The likelihood that near-field communication (NFC) will take off as an in-store mobile payments technology is still far from certain, but if it fails it won't be for lack of NFC-enabled phones.
- In 2013, 275 million mobile phones with NFC chips were shipped, according to research firm IHS.
- Shipments are expected to increase by over 50% this year, rising to 416 million.
- From 2014 on, the number NFC-enabled mobile phone shipments will grow at a compound annual growth rate of nearly 30%, to reach 1.1 billion shipments in 2018.
We've predicted that NFC is unlikely to take off as a payments technology because it still requires users to place their phones within inches of an NFC scanner in order to transact payments, and that doesn't add much value over the ingrained consumer behavior of using payment cards and cash. Instead, we think technologies like Bluetooth Low Energy are more likely to become the standard communication frequency for smartphone payments.
But NFC is showing some signs that the battle isn't over yet. The major payment card networks are pushing retailers to switch over to new EMV, or "chip card," terminals and these terminals usually accept NFC contactless payments in addition to chip cards. This means there are going to be lots of phones with NFC chips and lots of payment terminals that can read them.
Since achieving ubiquity on both the consumer and merchant side has been one of the biggest hurdles to getting mobile payments off the ground, this is going to be a major NFC advantage.
In addition, the latest version of Android includes a feature called host card emulation (HCE) which makes it easier for developers to create NFC-based mobile wallets as well. Prior to HCE, NFC-based mobile wallets needed access to a specific piece of hardware in mobile phones called the Secure Element (SE). Mobile operators typically control access to the SE and since many offer their own mobile wallets, they have a vested interest in limiting access to the SE. As we noted in a recent Payments Insider, HCE has even led PayPal to reconsider its bearish stance on NFC.
Taken together, NFC's prospects for shepherding the mobile payments future are suddenly looking much brighter.
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