It appears Near Field Communication payment technology is on the verge of coming into its own — at least in terms of its availability, though not necessarily in consumer adoption.
Alliance Business Intelligence Inc. says its recent research indicates up to 285 million NFC-enabled devices will be shipped worldwide in 2013.
The estimated total for 2013, which includes handsets, tablets, PC accessories and gaming consoles, will represent a significant boost over what is expected by the end of 2012, fueled mostly by NFC handset increases, the Oyster Bay, N.Y.-based research firm says.
ABI reports that total NFC-enabled handsets shipped will grow to 102 million by the end of 2012, a 27% increase over 80 million in 2011.
Even more telling, ABI looks into its technology crystal ball and predicts nearly 2 billion NFC devices will be shipped in 2017. The majority of the devices will again be mobile phone handsets, but up to 395 million of them will be consumer electronic devices using NFC to pair devices, exchange data or complete online authentication, ABI says.
But the dramatic increase in devices doesn't equate to NFC winning the technology battle in the mobile payments arena, says ABI researcher Phil Sealy.
"You have to be very wary of saying the number of devices equates to users," Sealy says. "If 102 million handsets have NFC, there are not really 102 million users," he adds.
The ABI research, conducted over the past year through interviews with contactless technology vendors and manufacturers' shipment data, focuses on the technology behind NFC development, rather than as a way to predict consumer adoption, Sealy says.
"At ABI, we research the devices and the integrated circuit, not transaction-spend data," Sealy says. "But I would certainly think the increase in NFC devices would have a positive effect on its use in mobile payments," he adds.
The future of NFC in payments represents an interesting case study, mostly because of the politics behind who controls what in the traditional payment scheme, Sealy says.
"Banks don't want to lose control of anything that generates revenue in the payments system," Sealy says. "It makes me very unsure at this stage as to whether NFC would eventually win out over other payment technologies."
The main issue for banks is seeking ownership of the NFC secure element, which the mobile network operators traditionally control, Sealy says. "Banks would have to agree on a standard approach, one allowing full control over the secure element, and I don't see that kind of standardization happening," he adds.
Not all companies are keen to store payment data in the NFC chip's secure element. In August, Google Inc. switched to the cloud for data storage in its Google Wallet to make it easier for banks and consumers to add cards.
While a recent trend of developers creating multiple-owner secure elements or stand-alone embedded solutions in handsets bodes well for NFC expansion, it doesn't necessarily equate to a boost for its payments potential, Sealy says.
More likely, banks would move toward providing customers with NFC-enabled handset sleeves because they would control the secure elements on such devices, Sealy says.
However, in the future NFC developers may place multiple secure elements in a handset or device, which would allow the mobile network operator ownership of the embedded secure element and the banks ownership of a microSD chip, Sealy says.
"NFC is showing more success than we previously expected, and there has been a great uptake in use of the embedded secure element, as we are seeing a shift in the NFC controller and secure element being in one integrated circuit," he says.
NFC may still have an uphill climb in the payments world, says Brian Riley, senior research director and analyst with Needham, Mass.-based CEB TowerGroup.
"The whole payments industry is not going to go in the same direction to give NFC some uplift," Riley says. "There is no question about its 'cool factor,' but the market really has to define its future."
The payments industry is always reminded that NFC didn't appeal to Apple Inc., a significant technology player, Riley says. Though many expected Apple to add NFC technology to its latest iPhone, the iPhone 5 instead introduced a software-based mobile wallet called Passbook.
However, the card networks have tied NFC acceptance at terminals to their EMV adoption timetables as a way to give the technology a boost amongst merchants and consumers, Riley says.
"The card brands saw they could be in a vulnerable position [if NFC payments took hold and they were not behind it]," Riley adds.
ABI estimates that 90% of device manufacturers currently offer at least one NFC-enabled handset for commercial purchase. In addition, NFC will expand because technology developers continue to produce tablets and create functions for increased NFC interaction with PCs, ABI says.
Nintendo included an NFC reader in the tablet-like controller for its new Wii U console, though the game company has not yet indicated whether it would use the technology to accept payments.