Near Field Communication has been the burr in the saddle of emerging payments technology these past five years.
Though NFC-based mobile wallets would seem to be an easier and more secure way to make purchases than swiping a plastic card, the technology simply hasn't taken off in retail settings. Cost and complexity are factors, and the retailers' biggest efforts to control the state of mobile payments have either flopped or stalled.
Merchants haven't been enamored with the NFC process from the start, basically because they didn't have much say in the early deployment of the technology, said Mark Horwedel, CEO of the Merchant Advisory Group.
But the main concern now is that EMVCo, the chip and NFC standards group operated through the card brands, is taking the decision out of retailers' hands by calling for merchants to "honor all wallets," Horwedel said.
"If you take one wallet through NFC, you have to accept all of them," Horwedel added.
A wallet is different than a card, particularly because a company doesn't need to be a bank to design a mobile app, Horwedel added. "It would be like, for example, telling Walmart they have to take an Amazon wallet; and the informed merchants are not going to do that."
Early on, the merchants behind the CurrentC mobile wallet didn't want to give a competitor such as Apple Pay any ground. Companies like Best Buy initially refused to put in NFC acceptance at the point of sale, and Rite Aid even turned off NFC for all payment types, including contactless cards. Both companies have reversed their positions and now support NFC wallets.
The "honor all cards" paradigm that has helped Visa and MasterCard for more than a decade has now morphed into an "honor all devices" type of edict, said Steve Mott, principal of BetterBuyDesign, a Stamford, Conn.-based consulting firm.
The honor-all-cards rule requires merchants to accept all credit cards from a specific network, including premium reward cards that have higher card acceptance fees.
"I am afraid it is now turning into an honor all authentication methods edict," Mott said. "That's why Visa was quick to send a bulletin to merchants who were not accepting Apple Pay in saying if they were accepting Google Wallet or, at the time, Softcard, with NFC, they had to accept Apple Pay."
As such, NFC became a bargaining chip of sorts, enabling merchants to vote with their wallets (as the saying goes) to protest the assumption that they would be willing to bet their own money on supporting an unproven technology.
NFC will likely remain an issue for smaller merchants for some time, but the larger retailers should eventually be lured into it by card brands offering sweeter deals on transaction rates to do so, Mott said.
There is no doubt NFC makes transaction routing trickier for merchants, especially on debit cards. Without NFC, merchants can prompt for a PIN when a consumer inserts a debit card, which is a cheaper option for merchants.
With NFC debit, the terminals don't operate in that manner because each brand has its own contactless kernel rather than a single EMV kernel for debit cards. Due to that complexity, more NFC debit payments get routed over the signature debit networks, which carry pricing that favors the brands. If a merchant wants to control the POS and move more debit traffic to PIN, that merchant would opt not to turn on NFC at the terminal.
It also explains why members of Merchant Customer Exchange (including Walmart and Target) are supporting lower-cost options such as the ACH-based CurrentC wallet and Chase Pay, the latter of which offers a flat rate lower than the standard card rate for Chase cards.
"Some companies don't want to worry about all of the strings that go with NFC acceptance," Horwedel said. "If they do it themselves, they don't have to deal with network rules, don't have to deal with interchange and a lot of other things, and they can prompt people for less expensive ways to do payments."
Ultimately, merchants see the NFC landscape as one in which the card brands presume to pick the merchants' partners and vendors for them, Horwedel added.
"When you start putting chips on devices, and the power of those chips doubles every 18 months, people are going to be walking into stores with computer devices that can do all sorts of things we can't even imagine today," Horwedel said. "Merchants don't want to waive their rights to differentiate between those they want to accept and those they don't want."
Some in the industry view NFC as significant opportunity for merchants because it brings new security tools to the table, including biometrics, secure elements and tokenization.
It also is generally agreed that NFC has various other security benefits for hotels and college dorms, combining functions such as room access with payment capabilities.
But whatever the benefits, NFC has a history that is tough to ignore. Because some NFC mobile wallets use a virtual card account instead of the customer's own account to fund payments, there can be some confusion over how to handle payments and returns.
NFC also could not function smoothly within the context of many merchant loyalty programs, Horwedel said. For example, even though the payment is handled through NFC most retailers must still scan a bar code from a card or the phone's screen to access the customer's loyalty account.
Many of these problems could have been resolved if merchants had a stronger voice early in the process of NFC development and deployment, Horwedel said.
At some point, merchants will have to decide whether they can afford to cut out a big chunk of the population of Apple Pay and Samsung Pay users, said Larry Berlin, vice president with Chicago-based First Analysis Securities. "If that's where consumers are using their card credentials, merchants won't turn away from that."
Still, merchants make solid arguments about why they won't cozy up to NFC, Berlin added.
"Merchants are 100% right to say they were not involved enough in the technology creation process," Berlin said. "And there is no doubt that NFC caused routing problems and disrupted some merchant loyalty programs."
But, like any other technology, the hiccups get fixed and things move forward, Berlin said.
All of the questions and concerns will eventually be settled through consumer behavior, said Randy Vanderhoof, director of the EMV Migration Forum.
"Ultimately the consumers will vote with their mobile wallets and either the big box merchants will join the rest and accept NFC, or consumers will find some value from the non-NFC wallets that keeps them satisfied, such as coupons and offers, so both models live on," Vanderhoof said.