service. “That makes us a powerful partner to work with,” Lambert says.
As for NFC technology, Lambert says American Express continues to monitor its progress, since it has the potential to improve merchant interaction with the consumer.
“We are really focused on how we can best interact with the consumer shopping experience and all of its elements,” Lambert says.
“You want to build functionality around the transaction point to improve payments,” she adds.
American Express’ recent tiff with Google Inc. over its inclusion in the Google Wallet without prior permission has nothing to do with an unfavorable view of NFC being the engine behind the wallet.
“For us, it was more about wanting our customers to know about what kind of information might be shared,” Lambert says. “We don’t have an agreement with Google right now, but discussions are underway about how to work that out.”